11 Reasons Why Investors Should Care About ASC 606
Are your portfolio companies ready for ASC 606?
By, Alex Bogopolsky, Director, Accordion
…if not, there’s still time before the January 2019 deadline – but not as much as your management teams may think.
Adopting this entirely new revenue recognition process will require significant effort from a cross-functional team. Everything from client contracting, to employee compensation, to accounting processes may need to change.
If one–or a few–of your portfolio companies haven’t started implementing ASC 606 yet, it’s time for a gentle nudge. Here are 11 reasons to ignite a sense of urgency.
11 reasons to pay attention to asc 606 right now:
- Reason #1: ASC 606 will change timing, amount of revenue, expenses and EBITDA. Revenue may be accelerated or deferred; costs may be capitalized.
- Reason #2: When financial measures are driven by revenue or its derivatives, certain debt covenants may be violated.
- Reason #3: Revenue may become more volatile and less predictable.
- Reason #4: ASC 606 requires extensive business-focused revenue disclosures.
- Reason #5: Due to costs related to system changes and revenue reporting processes, ASC 606 is time-consuming and expensive to adopt.
- Reason #6: ASC 606 requires significantly more judgments, estimates, and disclosures; it also introduces new risks.
- Reason #7: For long-term contracts, there may be permanently “lost” revenue upon transition.
- Reason #8: Executive compensation, bonus, and sales commission plans may require revisions.
- Reason #9: Contracting practices may need to change.
- Reason #10: Legal and sales personnel will need to be educated and involved in the transition.
- Reason #11: ASC 606 will impact budgeting and forecasting.
Looking for more information on ASC 606? Check out our recent article, published in PE Hub.
Need help implementing ASC 606? Get in touch.