ASC Topic 606, Revenue from Contracts with Customers, adds a new series of hurdles for businesses with the new five-step framework to the revenue recognition process. With the expansive challenges to financial reporting and internal control systems the new standard poses, companies need to consider the best revenue recognition solution for them with capabilities to handle the complexities. For many, revenue recognition automation software is the key to increased visibility, reduced risk, and a quicker close period with lower costs and effort. Schedule a chat to learn how automation can benefit your company’s back-office processes.
The trigger for revenue recognition under ASC Topic 606 is based on the transfer of control over a good or service to the customer. Revenue recognition for the professional service industry was greatly impacted, and the significant judgments needed to determine the timing and amount of revenue recognition involved in contracts with customers are a common source of frustration and inefficiency for companies who leverage legacy systems or spreadsheet-based workarounds for revenue recognition.
What are the possible effects of implementing revenue recognition standard ASC 606?
While it’s important to remember that every entity is affected differently, adoption of the new standard has resulted in the following for many companies:
- Earlier revenue recognition versus legacy GAAP
- Changes to internal controls, processes, and procedures
- Increased disclosures
- Additional judgement from management
What financial systems does ASC 606 impact?
The effective date of ASC 606 was January 1, 2018, for public entities with calendar year ends. The impact of the new guidance had noticeable far-reaching effects on financial reporting and internal control systems. Due to the disruptions of the past year, FASB decided to amend the effective date of its lease accounting standard for private companies and not-for-profits with the effective date for fiscal years beginning after Dec. 15, 2021, and interim periods within fiscal years beginning after Dec. 15, 2022.
The impact of the new guidance as well as its subsequent amendments and clarifications issued by the FASB is complex and expansive. Some specific business areas that the standard impacts are:
- Financial statements
- Information systems
- Standard contracts and other sales agreement revisions
- Internal control processes
In all, ASC 606 has had wide-ranging impacts on many areas of the modern back office. The impacts of the new standard are not limited to accounting departments, but in many cases affect operations and even how contracts are structured.
Revenue recognition tools to manage ASC 606 challenges
With these potential impacts and effects, it’s become clear that previous options just aren’t viable or efficient enough. Many companies have worked around ASC 606 by leveraging a variety of spreadsheets or home-grown applications to sort out, store, and manage financial data, but these options provide inadequate visibility into key back-office processes. Furthermore, manual workarounds introduce an extra source of friction into the revenue recognition process.
When executives or auditors require information on the financial state of a company, getting that information shouldn’t require extensive time and effort to track this information and develop a custom one-time report with limited reuse potential. By the time the report is constructed, it is very possible that the financial picture has already changed.
ASC 606 software for professional service companies
In an organization with complex, high-volume financial processes, implementing a dedicated billing software solution or revenue recognition software solution is the best way to create data visibility and accessibility.
Such systems are cost-effective and can produce real-time, highly configurable reports and dashboards to ensure the right people have the right access to the data. No single ERP vendor has been able to keep pace with the evolving business models, new guidance, and increased oversight in the Revenue Management space. SOFTRAX’s leading software solutions are designed to fill the functionality gaps that legacy ERP platforms aren’t equipped to handle and provide the necessary software solutions to manage complex billing and revenue recognition.
SOFTRAX software solutions seamlessly augment over 200 ERP and financial systems, allowing you to protect your initial ERP investment and expand your ERP system capabilities to meet new and emerging business needs while avoiding whole system “rip and replace”, expensive customizations, and risky manual workarounds.
SOFTRAX automates critical business processes and enhances delivery of professional services from contract to invoice. SOFTRAX automates order capture, billing, fulfillment, and revenue recognition in the new world of ASC 606 and IFRS 15, providing you with the capabilities to track time and expenses more completely, deploy resources and manage projects more effectively, and generate services invoices more promptly and accurately.
For additional information about SOFTRAX’s leading accounting software solutions, learn more about our dedicated and revenue recognition management software systems and how they can simplify your accounting procedures and improve your company’s bottom line.