Recasting Approaches to Consider for Implementing ASC 606

Kai Wong, VP of Product Strategy About The Author

Jul 7, 2017 4:10:11 PM

Man standing on a road looking towards the hills


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 for 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 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. 


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 infographic.

 

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