Page 24 - Business Insights Technology Industry

HOW ASC 606 IMPACTS TECHNOLOGY COMPANIES HOW ASC 606 IMPACTS TECHNOLOGY COMPANIES

QUIRKS AFFECTING TECHNOLOGY EXAMPLES OF ASC 606 CHALLENGES AND SOLUTIONS FOR CONTINUOUS TRAINING
COMPANIES AND SAAS PROVIDERS APPLICATION IN TECHNOLOGY TECHNOLOGY COMPANIES AND EDUCATION:
ASC 606 introduces several complexities 1. SAAS COMPANIES: Implementing ASC 606 poses several Provide ongoing training sessions to
specific to technology companies and SaaS somewhat unique challenges for technology employees on ASC 606 requirements,
providers: Consider a SaaS provider offering a cloud- companies and SaaS providers: updates, and best practices to enhance their
based project management software under an understanding and application of the standard.
SUBSCRIPTION-BASED REVENUE: annual subscription. Under ASC 606, revenue COMPLEX CONTRACT STRUCTURES:
is recognized ratably over the subscription EXTERNAL EXPERTISE AND
SaaS companies often provide services over period as the software service is provided. Technology contracts often involve multiple AUDIT SUPPORT:
time, necessitating careful assessment of For example, if a customer signs a one-year deliverables or bundled services, requiring
when control of the service is transferred contract for $12,000, the provider would careful identification and allocation of Engage external consultants or auditors with
to the customer and how revenue should be recognize $1,000 of revenue each month over transaction prices to each distinct obligation. expertise in ASC 606 implementation to
recognized over the contract period. the 12-month term. conduct periodic reviews, validate compliance
DATA AND SYSTEMS INTEGRATION: efforts, and offer recommendations for
VARIABLE CONSIDERATION: 2. TECHNOLOGY improvement.
SERVICE PROVIDERS: Compliance with ASC 606 demands robust
Contracts in the tech industry frequently systems capable of capturing and processing CONCLUSION
include variable elements such as usage- A technology consulting firm engages data related to contract terms, pricing, and
in a project to implement customized
based fees or performance bonuses. ASC 606 software solutions for a client. The contract performance metrics. Integration between ASC 606 represents a pivotal shift in
requires companies to estimate and adjust specifies milestone payments tied to project financial systems and operational databases is revenue recognition practices for technology
revenue recognition based on these variables, deliverables, such as completion of software crucial for accurate revenue reporting. companies and SaaS providers, demanding
impacting financial reporting accuracy. meticulous application and adherence to its
modules. Revenue recognition under ASC INTERDEPARTMENTAL COORDINATION: principles. By embracing ASC 606, these
606 aligns with these milestones, ensuring industries can achieve greater transparency,
CONTRACT MODIFICATIONS:
revenue is recognized as services are Ensuring alignment between sales, operations, accuracy, and consistency in financial
performed and milestones are achieved.
Changes in contract terms, such as upgrades or and finance teams is essential for interpreting reporting, thereby enhancing stakeholder
extensions, require reassessment under ASC HARDWARE SALES WITH contract terms correctly and applying revenue trust and supporting sustainable growth in the
606 to determine if they represent separate 3. EMBEDDED SOFTWARE: recognition policies consistently across the competitive tech marketplace. Realistically
performance obligations or modifications organization. though, ASC 606 will prove frustrating
to existing obligations, influencing revenue A hardware manufacturer sells smart devices and difficult to implement without the
recognition timing and amounts. that include embedded software with To address these challenges and ensure proper support and resources. Effectively
ongoing updates and support services. ASC compliance with ASC 606, technology navigating ASC 606 requires a proactive
approach, leveraging technology solutions,
companies can adopt strategic solutions:
606 requires the manufacturer to allocate fostering cross-functional collaboration, and
revenue between the hardware and software ADVANCED
components based on their standalone selling REVENUE RECOGNITION SOFTWARE: prioritizing ongoing education to meet the
prices. Revenue from the hardware sale evolving demands of regulatory compliance
and software updates would be recognized Deploying specialized software solutions and financial transparency. If your company
hasn’t adequately considered the impacts of
separately as performance obligations are can automate revenue calculations, facilitate ASC 606, we can help on your journey to
fulfilled. compliance audits, and enhance accuracy in reach compliance and a sufficient level of
revenue reporting. understanding.
ENHANCED CROSS-FUNCTIONAL
COLLABORATION:
Foster regular communication and MATTHEW BURKE, CPA
collaboration between departments involved PARTNER
in contract negotiation, service delivery,
and financial reporting to ensure a unified
approach to revenue recognition.
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