ASC 606 Revenue Recognition Laws: How NetSuite Meets Regulatory Needs
As of the end of 2019, all public, private, and non-profit entities that issue contracts to customers must follow new rules for revenue recognition. Devised by the Financial Accounting Standard’s Board (FASB) and International Accounting Standards Board (IASB), the rules are known as ASC 606, and they aim to standardize how companies across industries allocate revenue within the enterprise. ASC 606 should clear up confusion among investors and financial observers. Unfortunately, it’s doing the opposite for accountants.
Compliance requires re-evaluating every old and new contract to determine if the revenue needs to be booked differently. That’s a big enough process on its own, but it’s accompanied by the need to update systems, policies, and reporting practices to reflect the details of ASC 606, which are extensive. Before the changes went into effect, accounting experts dubbed ASC 606 the biggest rule update in at least a generation. Now, in the wake of the rule change, that looks like an underestimation.
Though difficult for everyone, adapting to ASC 606 has been particularly tough for software companies. With licensing agreements, for instance, revenue must now be recognized upfront, making it difficult to compare current recent financial statements against past statements for the purposes of forecasting and strategic planning. Things like mergers and acquisitions or highly-variable software transaction models also become vastly more complicated than they already were. Logical and necessary as the ASC 606 rules may be, adapting to them takes time, and many accounting departments aren’t there yet.
NetSuite: Bridging Past and Future
NetSuite runs on its own NetSuite ERP solution. That’s significant because as a software company, NetSuite understands the accounting challenges others in the industry face under ASC 606. Based on that lived experience, NetSuite optimized its product to simplify ASC 606 internally. In the process, it did the same for all users.
NetSuite helps users meet regulatory expectations by automating key workflows: forecasting, allocation, recognition, reclassification, and auditing. Regardless of whether contracts address products or services, the rules-based framework on which NetSuite relies can automatically unpack the details and recognize the revenue.
Automation simplifies ASC 606 in two significant ways. First, it translates the old rules into new ones so that accountants can be sure they’re in compliance (and avoiding the constituent penalties) without having to obsess over the details of the rule changes as they apply to each contract. Second, it turns revenue recognition—which could drain more time and resources from the accounting department than ever before—into something that happens automatically, almost effortlessly.
insightsoftware: Solving the Compliance Challenge
NetSuite forms the foundation of a strong ASC 606 strategy. Tools from insightsoftware round that strategy out by adding powerful financial reporting capabilities to the equation. Unlike other pieces of supplemental software, ours connects to the back end of NetSuite rather than laying over the top. It’s faster to implement that way, and by circumventing data warehouses, it retrieves data with near real-time speeds.
insightsoftware’s reporting tool doesn’t overlap with NetSuite. Instead, it complements NetSuite’s existing capabilities and scales at the same speed, providing companies with the core accounting technology necessary to grow from startups to public companies while also mitigating the ongoing headaches of ASC 606. If you’re looking for an easier way, it exists. Download our whitepaper Oracle NetSuite: Enhancing Cloud-Based Reporting.
