Both public and private companies are faced with meeting the new revenue recognition requirements of ASC 606 and IFRS 15. In 2014, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) issued converged guidance on recognizing revenue from contracts with customers. The convergence enables global consistency when comparing financial statement information. The new guidance is a major achievement to improve this important area of financial reporting. The guidance is that revenue will be recognized when a service or good is transferred to the client and the client has control over the service or good.
Who must comply? Any company that enters into contracts with customers to perform services or deliver goods!
What Were the Deadlines?
- Public Companies
- IFRS15: 12/15/17
- ASC 606: 1/1/18
- Private Companies
- IFRS15: 1/1/18
- ASC 606: 12/15/18
Let’s Start with the Basics – The Five Step Process!
The five-step process for recognizing revenue was developed for consistency.
- You have a contract if it meets the following criteria:
- Both parties have entered into a contract (in writing or orally)
- Defines the rights of both parties for transfer of the goods and/or services
- Provision for payment for the goods and/or services being transferred
- The goods and/or service have a value (commercial substance)
- Collectability is probable—risk has been considered
- Identify performance obligations. Definition of what you are providing to the customer and is it fit for use.
- Determine the price. There are multiple considerations here but simply this is what you expect to be owed for performance of the contract.
- Allocate the price. If there are separate performance obligations revenue can be recognized as they complete. Discounts should be considered and allocated properly also.
- Recognize revenue when obligations are met. The regulation states that when transfer of control occurs revenue can be recognized.
This is only a summary of the intricacies of the regulation. Please make sure that you fully understand the implications for your business. Consulting with an auditor or a trusted advisor is recommended. What is important to note is that Unanet is fully aware of and understands the regulations and can help your business comply.
How Does Unanet Help Its Customers Support ASC 606 and IFRS15?
Unanet’s flexible Billing and Revenue recognition functionality is a great help with the ASC changes. Examples of features that will help include:
- The timing of invoicing and revenue recognition are independent. Revenues are typically recognized as the work is being completed, while invoicing is done as per contract requirements.
- Unanet supports invoicing and revenue recognition for Cost Plus, T&M and Fixed Price contracts. All three of these methods can be combined in a single invoice.
- Fixed Price billing can occur based on a pre-set periodic schedule or on completion of the project or various tasks.
- Multiple revenue recognition methods can be specified for Fixed Price items including when billed, % complete or custom schedule.
- Funding caps can be applied for revenue recognition and/or billing at the project and/or task level.
- Percent complete revenues on Fixed Price projects can be calculated automatically based on hours, labor cost or total cost or can be manually overridden as necessary.
- Unanet’s strong budgeting and planning functionality can be used to build up the up to date estimate to complete and total project cost forecasts necessary to accurately assess estimated revenues based on percent complete calculations
- A history of assumptions and calculations used to determine revenues can be stored in project notes associated with the project.
- Revenue reporting and billing by project, task, and subtask.
- Billing & revenue summary report that will automatically track the unbilled, deferred revenue, and remaining funded value balances for analysis and review.
Unanet Supports ASC 606 and IFRS 15 Compliance
To be clear, ERP software alone is not enough to guarantee compliance, whether it's DCAA compliance, 2 CFR Part 200 compliance, or ASC 606 compliance. However, Unanet continues to stay on top of changing regulations and builds functionality into the product that can support compliance. Further, Unanet can help organizations streamline their processes and have real-time data at their fingertips to present to an auditor and help make the path to compliance easier.
To learn more about how Unanet can help support government compliance, download our white paper, "Valuable Information for Government Contractors - SF1408 and Timekeeping."