We’ve hit upon a number of key issues to consider in our recent series on transitioning to the new guidance over the past few weeks, which we hope brings the urgency into focus and enables a smooth transition path.
As the last topic for discussion, we examine the importance of understanding your firm’s contracts and revenue streams.
First, let’s make some assumptions:
You’ve taken the necessary time to truly research and understand the new standard as it relates to your company, to date.
You have carefully studied the transition options available to you and made an educated decision on which makes the most sense for your company and industry.
You have built a cross-functional team for implementation and established a timeline of responsibilities.
It will take a significant effort by your implementation team to understand what the new standard will mean for your company’s financial reporting. Companies should expect to devote many resources to review contracts in detail and understand the effects of the new standard.
“Do you need to review every contract? not necessarily,” said Dusty Stallings, a CPA and member of PricewaterhouseCooper’s national professional services group in a Journal of Accountancy article on transition prep. “But you need to review all (different) types of contracts. If you’re in a company where every contract is unique, you probably have a bit more of a challenge on your hands than if you’re at a a company where there are a lot of very similar contracts that you typically enter into.”
As FASB member Tom Linsmeier said, per the JofA piece, of the implications of this guidance change, “this is a major accomplishment that will greatly change how people think about perhaps the most important item in financial statements.
Know more about upcoming ASC 606 & IFRS 15 and how Zuora RevPro can help you.