Companies will be required to adopt a new universal framework for revenue recognition – one that will hold regardless of vertical, product or service. Currently we have two different standards US GAAP and IFRS 15. The US Financial Accounting Standards Board (FASB) and its international counterpart, the IASB, have spent a significant amount of time reassessing their respective principles and decided to standardize revenue recognition into one common standard – ASC606.
The new 5 step approach to revenue recognition consolidates the wide ranges of industry-specific guidance and supersedes former revenue recognition rules (ASC 605). The new ASC 606 standard was originally released in May 28, 2014 and the “One Size Fits All” approach will impact public and private businesses across a wide range of industries. Some of the top companies include software, technology, automotive, telecom, retail, etc. The effective date for ASC 606 to December 15th, 2017 for US public companies and December 15th, 2018 for nonpublic entities.
ASC 606 rules is a new beginning for finance and accounting departments, and will drastically impact businesses both financially and operationally. For most organizations, the value of adoption is obvious: taking on ASC 606 means streamlined processes, reassured investors, and decreased risk. But for US businesses, there’s one more reason to make compliance a top priority: the new guidance arrives just as the US Securities and Exchange Commission (SEC) untangles itself from the dense web of litigation created by the 2008 financial crisis.
The SEC is set to take these regulations very seriously and are setting an aggressive enforcement strategy that pays as much attention to minor infractions as major malfeasances. For many American businesses, the combination of new standards and a reinvigorated regulatory agency has the makings of a “perfect storm”, particularly once the updated guidance comes into effect.