ASC 606: Complying with the New FASB Standard
Accounting and Revenue Recognition
One of the cornerstones of accounting, particularly in the corporate world, is the revenue recognition principle. Since companies are largely evaluated by the amount of revenue they bring in, the revenue recognition principle plays a significant role in the overall picture of an organization’s financial standing.
To ensure accurate reporting and present the right financial outlook to board members and potential investors, companies have been given specific revenue recognition standards by organizations like the Financial Accounting Standards Board (FASB). Following precise revenue recognition standards not only appeases investors and board members, but also helps businesses better keep track of revenue and chart growth more accurately.
In the past, different industries have been subject to unique revenue recognition standards. Real estate, software, and construction contracts, for instance, followed different standards than other industries. In the past, revenue recognition standards were often complex and difficult to implement, with little guidance handed down from the board. The FASB’s recent enforcement of ASC 606 aims to simplify and consolidate the standards for revenue recognition across industries.
The Goal of the New Standard
ASC 606 Definition
The 5 Steps of ASC 606
Step 2: Determine the performance obligations in the contract.
Step 3: Decide on the price of the transaction.
Step 4: Allot the transaction price to the performance obligations set in the contract.
Step 5: Recognize revenue when or as the entity fulfills a performance obligation by transferring control of the good or service to the customer.
The Implications of ASC 606
Entities Affected by the New ASC 606 Standard by the FASB
Deadlines for ASC 606 Compliance
Challenges in Adopting the New ASC 606 Standard
Understandably, there were considerable difficulties for companies adopting the new ASC 606 standard. A survey by Deloitte-Bloomberg BNA suggested that nearly 70% of companies weren’t on track to meet the new revenue recognition standards deadline a mere seven months previous to its arrival. Determining performance obligations and complying with disclosure requirements proved to be some of the most prominent pain points for public companies. According to a study by PWC, 84% of public companies found it difficult to comply with disclosure requirements, and 76% of public companies found determining performance obligations challenging.
Best Practices for Adapting to the ASC 606 Standard
Companies who had success in adapting to the new revenue recognition standard gave some tips to those organizations still struggling to comply. Here are 10 of the lessons learned:
- Diving in and getting started is key.
- It’s important to get everyone onboard with implementation early on.
- A software solution is vital.
- Interpreting FASB’s guidance and making decisions is key.
- Being thorough and reviewing processes is crucial.
- Managing large amounts of data is important.
- Planning for disclosures early is wise.
- Gathering data will take longer than anticipated.
- Train and communicate with the right people.
- Secure resources for implementation early and plan for the future.
How Technology Is Helping Businesses Maintain ASC 606 Compliance
Salesforce CPQ: Helping with ASC 606 Compliance
Salesforce CPQ makes compliance possible because of the capabilities it has to capture and structure contract data. With Salesforce CPQ, companies benefit from a single platform that captures data. Users have benefitted from the ability to enforce robust and accurate data capture across multiple areas including quotes, contracts, and orders. What companies get with Salesforce CPQ is peace of mind, ultimate control, and data tagging capabilities.
Automation spreads from the way you capture data all the way through permissions and approvals. Users can simply specify rules and the system will run many time-consuming processes automatically. There’s no need to fuss over data capture, or where contracts and customers flow. The information that must be captured in order to ensure ASC 606 compliance can be captured with Salesforce CPQ.
Reporting is a vital consideration under the new standard. And the capabilities offered by Salesforce CPQ not only help you comply, but also enable you to take a deeper look at deal and pricing structure in real time. Even non-standard deal structures can be reported upon. While adapting to the new revenue recognition standards is certainly a monumental task, it’s a lot more manageable with a tool like Salesforce CPQ on your side.
A New Era of Revenue Recognition
It’s clear that ASC 606 is one of the biggest changes in accounting in quite some time. While there are certainly growing pains associated with the shift, there are a number of amazing benefits on the horizon. Order and clarity have been added to the way revenue is recognized from customers, and more transparency and the ability to compare companies is bettering the business landscape as a whole.
Whether you’ve already made the changes necessary to comply with ASC 606 or you are still hustling to get everything aligned, you’ll find comfort in knowing that many have been through the process. With the right software at your disposal and tips and tricks from those in compliance, you’ll be well on your way to a successful future under the new revenue recognition standard. Salesforce is always ready and waiting to help you through the challenges you may face with a range of solutions that will help you manage your relationship with customers and capture data across many customer touchpoints.
Learn more about how Salesforce CPQ can help you navigate the complexities of the new world of revenue recognition.