What is ASC-606?
ASC-606 (US) and IFRS (Europe) is a new accounting standard created by the FASB and IASB. The FASB is a regulatory body that determines what are the generally accepted accounting principles (GAAP) approved for the United States while the IASB determines the international principles. Prior to this, there was no standard across different industries on how to recognize revenue from contracts with customers resulting in some inconsistencies in the way revenue was recorded and presented. The IFRS 15 and ASC 606 were issued to eliminate this issue by standardizing and simplifying revenue recognition from contracts with customers across all industries.
According to the FASB “the core principle of the new standard is for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration (that is, payment) to which the company expects to be entitled in exchange for those goods and services.”
What does this really mean?
The 5 Step ASC-606 Model
This five-step model summarizes how to recognize revenue in contracts with customers.
- Identify the contract with a customer
- Identify the contractual performance obligations
- Determine the transaction price
- Allocate the transaction price to the separate performance obligations in the contract
- Recognize revenue when (or as) a performance obligation is satisfied
Why ASC-606 is important ?
Revenue is an important indicator of the health and state of a company. Due to its importance to shareholders, investors and external parties, regulating bodies have been created to ensure reliability and consistency when presenting your financials. Revenue recognition consists of how much revenue a company expects to be paid for the services and/or goods they provide to their customers. This new standard will impact almost all contracts impacting the entire sales process.
These standards will have a significant effect on your organization if your company writes or uses contracts.
When will ASC-606 take effect?
The ASC-606 went into effect on January 1st, 2018 for all public companies. It will be effective for all private companies as of January 1st, 2019 with a possibility of early adoption.
Why do you need ARM?
Companies who will be impacted by this standard will have to ensure their accounting system accurately recognizes revenue to remain compliant.
NetSuite’s award-winning financial management software, the Advanced Revenue Management (ARM) module, allows companies to account for contracts with products and/or services in accordance with these new standards.
ARM’s key capabilities for Revenue Recognition are the following :
- Offers flexible revenue contracts
- Supports percentage-of-completion accounting
- Supports event driven revenue plans
- Uses dynamic fair value pricing
- Supports intelligent fair value lookup for stand-alone selling price of ESP/TPE/VSOE
- Consists of a powerful allocation calculator
Why Choose Big Bang ERP to Comply to ASC-606?
NetSuite’s Advanced Revenue Management feature requires implementation by an ARM enabled consultant. Big Bang ERP has a team of ARM-enabled consultants ready to implement ARM in preparation for January 1st 2019.
Benefit of going with BBE?
Big Bang ERP contributes diverse experiences and in-depth industry expertise to the success of your organization. With a team of functional and technical experts, you will have best-in-class customer service for delivering and supporting the best cloud solution tailored to your business needs. At Big Bang ERP, our main priority is our customer. Therefore, we will always put all preferences aside and focus solely on your business needs to find the best solution, designed to grow with you. We will take care of the technical work so you enjoy the benefits and invest your time and energy into other profit-generating tasks.
About the author
Elizabeth has been working in the field of cloud solutions for several years now with expertise with Warehouse & Wholesale Distribution, Professional Services, and Consulting industries. As a Industrial Engineering graduate, she has developed a specialization in Business Process Reviews. Liz is dedicated to providing organizations with the tools to operate efficiently. Her greatest strength is the ability to understand both the functional and technical requirements that impact a business and transforming the requirements into technical solutions that can streamline operations. Elizabeth has a deep grasp of all accounting principles which make her the “Accounting” and “Order to Cash Processes” expert at Big Bang ERP.