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Tax reform is roaring, and this isn’t the only thing that needs to be considered for calendar-year-end companies. The Financial Accounting Standards Board (FASB) has delivered the gift of a new standard for revenue recognition in the form of ACS Topic 606, Revenue from Contracts with Customers, which supplants all previous guidance on accounting for revenue from contracts to provide goods or services to customers. Alvarez & Marsal, Taxand USA, provides an analysis.
Like all the best holidays, the new standard promises to bring people together, requiring additional collaboration between tax departments, accounting, IT, sales and other departments in order to assure the availability of the necessary financial information to meet the new standard. Forget the office holiday party — this year’s hottest invite is to the company’s ACS 606 implementation task force.
The new standard under ASC 606 shifts revenue accounting from the existing rules-based system to a more principle-based approach to determining revenue recognition. Historically, companies utilised a realisation principle, recognising revenue as it was earned and realised. Under the new core principle, companies must recognise revenue in the amount the entity expects to be entitled to when it transfers control of a good or service to the customer.
Discover more: Income tax accounting under the new revenue recognition standard ASC 606
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The end of the year is almost here and with it the beginning of a new standard for revenue recognition in financial reporting. With ASC 606 kicking into gear on 15 December 2017 (for public companies; 15 December 2018, for all others), the standard for revenue recognition has shifted from a rule-based system to a principle-based approach that brings the US and international standards closer together. The new standard requires that a company recognise revenue in the amount it expects to be entitled to when it transfers control of a good or service to the customer. Companies should be aware that these financial reporting changes may affect their reporting of income tax and may require processes and procedures for the recording of revenue to be revised or developed.