Have you implemented the new revenue recognition standard?
The new revenue recognition standard (FASB ASC 606, Revenue from Contracts with Customers) took effect for private companies in 2019. The new standard is principles-based and requires more judgement than the old standards, which were rules-based and industry-specific. To ensure your company is in compliance with the new standard, you will need to re-evaluate and update your controls, processes, and accounting for your contracts.
If you have not completed your assessment and implementation of the new revenue recognition standard, don’t wait. Public companies implemented the standard in 2018 and most indicated it involved more time and money than they initially estimated.
If you are unsure where to begin or what to do, Kreischer Miller can assist you with implementing the new revenue recognition standard. Our process involves the following steps:
- Educate those responsible for implementing the new standard.
- Discuss operations and obtain an understanding of service lines and the types of contracts utilized.
- Understand current accounting methods for revenue recognition.
- Discuss and select a sample of contracts based on each separate grouping of service lines/contracts.
- Read, evaluate, and discuss contracts selected using the 5 Step Revenue Recognition Model.
- Summarize observations, covering the following topics:
- Identification of the contract, performance obligations, transaction price, allocation of transaction price, and revenue recognition
- Contract modifications
- Variable consideration
- Delivery pattern – point in time or over time
- Pre-contract/mobilization costs
- Uninstalled materials
- Customer supplied materials
- Project waste or inefficiencies
- Warranty and service agreements
- Principal vs. agent
- Joint ventures
- Assist in the development of a revenue accounting policy.
- Develop a financial statement template for required disclosures.
- Provide ongoing guidance to the revenue recognition implementation team as they fully implement their revenue accounting policy.
- Assist management in communicating the impact of the required changes to third parties, such as lenders and sureties.
Kreischer Miller has developed a Revenue Recognition Resource Library with a number of articles, whitepapers, and other tools to help you understand the new standard.