When the SEC says jump, you respond “how high?” And so, for tech-company CFOs, changes related to generally accepted accounting principles, or GAAP, are not something to be taken lightly. Revenue recognition specifically deriving from contracts with customers is now in the GAAP spotlight.
In 2014 (and in the most significant accounting change in the US since 1997), new guidance was issued to remove inconsistencies and weaknesses in revenue reporting requirements. Commonly known as ASC 606, the new standard rolled out for public companies reporting financial results for periods after January 1, 2018. Private companies will have an additional year before implementation.
To prepare for the impending regulatory shift, Battery convened a group of CFOs from portfolio companies based on the West Coast for a workshop on ASC 606; a similar event will take place this summer in Boston for East Coast CFOs. The workshop featured expert presenters from RSM, a consulting firm, who gave the audience an overview of what the new standard means for their companies. The event was sponsored by Sage Intacct.
As the speakers stressed, the 606 regulation has implications for teams across an entire organization, not just the finance team, including people, processes and technology. Training must occur at all levels of a company. RSM also recommended involving a company’s auditors throughout the entire implementation process, not just at the tail end. RSM provided a helpful five-step model to guide companies through the analysis, planning and deployment phases of rollout. Battery portfolio CFOs can and should share best practices among each other as they go through the process.
Ultimately, the 606 guidance is designed to improve the state of corporate accounting. The new standard should create a robust framework that enhances comparability of revenue recognition practices and provides more useful information in the form of improved disclosure. The workshop provided companies assistance in navigating these complex changes. For more on Battery’s suite of portfolio services, click here.