The revenue recognition transition: What emerging growth companies need to know about ASC 606

Authored by Phil Santarelli, CPA, Partner Emeritus, Baker Tilly and Howard J. Heyman, CPA, Partner, Baker Tilly

Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers, affects virtually every entity that prepares financial statements. The new standard impacts one of the most important numbers in financial statements — revenue — and could impact key financial ratios, sales, contracts, technology systems, accounting and internal controls. Organizations that prepare financial statements under generally accepted accounting principles (GAAP) must act now.

There are important factors to consider if your organization is considering following GAAP. Even pre-revenue companies should consider whether and how contemplated arrangements with customers might be impacted by ASC 606. Emerging companies must understand this issue to avoid providing guidance that may conflict with the new accounting guidance.

Transition timeline
The new standard is now effective for:

  1. Fiscal years beginning after December 15, 2017, for public companies and certain not-for-profits that have issued conduit debt obligations
  2. Fiscal years beginning after December 15, 2018, for all other entities

For accelerated filers, the revenue recognized during 2016 may need to be restated as part of the transition in 2018.

If an Emerging Growth Company (EGC) as defined in the JOBS Act has made the initial election to defer application of new accounting standards until the effective date for non-issuers, the effective date is 2018. EGCs nearing the end of the five-year deferral window may need to consult with SEC counsel as to the required effective date.

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