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Publication

Impact of the new revenue recognition standard - ASC 606

Condren, Paige
Abstract
The new revenue recognition standard, ASC 606, has changed the way that companies record revenue from contracts with customers. The Financial Accounting Standard’s Board (FASB) issued ASC 606 to standardize and consolidate the various pieces of revenue recognition to make financial statements more comparable. In this project, I analyze the financial impact of this standard on companies. Using public company data, I highlight different industries and show the impact ASC 606 has on revenue, retained earnings, and net income. I find that the average number of areas of significant impact per disclosing firm is 1.50 areas. The overall average cumulative effect on revenue as a percentage of total assets is -0.13%, the overall average cumulative effect on retained earnings is 0.74%, and the overall average cumulative effect on net income is 0.03%. I find that the highest impact of ASC 606 is on retained earnings. The retained earnings impact was the most evident in the Information Technologies and Technology and Telecommunications industries. The overall average cumulative effect of the new standard on retained earnings is 4.13% of assets in Information Technologies and 3.21% of assets in Technology and Telecommunications industries.
Date
2021-12-01