It’s been nearly nine months since some of the most sweeping changes to accounting standards in decades — ASC 606 — went into effect.
The new regulation, issued by the Financial Accounting Standards Board, changes the way companies recognize revenue and report the information. The goal of ASC 606 is to help standardize revenue reporting requirements across industries, making it easier for investors and other stakeholders to compare revenue across organizations and industries.
ASC 606’s impact is widespread: While public companies already need to comply with it, private companies also will need to follow it at the beginning of 2019. Given the complexity of revenue recognition, the new rules present unique challenges depending on your industry. Moreover, relying on old manual methods and spreadsheets to track revenue data is risky. This is why many organizations are turning to automated solutions.
What should you look for in a revenue recognition solution? Here are five essentials, before you even get down to the detailed evaluation phase:
1. End-to-end solution
Look for a true end-to-end solution, not just a report. If the “solution” is just a report that is generated, let’s say of commissions expenses, amortized out over four-year period, that’s interesting and possibly useful, but it’s not really an ASC 606 solution. ASC 606 involves analyzing all contracts, finding all expenses and obligations, and coming up with a plan for recognition. A report could possibly help in coming up with solution, but in and of itself, not what you are looking for. Cobbling together different solutions is a time sink and expensive. Look for a complete solution.
2. Contract management
The software you choose should be able to track individual contracts and identify and track contract obligations and then automatically recognize revenue when certain events have been met. If the solution doesn’t start with the contract, it is not a solution.
There’s no sense in bogging your IT team down with even more responsibilities if you don’t have to. A SaaS-based revenue recognition solution that’s delivered through the cloud and administered by a third party gives your IT team has more time to focus on other mission-critical areas of operations.
While the ASC 606 standard spells out certain items that need to be performed to be compliant, details are left up to the discretion of the company. The fact is different vertical industries have different ways to buy and sell, and even within verticals, business is run differently.
So what does that mean in terms of a solution? You need a system that is easily configurable. You need to be able to set up rules that meet your situation easily. You need to extend the system to include the processes unique to your company and/or industry. Make sure extending and configuring can be done by you and your team, and avoid any product that will involve a permanent consultant.
The last thing you want is to invest in a solution that takes forever to roll out or creates headaches for your organization. As you test revenue recognition software and talk to users of the technology, keep track of any deployment issues. While some platforms can take as long as one year—or even longer—to deploy, best-in-class solutions can be implemented in as little as three months.
To learn more about what your organization needs to know about complying with ASC 606, check this out.