We’re all familiar with software-as-a-service (SaaS), and now we are seeing a multitude of other “as-a-service” offerings, including storage-as-a-service, platform-as-a-service, marketing-as-a-service, and even healthcare-as-a-service as companies accelerate their use of technology to digitally transform their business models. Thanks to enormous scalability, low entry costs and faster computing platforms, innovators are able bring to all manner of services to the Internet, without having to build an infrastructure to support them. As more and more companies enter this everything-as-a-service (XaaS) marketplace, they fall under the jurisdiction of the new Revenue from Contracts with Customers rules, codified as ASC 606. However, many of these companies may incorrectly think the new standards do not apply to them and consequently are not taking the necessary steps to ensure they remain in compliance.
Think ASC 606 doesn’t apply to you? You might need to do some rethinking, and take some quick action to put your business in the best position to comply. Don’t worry – we won’t get all technical on you here, we’ll just help you identify if ASC 606 applies to you.
If It Looks Like A Contract and Acts Like A Contract
For companies engaging in straight forward commerce – selling a widget for a set price for example – ASC 606 brings no change. These companies will continue to recognize revenue at the time the invoice is created, but for many XaaS companies, things get complicated. You may also sell a widget, but perhaps you tweak that widget to customers’ specifications, offer technical support (for a fee) on that widget, and even provide regular updates and improvements to the widget. Suddenly you’re under the purview of ASC 606 and the timing of the recognition of revenue associated with those products and services may change.
XaaS companies that offer one or more of these subscription-style services, regardless of size, will need to comply with ASC 606. You might not consider your agreement with a customer a contract, and you might now consider your offering a subscription, but under the auspices of ASC 606, they are. Essentially, if you have an agreement with a customer to deliver products or services over time, you are subject to ASC 606.
OK, So Now What?
What should you do if you think ASC 606 may apply to you? We recommend a two-tiered approach to compliance, one that combines processes and technology. Processes refer to the business rules, internal controls, workflows, terms of engagement and any other factors that you need to design, develop, and implement to ensure your organization obtains and retains compliance with ASC 606. Technology is the tool that helps automate complex processes, enabling you to deploy and enforce them to secure and ensure compliance.
It’s important to note that not all technology tools are capable of the type of reporting and workflow automation needed to simplify compliance. In case you need help, we’re actually a software solutions partner that works with XaaS and other service organizations to help them implement this two-tiered approach and move into compliance using Sage Intacct. If you have questions or need help with an implementation, contact BT Partners and let’s talk.