Public companies on a calendar year-end will need to adopt the ASC 606 accounting standards on January 2018, while nonpublic companies have until January 2019. The two transition methods available for ASC 606 are full retrospective and modified retrospective.
- Full retrospective: Prior periods from 2016-2017 will need to be restated under the new standards. From 2018 onwards, revenue will only need to be reported under the new standard.
- Modified retrospective: Prior periods from 2016-2017 do not need to be restated under the new standards. From 2018 onwards, revenue will need to be reported under the old and new standards.
If you’re still deciding which method is best for your company, here are the pros and cons to consider for each transition method.
Full Retrospective:
| Pros | Cons |
| Prior period comparative financials will be on same basis as current period information | Effort-intensive process in re-stating and auditing prior period information |
| Financial trend information presented is preserved | Requires full history of affected contracts for restatement |
| Provides data needed by other processes (management reporting, FP&A, tax, sales, compensation, etc.) | Full historical data adds to volume demand |
| Single method reporting under new standards post adoption date | Shrinking time window to complete |
| Less work/risk in year of adoption |
Modified Retrospective:
| Pros | Cons |
| Lower effort the comparative periods – no restatement of prior years’ financials | Inconsistent trend information presented on comparative financials |
| Lower historical data volume | Dual reporting required for one additional year post adoption |
| Less time needed to complete | More work/risk in year of adoption |
| Potential unaccounted revenue if new standards accelerate revenue compared to existing standards | |
| Lacks data needed for other processes (management reporting, FP&A, tax, sales compensation, etc.) |
The two Aptitude RevStream recasting approaches to support transition to ASC 606 are chronological and end state.
Chronological:
- Similar to full retrospective, requires full active contract history
- Recalculate results for restatement reporting, including interim periods and retained earnings adjustment
- Dual reporting for two prior years
- Single reporting only for year of adoption and onwards
End state:
- Similar to modified retrospective, requires state of active contracts on adoption date, removing need for full history
- Recalculate results for retained earnings adjustment only
- Dual reporting for one year post adoption date
To summarize, if you decide to move forward with the full retrospective transition method, you’ll need to use the chronological recasting approach. If you decide to move forward with the modified retrospective transition method, you’ll need to use the end state recasting approach.
Aptitude RevStream’s revenue automation solution has the flexibility to support both transition methods and recasting approaches. If you’d like more information, watch our recasting webinar recording or see our Aptitude RevStream information page.
