Software, Life Sciences Face Sweeping Accounting Changes
A recent RSM expert webinar identified industries that will be hit hardest by new revenue-recognition rules
The software and life sciences and pharmaceutical industries are among a handful of industries that will be significantly affected by upcoming changes to accounting standards concerning revenue recognition, according to experts at RSM.
Private equity sponsors should prepare now.
The new standard comes in the form of Accounting Standards Codification 606 (ASC 606), considered by many the most significant corporate accounting change since the Sarbanes-Oxley Act of 2002. The standard came into effect Jan. 1. 2018 for publicly traded companies; private companies are subject to the rule beginning Dec. 15, 2018.
In a recent webinar outlining their recommendations on how to comply with the new standard, RSM partners Stacy Dow and Patrick Conroy identified several industries that could face significant impacts: software and technology; engineering and construction; entertainment and media; aerospace and defense; automotive; communications, and pharmaceutical and life sciences.
Dow said that’s because rules for recognizing complex forms of revenue are significantly changing. “These are all the industries where typically you’re entering into multiple-element transactions… with a number of different performance obligations recognized at different points in time,” she explained.
Still, Dow and Conroy stressed that ASC 606 would impact all industries.
Companies that will see a more moderate impact consumer and industrial product manufacturers. “I think the biggest change here is going to be around variable consideration that requires management judgement and use of estimates, meaning that all refunds, returns, discounts, rebates, penalties and other items will require further analysis,” said Conroy.
Many companies will need to modify their ERP systems to comply with the changes, Dow and Conroy said.
Other topics discussed in the webinar included:
- • A high-level overview of the new guidance, including key tax and accounting changes
- • Key dates and actions to consider for successful implementation
- • Potential challenges associated with adopting the new standard
- • The impact on M&A transactions
A recent RSM expert webinar identified industries that will be hit hardest by new revenue-recognition rules.