We are nearing the effective dates of the highly anticipated revenue recognition standard, Revenue from Contracts with Customers (ASC 606). To help you understand how to apply the new standard, we will be distributing a series of five articles based on the five step model below. See the link at the bottom of this email to sign up to receive updates via email. If you are ready to apply this standard or if you have additional questions, please contact your Warren Averett Advisor.
Below is a short summary of ASC 606.
Scope of ASC 606
ASC 606 applies to all industries with certain specific transactions excluding leases, insurance contracts, financial instruments, guarantees and certain nonmonetary exchanges.
- For Public Entities
- Fiscal years beginning after 12/15/17 (and interim periods within)
- Early adoption permitted only as of fiscal years beginning after 12/15/16 (and interim periods within)
- For Non-Public Entities
- Fiscal years beginning after 12/15/18 (and interim periods within fiscal years beginning after 12/15/19)
- Early adoption permitted as of either:
- Fiscal years beginning after 12/15/16 (and interim periods within), or
- Fiscal years beginning after 12/15/16 and interim periods within fiscal years beginning one year after the annual period in which an entity first applies the new standard.
ASC 606 is required to be applied retrospectively by one of the following methods:
- Retrospective application to each reporting period presented in accordance with ASC 250-10-45-5 through 45-10 (i.e. full restatement of comparative figures); or
- Modified retrospective with one or more practical expedients (i.e., completed contracts, use of hindsight for variable consideration, etc.), through a cumulative effect of change at adoption date (disclose effect of applying new standard).
The Five Steps of the Revenue Recognition Model
- Step 1: Identify the Contract
- Step 2: Identify Separate Performance Obligations
- Step 3: Determine Transaction Price
- Step 4: Allocate Transaction Price to Each Performance Obligation
- Step 5: Recognize Revenue When/As Performance Obligations are Satisfied
If you are interested in receiving information detailing the five steps directly to your email, sign up here.