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Top 3 Revenue Disclosure Items to Consider Under ASC 606

Private calendar year filers have less than seven months until the new “Revenue from Contracts with Customers” standard (“ASC 606”) comes into force. Already effective for public companies, ASC 606 will be effective for private companies for annual periods beginning after December 15, 2018. Private companies will report under the new standard for the first time in their 2019 financial statements.

The standard replaces nearly all revenue guidance in ASC 605, including industry-specific guidance. The impact of ASC 606 may vary depending on the nature of customer contracts; however, at a minimum there is a documentation exercise to demonstrate to auditors that a company has considered the impact of ASC 606 on its revenue streams.

The core principle of ASC 606 is meant to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods and services.

Revenue disclosure requirements will significantly increase under ASC 606. Companies will need to evaluate potential changes to systems and processes to comply with new disclosures. The following are top disclosure considerations to keep in mind: 

  1. 1)  Disaggregating Revenue: Disaggregate revenue into categories and explain relationship with segment disclosures
  2. 2)  Contract Balances: Opening and closing balances of receivables, contract assets and liabilities; amount of revenue recognized from contract liabilities; and amount of revenue recognized from prior-period performance obligations
  3. 3)  Remaining Performance Obligations (POBs): Disclose aggregated amount of the transaction price allocated to the POBs; quantitative and qualitative explanation of when amounts will be recognized as revenue

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