For those who aren’t yet aware: ASC 606 is part of a new roll-out of GAAP rules that change the way that certain companies—particularly professional services and software companies—recognize revenue from their contracts and their completed work. And there can be significant fines for non-compliance.
ASC 606 affects all entities—public, private, and not-for-profit—that enter into contracts with customers to transfer good or services. The first companies need to abide by ASC 606 by December 15, 2017.
Companies that haven't already started adapting may soon find themselves struggling to meet the new revenue recognition requirements. ASC 606, Revenue From Contracts With Customers, changes the way that software and professional services companies, among others, need to record and recognize revenue from their various contracts.
In its simplest form, ASC 606 requires:
- Identifying the contract with a customer
- Identifying the performance obligations in the contract
- Determining the transaction price
- Allocating the transaction price
- Recognizing revenue only as performance obligations are satisfied
Step 4 Allocating the transaction price requires a granular understanding of how work is being accomplished. Accurate timesheets provide that information and will help ensure that you compliant.
Step 5 Recognize revenue as performance obligations are satisfied requires an increase in timesheet compliance. Having faster timesheet submission allows a firm to recognize revenue more quickly. Delays by employees to submit their timesheet can no longer be tolerated because it reduces the revenue you recognize without being at risk of non-compliance penalties.
AN AUTOMATIC SOLUTION
TimeTracker addresses the challenges of both steps 4 and 5 because TimeTracker automatically generates accurate timesheets in real-time, as the activity is occurring. So not only will TimeTracker help solve new challenges of ASC 606, but TimeTracker also increases utilization, improves profitability and raises employee job satisfaction. (To learn more, watch the one-minute intro video on this page.)
For more information about ASC 606, the American Institute of Certified Public Accountants has published an excellent guide detailing the nuances of ASC 606.