The Impact of ASC 606 On Sales Commissions Calculations and Accounting
One of the most overlooked implications of cost amortization for subscription businesses is the explosive growth of data volumes. The amount of data that the new standard introduces will make it practically impossible to manage commissions manually. For example, a waterfall amortization schedule will be required for every line item, for each person that gets compensated, on every contract.
Compensation plans need to be revisited to ensure incentives aren’t negatively affecting profitability and that all of the appropriate contract information is incorporated into payout calculations.
Both accounting books have to be managed during the transition and contract-level information has to be leveraged from the payout calculations to perform the capitalization and amortization appropriately. You may also have to revise and/or link to the accrual process.
Organizations have to be able to track payout vs accounting impact/balances at the individual performance obligation level including manual and automated adjustments due to contract changes.