What is ASC 606?
ASC 606 is a new regulation that will have a global impact by standardizing how companies, both public and private, recognize revenue from their customer contracts. It has already been postponed once, and will not likely get delayed again. Many companies are not prepared and need to start getting ready for it, with its compliance requirements starting in 2019. Not to worry, as NetSuite’s award-winning financials software helps to simplify the evolving complexities of the revenue recognition mandates.
About ASC 606
The full name of the new rule is ASC 606: Revenue from Contracts with Customers. In the United States, the rule was issued by the Financial Accounting Standards Board (FASB). Established in 1973, the FASB is the independent, private-sector, not-for-profit organization which maintains our highest standards for accounting, the Generally Accepted Accounting Principles (GAAP). The GAAP are a common set of accounting principles, standards, and procedures that companies must follow when filing their financial statements. Private companies are not forced to meet GAAP standards, but many do as best practice. Outside of the US, there is another organization called the International Accounting Standards Board, or IASB, that works to standardize accounting rules and regulations across dozens of other countries. The FASB and IASB work together, and the IASB is also issuing a new regulation called IFRS 15. IFRS 15 is basically the same as ASC 606, making it so these new revenue recognition rules will have a global impact.
Revenue recognition rules have not been historically strong enough, and ASC 606 is the answer to this current financial challenge. Revenue recognition has been fairly inconsistent from company to company and between industries. Some companies offer subscriptions, product or service bundles, and warranties. Other companies charge for shipping or termination fees and might offer rebates or promotional discounts. For a company that processes a large volume of transactions or generates significant revenue, it can get complicated.
What does this mean for you?
ASC 606 will have an “across the board” impact on many businesses, from the Finance to the Sales to the Legal departments, and so on. Get ahead of ASC 606 and set your company up for success while your competitors are left scrambling to play catch up. With NetSuite, you can use Advanced Revenue Management to recognize revenue automatically at the proper time, along with many other incredibly powerful features. Get up to speed using NetSuite, and be prepared for ASC 606.
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