How US GAAP Changes Will Impact Internal Company Control Frameworks
Companies need to adjust their accounting policies in order to incorporate the new revenue recognition principle from 1 January 2019.
2019 brings a significant change to US GAAP (Generally Accepted Accounting Principles). This requires private companies to implement the new revenue recognition (RR) guidance. It follows the 2018 RR implementation by public companies.
New revenue recognition standard
This is a large one for private companies as most of the RR guidance has changed, and a new revenue recognition model introduced. The 5 step model is more principle than rules-based, and accounting professionals responsible for the implementation of the new guidance will require good knowledge about the change and access to relevant company data for analysis.
Companies that have previously invested in technology and have been focussed on creating unitary databases with tools for easy search and analysis will have a head start.
The 5 step model requires accountants to do the following.
Determine whether they have a contract Identify the performance obligations (eg. parties' responsibilities under the agreement) Determine the transaction price (how much money your customer will pay you) Allocate the transaction price (eg. split the price over the performance obligations under the agreement) Recognise revenue when the performance obligation(s) have been satisfied. In applying the 5 step model, companies will need to be able to:
Identify the main elements that classify a contract under the new RR guidance Identify whether the performance obligations under contract need to be split in pieces or bundled Calculate the price by taking into account the variable considerations, financing arrangements and any non-cash considerations Identify when transfer of control took place, as that is the moment when the revenue should be recognised. Impact on internal frameworks
There are many elements that must be taken into account by companies. These items vary from process design and tightened internal controls to training for RR implementation requires more than purely technical knowledge about Accounting Standards Codification 606.
Re-designing the internal control framework should be high on any company agenda. With the new guidance, there will be more ways revenue could...
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