Digital media and marketing company accounting managers should understand how GAAP revenue recognition principles affect their financial statements.
As digital and social media continue to claim a larger share of the overall advertising and marketing landscape, accounting managers and other financial executives at digital media and marketing companies can sometimes encounter confusion about how to properly record, recognize, and report revenue from these fast-growing and still-evolving revenue streams.
Although the applicable guidance – Accounting Standards Codification (ASC) 606, “Revenue From Contracts With Customers” – is detailed and specific, it nevertheless is still subject to some interpretation and management judgment. Variations in contract details can significantly alter the relevant revenue recognition processes and requirements. As a result, compliance with U.S. generally accepted accounting principles (U.S. GAAP) often involves an analysis of each deliverable in a customer contract or statement of work.
For digital media and marketing companies, the most significant questions during this effort tend to arise in three areas:
- Correctly defining and identifying performance obligations
- Measuring progress on performance obligations that are satisfied over time rather than at a single point in time
- Distinguishing between revenue earned as an agent for a client and revenue earned as a principal to a transaction
To improve and expedite their financial reporting, finance and accounting executives in digital media and marketing companies should develop a solid general understanding of these three topics.