ASC 606 Revenue Recognition
Real Talk About Revenue Recognition
As industries, businesses, and organizations have evolved, the Financial Accounting Standards Board has recognized the need to remove inconsistencies and weaknesses in existing revenue requirements and provide a more robust framework for addressing revenue issues. Revenue pronouncement (ASC 606) represents the most significant change in accounting literature in decades and completely transforms how revenue is recognized.Streamline Your Revenue Recognition Process
Revenue recognition may be one of the most critical accounting principles for your company, but it doesn't have to leave you scratching your head. Let GBQ's revenue recognition professionals provide the peace of mind necessary to empower ongoing business growth by ensuring that your organization's financial statements are solid.
Demystifying Revenue Recognition
ASC 606 Revenue from Contracts with Customers (ASC 606) is the Financial Accounting Standards Board's answer to removing inconsistencies and weaknesses in revenue requirements while providing a more robust framework for addressing revenue issues. The standard also impacts the accounting for contract costs, gross vs. net revenue reporting, warranties, licensing, rights of return, and consignment arrangements, among other facets. Our framework establishes a five-step process.
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1. Identify the contract with a customer
- Contracts: Can be written, oral, or implied by customary business practices, and multiple contracts can be combined if certain criteria are met.
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2. Identify performance obligations (promises) in the contract
- Performance Obligations: Companies must establish processes to identify and monitor those activities that provide standalone “benefit” to customers.
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3. Determine the transaction price
- Transaction Price: Variable consideration must be estimated at inception and impacts the accounting for discounts, rebates, refunds, credits, concessions, incentives, performance bonuses, penalties, and contingent payments, among other topics.
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4. Allocate the transaction process to the performance obligations
- Allocation: Companies are required to estimate hypothetical “stand-alone” selling prices for bundled arrangements with multiple performance obligations, which may involve significant judgment.
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5. Recognize revenue as performance obligations are satisfied
- Disclosure: Includes information regarding disaggregation of revenue, contract assets and liabilities, performance obligations, transaction price (including allocation), and cost capitalization, among others.
GBQ's Approach To Revenue Recognition
A Complete Understanding
Our team will assess your existing arrangements with customers, focusing on material transactions or impact.
Keep It Simple
We will review any accounting process updates (templates, controls, etc.) with emphasis on simplicity and "plain English" terminology.
Training & Education
We work to ensure control is repeatable and understood by your personnel going forward.
Responsive
Our team is available to address any challenges you may have throughout the engagement.
Additional Ways GBQ Provides Value
- Detailed contract review and diagnostic.
- Technical memoranda and accounting policy documentation.
- External auditor support.
- Revenue recognition templates for accounting department use.
- Training and education of personnel.
- Internal controls design and compliance, including process documentation.
- Transition reporting (full or modified retrospective).
- Multi-location policy conformity.
- Staff augmentation/support to the broader implementation team.
- Consultation regarding the broader implications of finance, including debt covenants, budgeting/ forecasting, sales force, and incentives.
