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RSM Whitepapers: Private Companies and the New Revenue Guidance

from RSM

We believe many middle-market companies, especially contract-intensive companies, will need to dedicate significant resources to properly assess and implement the changes brought about by Topic 606, Revenue from Contracts with Customers, of the Financial Accounting Standards Board’s Accounting Standards Codification (ASC). We therefore have released two whitepapers to encourage private companies to consider the impact of ASC 606 and to start the implementation process early:

  • Why private companies should care about the new revenue guidance now explains how a private company can be in a position to efficiently adopt the standard. We advise private companies to start the process of implementing ASC 606 early because our experience has shown that:
    • Starting early can limit disruptions throughout the organization. If not properly managed in advance, the implementation process could be overwhelming.
    • If done thoughtfully and thoroughly, implementation of the new standard can provide an opportunity to consider strategic operational issues such as improving efficiency, enhancing information systems and strengthening processes and controls.
    • Financial metrics, such as EBITDA and balance sheet ratios, may change. This could impact negotiations with lenders and potential acquirers so should be addressed sooner rather than later.
    • Understanding the impacts early enables companies to contemplate making changes to contract terms and pricing policies to achieve the desired revenue model under the new standard.
    • Starting the implementation process early enables more time to engage and train resources throughout the organization so they are prepared to report under this new complex standard once it becomes effective.
  • Light the fire: Private companies and the new revenue guidance summarizes the impact of ASC 606 on some familiar public companies as disclosed in their SEC filings, and demonstrates that private companies should light the fire of urgency with respect to implementing ASC 606 because, among other reasons:
    • The degree of change to a specific entity’s revenue recognition policies and the effects the changes have on the entity’s financial statements will vary depending on the nature and terms of the entity’s revenue-generating transactions.
    • ASC 606 includes comprehensive new required quantitative and qualitative disclosures.
    • Increased judgments and estimates will require increased processes, controls and documentation, as well as potentially significant changes to existing information technology (IT) systems.
    • There may be a need to hire or train people to be involved with the implementation effort.
    • The new standard requires the coordination of legal, finance, treasury, IT, tax and operations departments within an organization.

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