Trouble Spots When Implementing ASC 606 Revenue Recognition Standard

Private companies that are beginning to assess the impact of the new standard can draw upon lessons learned and best practices derived from the efforts undertaken by public companies to implement the new standard. Calendar year-end public companies must adopt the new standard on January 1, 2018, and private companies have one additional year. What are the “trouble spots” companies need to consider when implementing ASC 606?

Critical Technical Accounting Determinations

• Determination of performance obligation, specifically distinct within the context of the contract
• Transition method selection
• Application of contract modification guidance
• Deciphering complicated sales commission plans
• Estimating variable consideration
• Calculating standalone selling price
• Application of the portfolio approach
• Disclosures
• Calculating and operationalizing backlog
• Disaggregation of revenue
• SAB 74 disclosures

Operational and Other Challenges

• Lack of a PMO
• Resource constraints and limited time
• System implementations and changes to handle accounting changes or disclosures (dual-reporting)
• Calculating the retained earnings adjustment in a way that is efficient yet auditable
• Auditor participation not early enough in the adoption process
• Inadequate internal controls around the adoption
• Specifically identifying commissions to contracts

What aspects of the implementation of the new standard have you found or anticipate to be most challenging? Visit our Technical Accounting and Financial Reporting page for more information about how we can support your organization.