Let’s talk about the current state of ASC 606 and its impact on accounting today.
ASC 606 has been in effect for a few years now, and the accounting industry has had time to adjust to the changes it brought. While the initial implementation was challenging for some companies, it has become the new standard for revenue recognition across industries.
One of the most significant changes introduced by ASC 606 is the requirement for companies to recognize revenue based on the transfer of control of goods or services to customers, rather than on the transfer of risks and rewards. This change has led to increased scrutiny of revenue recognition policies and practices, with companies now required to provide more detailed disclosures about their revenue recognition methods.
Another significant change is the requirement for companies to evaluate whether their contracts with customers contain any variable consideration, such as rebates, discounts, or incentives, that could impact the amount of revenue recognized. If variable consideration exists, companies must estimate the amount of revenue they expect to receive and recognize that amount accordingly.
In addition, companies must capitalize certain costs associated with obtaining or fulfilling a contract, such as sales commissions or shipping costs. These costs must be amortized over the period of the contract, rather than expensed immediately, which can impact a company’s financial statements and profitability.
Overall, the impact of ASC 606 on accounting today is significant. It has brought more transparency to revenue recognition and has helped to promote consistency and comparability across industries. It has also resulted in increased scrutiny and a need for more detailed disclosures, which can be time-consuming and costly.
Companies must ensure that they are compliant with ASC 606 and that their accounting and finance teams are up-to-date on the latest guidance and best practices. They must also ensure that they have adequate systems and processes in place to ensure compliance with the new standard.
To sum it up, ASC 606 has had a significant impact on accounting practices today. While it has brought more transparency to revenue recognition and helped to promote consistency and comparability across industries, it has also resulted in increased scrutiny and a need for more detailed disclosures. As a result, companies must ensure that they are compliant with the new standard and that their accounting and finance teams are up-to-date on the latest guidance and best practices to avoid potential penalties and reputational damage.
Sources: Financial Accounting Standards Board. (2014). Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606). https://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176168389296&acceptedDisclaimer=true American Institute of CPAs. (2021). ASC 606, Revenue from Contracts with Customers. https://www.aicpa.org/content/dam/aicpa/research-and-standards/accounting/downloadabledocuments/2021/asc-606.pdf Deloitte. (2021). Revenue Recognition: ASC 606. https://www2.deloitte.com/us/en/pages/audit/articles/revenue-recognition-asc-606.html PwC. (2021). Revenue from contracts with customers. https://www.pwc.com/us/en/cfodirect/issues/asc-606.html EY. (2021). Revenue recognition – ASC 606. https://www.ey.com/en_us/accounting-link/revenue-recognition-asc-606