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Why falling behind on the new rev rec standard is a perfect storm
Ask any auditor what the toughest issue is for controllers and CFOs these days, and chances are it will be revenue recognition, aka ASC 606. This is no surprise to us here at Bridgepoint, as we have been keeping a close eye on the ongoing developments around the new rev rec standard.
In fact, we know firsthand that the complexity involved in implementing this standard is unprecedented for some industries and is already testing the efficiency, capacity and resources of companies. This is especially true for entities that sell bundled product and service offerings, provide return or refund rights, or periodically amend contract terms.
HERE ARE 3 KEY THINGS TO KEEP IN MIND:
1. Whether public or private, companies are finally realizing assessing and implementing ASC 606 is a much larger undertaking than expected.
- In fact, the new standard requires entities to disclose much more information about revenue activities and related transactions than they do currently. Consequently, they are finding that they must implement and test appropriate processes, internal controls and disclosure controls and procedures (including the identification of relevant personnel and information systems throughout the organization).
2. Even if you believe these new rules will have no material impact on your organization, it will take your team a tremendous amount of time and internal resources to document and support that conclusion.
- When implementing the new rev rec standard, some companies will need to make wholesale changes to their accounting policies due to the new recognition and measurement requirements. For other companies, the impact of those requirements will be less significant. However, all entities will need to carefully consider the standard’s new and modified quantitative and qualitative disclosure requirements.
3. Companies with the best technology systems in place are still facing huge challenges and finding these changes taxing.
- Think new technology will make this process easy? Think again. Even the newest technology systems must be modified to accommodate the new revenue recognition standard – and the reality is that you can’t change your systems, processes and controls overnight.
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SO, WHAT CAN YOU DO TO TACKLE THIS HEAD ON?
In our experience, there are several steps that you can take to successfully navigate every twist and turn of the new rev rec standard:
ASC 606 is already impacting your business and there’s a lot of work to be done to identify areas that need to be addressed under these new guidelines. Despite this, many businesses are slow-walking to implementing the revenue recognition standard. Don’t be one of them – act now! Remember, falling behind on the new rec rev standard is a perfect storm that will also lead you to fall behind with implementing the new lease accounting standards. A great place to start is with this 5-step assessment process.
Put a strong project plan and process in place
These changes are very complex and could impact multiple aspects of how you run your business. Therefore, it’s critical that you develop a project plan with a designated project owner from day one and involve key departments in the process early and often.
Don’t underestimate the impact on your organization
Under the new standard, organizations across many industries will need to carefully consider existing contracts, business models, company practices and accounting policies. In some cases, this could mean restating financial information going back two years and performing multiple years of audits. And remember, even if you believe there is no material impact to your organization, you will still have to dedicate a significant amount of time and resources to document and support those findings.
Engage a trusted partner early on, so you can stay focused on your business
One of our biggest concerns is that companies are waiting too long to act, and there won’t be enough outside resources available to help them meet the requirements effectively. If you need guidance around the financial and operational process, or help navigating your implementation from start to finish, leverage the right outside resources from the onset. This will help put your company on the right track—without wasting your valuable internal resources.
NEED SOMEONE TO DO YOUR REV REC DIRTY WORK?
We can help you prepare for ASC 606 changes and make this transition with confidence. If you have questions about revenue recognition, I’m happy to chat. At Bridgepoint Consulting, we can help your company with any of the activities/approaches mentioned above. Our highly skilled team of Rev Rec experts will walk you through the ASC 606 process, develop a roadmap to help you stay on track, and handle the “dirty work”— so you can continue running your business. Explore our revenue recognition services here.
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