Why the Need for this New ASC 606 Regulation? The focus of this 2-part series is to provide some insights into the background of the ruling and considerations specifically for those in the sales compensation field regarding direct impacts to how you assess and calculate incentive compensation. ![]() Many comp admins have reached out to me on this topic, overwhelmed by the detailed accounting and financial compliance implications described in detail all over the internet. For those in sales compensation or sales ops roles, this change may have huge impacts on the structure of your sales compensation rule configuration to account for new components or assessment logic in certain scenarios. Contact us today to see how we can partner with you.The ASC 606 regulation from the Federal Accounting Standards Board (FASB) is coming hard and fast for companies, but many don’t know where to even begin to understand the implications. We can help you comply with the rules and minimize audit adjustments next audit season. Our team of audit and assurance experts can help you better understand the rules on when to record revenue or expenses. Timing is critical in financial reporting. For instance, they will likely review a larger sample of customer contracts and invoices to make sure you are accurately applying the cutoff rules. So, expect your auditors to ask more questions about cutoff policies and to perform additional audit procedures to test compliance with GAAP. In turn, the risk of misstatement and the need for expanded disclosures will bring increased attention to revenue recognition practices. These judgments could be susceptible to management bias or manipulation. ![]() The new guidance requires management to make judgment calls about identifying performance obligations (promises) in contracts, allocating transaction prices to these promises, and estimating variable consideration. The updated standard goes into effect in 2018 for public companies and 2019 for private companies. 2014-09, Revenue from Contracts with Customers, revenue should be recognized “to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for the goods or services.” In some cases, the new standard could cause revenue to be reported sooner or later than under the existing rules. The rules regarding cutoffs are changing for some companies. So in both examples, the transaction should be reported in 2018. Can the store deduct the extra month’s rent from this year’s taxable income?Īs tempting as it might be to inflate revenue to impress stakeholders or defer profits to lower your tax bill, the cutoff for a calendar-year business is December 31. Rent is due on the first day of the month. Should the sale be reported in 2017 or 2018?Īlternatively, consider a calendar-year, accrual-basis retailer that pays January’s rent on December 29, 2017. The customer plans to return on January 2 to close the deal - or return the vehicle. The sales manager has verbally negotiated a deal with the customer, but the customer still needs to crunch the numbers with their spouse. To illustrate, let us suppose a calendar-year, accrual-basis car dealer allows a customer to take home a minivan for a weekend test drive on December 29, 2017. ![]() However, some companies may be tempted to play timing games to lower taxes or boost financial results. How closely does your company follow the cutoff rules? The end of the period serves as a ‘cutoff’ for recognizing revenue and expenses. Important information about end of period accounting ‘cutoffs’ as companies start to adopt the new revenue recognition standard is provided below. Generally Accepted Accounting Principles (GAAP), there are strict rules regarding when to recognize revenues and expenses.
0 Comments
Leave a Reply. |