January 1, 2018, is a looming date of reckoning for public companies in Arizona and across the United States — and American companies doing business internationally, as well — that sell goods and services to customers over a time period that is differentiated from a single, discrete point of sale. For private companies, the first day of 2019 will have a similar impact.
The businesses that need to be paying attention to new guidelines that will take legal effect on those respective dates are those that Forbes states offer “subscription” services.
For quick clarification of what that means, readers might simply think of things like mobile service providers or software vendors. As opposed to instances where consumers pay cash for a service or product they receive immediately and in its entirety, subscription scenarios can be far more complex when it comes to recognizing revenue. Is a sale accounted for when a contract is initially signed or on the date it expires?
That moment of accounting is important for many individuals and entities. The IRS certainly wants to know for taxation purposes. Regulators and investors want an accurate picture of an enterprise’s financial performance and health.
There are of course long-tenured domestic and international recognition standards in place, but concern has grown that they aren’t optimally compatible and that greater harmony and consistency need to apply though closer alignment of American and global rules.
And, thus, the newly proposed guidelines, which Forbes states affected companies need to be paying attention to and readying for now, given their complexity and new learning that will be required to stay legally abreast of changing requirements.
Forbes notes that there will be “huge implications for public, private and not-for-profit organizations.”
Implementation is not far off, with companies that need to make adjustments having much work to do to get ready and be compliant in a timely manner.
Affected businesses might reasonably want to consult with proven professionals regarding readiness, with experienced business law attorneys and other advisers being well placed to offer guidance and input on preparations for the new revenue recognition standard that will soon be put into place.
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