Is Technology Ready for New Accounting Standards?

By Figgins, Jay | Telegraph - Herald (Dubuque), February 8, 2018 | Go to article overview

Is Technology Ready for New Accounting Standards?


Figgins, Jay, Telegraph - Herald (Dubuque)


Most businesses are likely aware of two new accounting standards that could substantially change the reporting requirements around certain transaction types.

ASC 606 - Revenue from Contracts with Customers and ASC 842 - Leases, will become effective during the next two-to-three years for any business that issues financial statements in accordance with U.S. Generally Accepted Accounting Principles.

There are various aspects involved in implementing these new standards that could impact different departments within an organization. After assessing your company's potential exposure resulting from ASC 606 and ASC 842, you'll want to evaluate your technology environment's capability to handle the calculations that are critical to complying with these new rules.

ASC 606 requires revenue generated from "contracts" to be recognized when "performance obligations" are satisfied. Satisfaction of a performance obligation could be based on many things, from completing a specific project phase to delivering a product to your customer's door. As a result, it is important to track the dates and statuses of these events, especially if they are different from the date of sale.

Businesses selling bundled products and services face more complex requirements around allocation of the transaction price based on the standalone selling price of each performance obligation. When you drill into the details of these requirements, you will quickly realize how software can help ensure the proper recording of sale transactions and calculating the correct entries.

The complexity of software required to make these calculations depends on both the volume and complexity of these types of transactions within your organization. A business with 20 sales per year can probably perform these calculations manually or on a spreadsheet, but an organization with 20 sales per day will need a better technology answer.

ASC 842 applies to leases and affects both the lessor and lessee. The biggest change when compared to current rules is that all assets with a lease term of a year or more must be reported on the balance sheet as both an asset and liability. …

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