Updated revenue recognition guidance (ASC 606 – Revenue from Contracts with Customers) was supposed to have been implemented by private companies and most nonprofits in the fiscal years beginning after December 15, 2018. COVID-19 and its impact to every sector of the economy prompted the Financial Accounting Standards Board (FASB) in June 2020 to give certain entities the option to delay making the necessary changes for an additional year, if needed.
Many nonprofit entities and private companies welcomed the relief and were happy to defer. If your company opted to take the reprieve from implementing ASC 606 in its last reporting cycle, it’s important to remember that the optional “time-out” only lasts so long.
Companies that have been through ASC 606 implementation consistently report that the amount of work to analyze and implement the new revenue recognition guidance was more extensive than they initially perceived. The companies have reported that even if the guidance has little effect on the actual recognition of revenue, learning the new terms in the guidance; familiarizing accounting, marketing, sales and other key stakeholders with the five-step model; and analyzing the impact of the guidance on each revenue stream can be time consuming.
“It’s important for companies to be realistic about their resources, priorities and the timeline,” says Benny Herman, CPA, WBL’s ASC 606 expert and Senior Manager in the Assurance Department. He points out that the business challenges caused by the pandemic and the current economy are complicating ASC 606 implementation.
“Our clients that are going through the process are certainly stretched thin with trying to work remotely or adhere to office safety protocols in addition to their normal responsibilities. For companies that have yet to apply the guidance, taking a detailed inventory of their existing contracts, selecting a representative sample to review, reconciling the differences between the prior guidance and the new standard, mapping accounting policy to the processes and systems, and educating their organization about the process changes will be a lot to tackle in the current environment. It’s important to assess early whether supplemental resources are necessary.”
Benny adds, “Taking advantage of the delay now allows time to adjust, structure new contracts, and get ahead of new processes requirements, if necessary. Don’t forget: as soon as the deadline for ASC 606 passes, companies will have to start thinking about ASC 842 Leases, which will also require a significant effort from their finance staff. The sooner you tackle revenue recognition, the more time you’ll have to focus on leases.”
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Williams, Benator & Libby has assisted more than 60 companies and organizations with implementation of ASC 606. WBL’s seasoned team of assurance, tax and consulting experts are a valuable resource to help keep you focused on your organization. Call (770-512-0500) or email one of our ASC 606 experts with your questions today.