08 Nov ASC 606: Beyond Compliance
In less than two months, all public companies will need to be in compliance with the new accounting standard, ASC 606, Revenue From Contracts With Customers. As we’ve been sharing guidance over the past year to help you prepare for the standard, we’ve suggested that you place a high priority on addressing the downstream impacts of the standard on your people, processes, and systems. To that end, we have recommended tactics focused on:
– Engaging and supporting the people impacted by the change.
– Ensuring your data architecture meets your reporting needs.
– Updating your internal controls and policies to account for new processes.
Larger enterprises have likely executed on these recommendations and fully prepared for the pervasive ramifications of the new standard. However, our research indicates that smaller and mid-market organizations may have taken a scaled-back approach to implementation due to a lack of resources or competing priorities, meeting the compliance requirements only. While compliance is certainly a key driver for ASC 606, an execution plan should be the next step to prepare your company for scalable and sustained success.
Whether you begin immediately or shortly after the effective date, you need to ensure that your systems can handle the new accounting process; tackling automation and optimization should be your next priority. Managing revenue contracts in Excel will be tedious and risky over time – consider alternatives. You’ll also want to determine if you are capturing the correct data and have the needed visibility to maintain compliance. Automation and optimization will help drive:
– Heightened internal controls to ensure reliable financial reporting.
– Improved efficiency as a result of more streamlined processes, enabling your employees to spend more time on value-add activities rather than managing revenue recognition manually.
– More accurate data and reporting as automated processes reduce the risk of human error.
For non-public and not-for-profit organizations, who have an additional year to implement the standard, we encourage you to leverage the lessons learned by public companies, the most valuable of which is the importance of advance preparation and planning. Take the time to evaluate the people, processes, and technology you have in place to consider how they will be affected by the change. Identify the gaps you must close in order to adopt the new standard, outline an action plan, and then start the communication process – the sooner the better.
If you have questions about ASC 606 and how to mitigate the impact it will have on your organization following implementation, please reach out to Navigate’s ASC 606 team at 484.383.0606 or ASC606@navigatecorp.com.