In one of my previous blog posts, I mentioned an upcoming feature in Tensoft’s revenue recognition solution with regards to revenue agreements. Well, this much awaited version update is now part of the new Feature Pack release (2018 FP1) for Tensoft Revenue Lens, along with other new enhancements.
With our latest release, we offer the ability for users to easily modify existing revenue agreements. The ASC 606 guidance includes new rules that did not exist in the prior revenue recognition guidance detailing how to account for modifications to contracts. Once you have assessed that a contract has indeed been modified – generally a change in scope or price (or both) – ASC 606 provides guidance on three ways to treat that change:
1. As a new contract (revenue agreement);
2. As a termination of the existing contract and creation of a new, combined contract (the “Prospective” method), or
3. Treating the modification as part of the existing contract (the “cumulative” method)
Tensoft has built in the functionality to handle each of these three types of modifications. The new revenue recognition rules also now require you to estimate variable consideration. These estimates are reviewed each reporting period and may change. The ability to modify an existing revenue agreement allows you to make these changes in estimates.