The ASC 606 and IFRS 15 revenue management guidelines from the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) will take effect in 2017 for private organizations and 2018 for public organizations. While there is a great deal of information and discussion around how these new standards will affect certain for-profit companies, financial executives at nonprofit organizations may be wondering how their organizations will be affected. There are four key points that nonprofits should take into consideration when preparing for these new standards.

  1. The new standards will normalize two different standards for US and international organizations, removing inconsistencies between the two standards as well as across industries.
  2. Rather than a rules-based focus that varies widely by industry, the new standard will be principle-based and focus on the contract between the NFP and its customers for the provision of goods or services, and more specifically, the rights and obligations between the two parties (a reciprocal transaction).
  3. The new standards will impact nearly every organization to varying degrees, but not all types of revenue. Contributions and investment income, for example, two common sources of income for nonprofits, will not be impacted.
  4. The new revenue recognition standard requires contracts to be evaluated using a five step recognition process:
  • Identify the contract with a customer
  • Identify the performance obligations in the contract
  • Determine the transaction price
  • Allocate the transaction price to the performance obligations in the contract
  • Recognize revenue when (or as) each performance obligation is satisfied

Nonprofits will need to determine what revenue will be affected by the new standards. Some types of revenue that won’t be affected include:

  • Leases
  • Insurance contracts
  • Receivables
  • Debt and equity securities
  • Liabilities and debt
  • Guarantees
  • Derivatives
  • Financial instruments
  • Transfer and servicing rights
  • Nonmonetary exchanges

Revenue types that may be affected and impact nonprofits include:

  • Memberships
  • Subscriptions
  • Products and services
  • Royalty agreements
  • Sponsorships
  • Conferences and seminars
  • Tuition
  • Advertising
  • Licensing
  • Federal and state grants and contracts

Technology Can Help
With modern SaaS solutions like Intacct, regulatory changes like the new Revenue Recognition rules can be quite a bit less painful to implement. Intacct’s new Contract and revenue Management platform comprehensively addresses the new complexities of ASC 606 and IFRS 15. This sophisticated revenue accounting platform provides powerful support for complex customer contracts and provides a seamless transition to the new ASC 606 revenue recognition guidance.

For more information on how Intacct can simplify your transition to the new standards, watch the on-demand webinar, New FASB Rev Rec Standards, Actions You Should Take Now!

Learn more
The new ASC 606 and IFRS 15 accounting standards—some of the most far-reaching changes to accounting since Sarbanes-Oxley—are only a few quarters away. Get ASC 606 Resources such as news, assets, and learn about the advantages Intacct provides in helping you address these changing rules with Intacct Contract Revenue Management and Contract and Subscription Billing.