Revenue Recognition: Financial Statement Disclosure Requirements
January 10, 2022
Navigating the Path to Implementation: Financial Statement Disclosures
The effective date for the new revenue recognition standard, ASC 606, Revenue from Contracts with Customers, is fast approaching. For public companies, the new standard is required to be implemented in 2018, and 2019 for private companies. However, depending on the transition method selected and the number of years presented in financial reporting, its impact might already affect your financial statements.
Have you considered the following:
- Are you prepared and ready for implementation?
- Do you know how your entity’s revenue recognition and disclosures will be impacted?
- Do you know how your entity’s processes and controls will change?
How Can Cherry Bekaert Help Navigate Financial Statement Disclosure Requirements?
Step 1
Understand Your Products and Services
- General diagnostic discussion with management;
- Review a sample of your customer contracts for stated deliverables; and
- Assist you in identifying entity – and industry-specific implied deliverables.
Step 2
Understand Your Current Policies and Processes
- Review current legacy GAAP policies and practices;
- Gain an understanding of current processes and controls;
- Gain an understanding of current IT systems;
- Gain an understanding of the reports and data that are currently available; and
- Review current financial reporting and disclosures.
Step 3
Analyze Revenue Recognition Under ASC 606
- Provide and discuss authoritative guidance;
- Provide and discuss interpretive guidance including FASB and AICPA interpretations;
- Review public company filings for comparable companies in similar industries;
- Brainstorm with management in identifying performance obligations, variable consideration, discounts, financing components, standalone selling prices, when control is transferred and measures of progress towards completion;
- Disaggregate revenue into inventory of ASC 606 revenue streams; and
- Draft your ASC 606 GAAP policies and practices.
Step 4
Identify Potential Needs
- Compare and contrast current accounting policies and practices under legacy GAAP to ASC 606;
- Identify changes to the amount and timing of revenue recognition;
- Identify additional disclosures;
- Identify additional reports and data needed; and
- Compare and contrast the ability of the entity’s current processes and controls and IT system’s to meet the needs of ASC 606.
Step 5
Identify Other Potential Impacts
- Analyze potential impact on debt covenants;
- Analyze potential impact on compensation agreements;
- Assist in determining the most appropriate transition method;
- Identify those contracts which will be “open” upon transition; and
- Assess the potential tax impact.
Step 6
Implementation
- Access to our referral network of professionals that can manage the implementation process; and
- Access to our Firm’s IT system partners (SAP, Oracle, Microsoft Dynamic, Deltek, etc.), if IT system changes are required.
Cherry Bekaert’s dedicated team of professionals can help you navigate how the new standard affects your company’s processes, data, systems and controls. Now is the time to plan and adequately prepare for changes that will impact your business.