December 21, 2017 / North America
Tax reform is roaring, and this isn’t the only thing that needs to be considered for calendar-year-end companies. Just in time for the holidays, the Financial Accounting Standards Board (FASB) has delivered the gift of a new standard for revenue recognition in the form of ACS Topic 606, Revenue from Contracts with Customers, which supplants all previous guidance on accounting for revenue from contracts to provide goods or services to customers.
Like all the best holidays, the new standard promises to bring people together, requiring additional collaboration between tax departments, accounting, IT, sales and other departments in order to assure the availability of the necessary financial information to meet the new standard. Forget the office holiday party — this year’s hottest invite is to the company’s ACS 606 implementation task force.
The new standard under ASC 606 shifts revenue accounting from the existing rules-based system to a more principle-based approach to determining revenue recognition. Historically, companies utilized a realization principle, recognizing revenue as it was earned and realized. Under the new core principle, companies must recognize revenue in the amount the entity expects to be entitled to when it transfers control of a good or service to the customer.
The new revenue recognition standard will directly affect any organization that enters into contracts with customers to transfer goods or services, or that enters into contracts for the transfer of non-financial assets. Contracts governed by other existing accounting standards (e.g., insurance contracts or leases) as well as other specifically enumerated contracts (e.g., financial instruments, certain guarantees, and certain nonmonetary exchanges) are outside the scope of ASC 606.