Overview of New Revenue Recognition Standard: ASC 606
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Codification® (ASC) Topic 606, Revenue from Contracts with Customers. Topic 606 changes how most organizations are required to recognize revenue under US generally accepted accounting principles (GAAP)—specifically contracts with customers. This new standard will be effective January 1, 2019 for non-public companies.
New Concepts – You may find yourself asking: What’s a performance obligation? What’s variable consideration? How do I record waste? How do we account for warranties? What do I do with uninstalled materials and procurement costs?
CICPAC member firms can answer all those questions for you. We are a dedicated thought leader in this arena, working with our affiliates in the construction industry, and have co-authored a 50-plus page implementation guide on this new standard (available upon request – be sure this links to the contact form).
The new standard has been commonly broken down into a 5-step process.
Step 1 – Identifying the Contract with the Customer
Step 2 – Identifying the Performance Obligation in the Contract
Step 3 – Determining the Transaction Price
Step 4 – Allocating the Transaction Price to Performance Obligations in the Contract
Step 5 – Recognizing Revenue When (or as) the Entity Satisfies Each Performance Obligation
The 2019 deadline is steadily approaching – contact the CICPAC member in your marketplace to help your company identify and implement necessary changes.