Revenue Accounting Complexity Draws Clients to Cloud Companies
Excerpt from "Revenue Accounting Complexity Draws Clients to Cloud Companies," by Denise Lugo of Bloomberg BNA
New revenue recognition accounting that public companies must adopt next year is driving more companies to cloud computing platforms. The new standard, Revenue from Contracts with Customers (ASC 606), is one of the biggest changes in accounting in over a decade. It will affect every industry and is applicable to every business.
The standard requires companies to adopt a five-step process to determine whether a contract with a customer focuses on transfer of control, or transfer of risk and rewards. In an additional provision, companies must provide enhanced disclosures that focus on the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers.
“The prior revenue standard was largely rules-driven, which made it relatively straightforward to explain and document a company’s revenue,” Joseph Howell, of enterprise software company Workiva, told Bloomberg BNA. “The new standard is largely principles-based and requires substantially more judgment,” said Howell.
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