Navigating the Path to Success Implementation
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 was required to be implemented in 2018, and private companies must apply the standard in 2019. 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?
The core principle of the new standard is that an entity should recognize revenue to depict the transfer of goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To replace the previously used industry guidance, the new standard establishes a five-step process to recognize revenue:
- Identify Contract(s) with Customer
- Identify Performance Obligation(s) (“P.O.”) in the Contract
- Determine Contract Price
- Allocate Transaction Price to Performance Obligation(s)
- Recognize Revenue When Entity Satisfies Performance Obligation(s)
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