In 2017 and the first quarter of 2018, most public companies began implementing the new revenue recognition standard, ASC 606 – Revenue from Contracts with Customers. Presently, there are many questions from private companies, and their stakeholders, on the implementation of ASC 606 before the effective date, January 1, 2019.
ASC 606 frequently-asked questions:
What is ASC 606? ASC 606 – Revenue from Contracts with Customers can be broken down into five steps.
1. Identify the contract;
2. Identify performance obligations;
3. Determine the transaction price;
4. Allocate the transaction price;
5. Recognize the revenue.
Who does it impact? All businesses issuing GAAP-conforming financial statements. Every entity is required to assess the impact of ASC 606 to its financial statements and to prepare more disaggregated disclosures related to revenue.
When does it take into effect? The effective date for non-public entities is during annual reporting periods after December 15, 2018. For most entities, this means a calendar year beginning January 1, 2019. If the entity presents interim financial statements, the effective date is for interim periods with annual reporting periods beginning after December 15, 2019.
Why is this important? The standard requires the implementation of either the full or modified retrospective method. Depending on the method, companies will review the impact over multiple years of historical activity. A proactive approach to assessing and implementing the transition to ASC 606 is essential.
The AICPA continues to state that “a calendar-year private company preparing financial statements under U.S. GAAP will not be required to apply Topic 606 until it prepares its 2019 annual financial statements.” The implementation timeline to 2019 financial statements is quickly approaching.
About Calvetti Ferguson
Calvetti Ferguson has assisted with ASC 606 implementation services to companies in various industry sectors including: oil & gas, software, SaaS, and construction contractors.
Calvetti Ferguson has partnered with CICPAC (Construction Industry CPAs/Consultants Association) and published a Revenue Recognition Implementation Guide. Calvetti Ferguson has also developed a Revenue Recognition readiness assessment to assist companies in understanding the impact of the new revenue recognition standard.