Do the New Commission Accounting Requirements Affect You? Here’s How to Find Out
For many companies, the new ASC 606 (IFRS 15) standard is challenging the status quo—and making waves in current accounting processes. On top of revenue requirements, the standard also requires that companies adopt a new (more detailed and complex) framework in accounting for contracts. This requires that your sales commissions associated with securing a contract need to be capitalized as an asset and amortized over the period the service is provided.
If you contribute to your company’s financial processes, chances are high that this standard will have a direct impact on your work. ASC 606 proves especially problematic for those organizations who provide software as a service (SAAS) or subscription and project-type business models. If your customers have the ability to modify their subscriptions or product use—you may be in for a wild ride.
Download the new Ventana Research Guide "Cost Accounting Under ASC 606" to understand how the new standard will impact you.
Accounting processes tend to be pretty complicated as it is. Once you incorporate ASC 606 requirements into the mix, that complexity grows exponentially. Adjusting the amortization schedule for capitalized costs is a tall order for those accountants who have the unfortunate disadvantage of being tied to a spreadsheet or limited ERP system. Trying to calculate compensation for multiple reps on one deal—or terminating a client project before it’s completed—is going to be (for lack of a better word) a nightmare.
Fortunately, in addition to new demands, ASC 606 also brings new opportunities for improving existing systems. If the new commission accounting requirements do affect you, don’t throw in the towel just yet. Not only can you implement a system that complies with critical regulations—you can use it to improve your entire sales compensation management process. Automating your commission expense management will enable you to accurately and consistently track costs while giving you full control of an intuitive process that is primed and ready for your external auditors.
Using Xactly Commission Expense Accounting (CEA), you can ensure your commission accounting process is compliant under the ASC 606/IFRS 15 revenue recognition standard. CEA offers full capitalization and amortization support, a secure and accurate system of record, and an extensive report library.
It’s undeniable that the ASC 606 regulations are going to rock your accounting boat—but that’s the best time to take advantage of new technology and streamlined solutions. Financial leaders can use leading automated commission expense accounting to gain more accurate information, increase compliance, and reduce the overall time and financial costs expended.
Watch the webinar, "A Path to ASC 606: Two Corporate Controllers on Managing Commissions Accounting," to hear how ExaGrid Systems and Xactly controllers account for sales commissions under the new standard.
Cost Accounting Under ASC 606
For most companies that do business using contracts, the ASC 606 standard makes accounting processes more detailed and complicated. In the following guide, Ventana Research discusses important aspects of the ASC 606 guidelines.