What You Need To Know
Every subscription-based business and services firm should be aware of ASC 606 (FASB ASU 2014-09) and IFRS 15, which substantially affect how revenue is recognized. As this new standard is established, these companies will have to recognize revenue correctly or risk audits and the need to re-file earnings. Blue Hill believes that Intacct has taken an important leadership stance in providing a first-to-market revenue recognition solution for organizations seeking to understand how best to manage “performance obligations” and event-based revenue.
ASC 606 and IFRS 15 Revenue Recognition Standards
ASC 606 and IFRS 15 represent a shared agreement between FASB (Financial Accounting Standards Board) and IASB (International Accounting Standards Board) regarding best practices for recognizing professional services contract revenue. Under this new standard, Blue Hill notes a variety of interesting new definitions and requirements for revenue recognition, including:
- Revenue is recognized based on defined “performance obligations,” which can be thought of as being similar to deliverables in multi-element revenue recognition.
- Each performance obligation must be accounted for distinctly as a standalone good or service and as defined within a
- The full transaction price can reflect variable amounts that are “probable” of not having significant reversals based on prior experience with similar delivery arrangements. The transaction price should also reflect the time-value of money if financing is a significant project component.