There’s a lot of noise floating around about the looming accounting changes coming into affect this January 2018. Currently, companies can expense their commissions either up front or over time. In the new year, this will no longer be true. The FASB requires that US GAAP-based companies with revenue from contracts with customers, reevaluate their recognition methods under new criteria.
Erik Charles, VP of Product Marketing with Xactly, is always on the road, talking with customers and prospects about the pain points they face, and the questions that come up in their organizations – especially regarding the ASC 606. Erik sat down with me to share his insights as he prepares for this Thursday’s webinar with WorldatWork.
Question: What types of organizations need to pay attention to the new Revenue Recognition Standards coming soon?
Answer: There are two parts to this answer: The U.S. fiscal year starts December 2017 for publically traded companies, and GAAP compliant private companies will need to follow the standard starting one year later. There is a misperception that this standard will only affect SaaS companies – not true.
Any company that engages in contracts with customers is on the hook for these new standards. Our webinar last week with The CFO Alliance polled that 61% of participants had not determined a transition method when it comes to ASC 606. Even though a lot of companies haven’t started preparing – comp admins will be required to account for data at a new level of detail than they’ve had to deliver before.
Question: How will this affect the way they do business?
Answer: The primary impact will fall on the office of finance – comp admins will no longer be able to take the expense immediately. Another big impact will be the level and extent of detail required from these teams too.
Question: What are some of the major challenges that companies should anticipate?
Answer: Companies will need to disaggregate the revenue, and associated commissions in deals – to account for different amortization schedules. This requires asking questions such as, “How do you spread it out? What time frame do you take?” Does that overwhelm you? You’re not alone. Tune in and I’ll break it down.
Question: If organizations were to do one thing to prepare for ASC 606, what should they make sure they do?
Answer: Organizations must absolutely get a handle on the data that’s necessary, now. I’d highly encourage companies to consider what it would take to clean up the data going backwards. Companies will have the option to run the data later. The ASC 606 changes aren’t just a challenge – they are actually an opportunity for companies to get a more detailed look at their commission expenses in terms of revenue, profitability and effectiveness.
Common terms associated with ASC 606: FASB
The Financial Accounting Standards Board is a private, non-profit organization standard setting body whose primary purpose is to establish and improve generally accepted accounting principles within the United States in the public’s interest.
- Amortization: An accounting term that refers to the process of allocating the cost of an intangible asset over a period of time.
- GAAP: Generally Accepted Accounting Principles
- ASC 606: New rules on how companies treat revenue from contracts with customers, and the associated expenses.