Automate Revenue Recognition for ASC 606 and IFRS 15 Compliance
Regardless of industry, it’s likely that your business is making plans to transition or in the process of transitioning your systems to meet the new converged FASB and IASB standards for recognizing contract revenue. With just over a year before the effective date for private companies, the time for action is now.
Introduced in 2014, private companies will be required to implement the industry-neutral revenue recognition model for annual reporting periods after December 15 of 2018. For a calendar year company, this means your January 2019 year-end report will need to be written in compliance with the new standards.
Even if you are still exploring how the new practices may impact your company—and are curious about what you can do to keep up with compliance as your business grows—read on for some useful insights.
Brief Overview of the New Standards
If you have a contract with a customer, or plan to in the future, the new standards will likely bring significant changes to the way you operate today. The standards introduce a five-step process to recognize revenue, which may be new for you:
- Identify contract(s) with a customer
- Identify performance obligations in the contract
- Determine the transaction price
- Allocate the transaction price to the performance obligations in a contract
- Recognize the revenue when (or as) the entity satisfies a performance obligation
The new standards condense a wide range of existing standards and replace over 200 specialized and/or industry-specific standards. That means there will be variances in how these steps will affect different companies in different industries. It’s a highly complex set of changes, but once set into practice, they should help companies manage their revenue recognition and related processes with more transparency, ease, and speed.
For more details, feel free to refer to this AICPA roadmap to understanding the new standards.
Weathering the Transition
A survey by FERF and PwC reveals the perceived difficulty of the transition among financial professionals. Respondents found everything about the standard to be either “somewhat” or “very” difficult:
- Contract Reviews (current and ongoing): 78%
- Developing and Implementing New Accounting Policies: 76%
- Documentation of Conversion Process and Associated Auditability: 76%
- Quantification of Adjustments: 72%
- Project Management: 71%
- Revisions to Systems and Associated Controls: 68%
- Identification of Accounting Differences Across the Organization: 64%
But consider the silver lining: accommodating these changes creates an opportunity for growing business, in particular, to transition their financial management processes and underlying technology to systems that are flexible, automated, and audit-supporting.
Many finance leaders have concluded that upgrading to a best-in-class financial management and accounting software solution is a key driver for success. If your system is based largely on spreadsheets and traditional desktop software programs that require custom scripting, your team might have a challenging time making the shift and maintaining compliance with the new revenue recognition standards.
Your system should be able to:
- Handle revenue allocation/reallocation and expense amortization through configurable templates
- Provide flexibility to select the allocation method based on the contract’s type of performance obligation
- Allow you to configure new types of allocation as your business, your contracts, and accounting regulations continue to evolve
The Cloud-Based Solution
Sage Intacct Contract Revenue Management is the first automated solution to handle the complexities of ASC 606 and IFRS 15. It was designed to help businesses make the transition with peace of mind that they’re managing their data and reporting with both accuracy and visibility, both today and after all the reporting changes take effect in 2018.
The cloud-based software makes use of Sage Intacct’s multi-dimensionality, multi-entity, and multi-book functionality in supporting multiple sets of business rules from a single source of data. Critically, it offers duel treatment of your data, incorporating old and new recognition methods so you’ll be able to see your revenue based on existing (ASC 605) and upcoming (ASC 606) rules. This helps with invoicing and forecasting, and guides you as you sign multi-year deals with current and future contract partners.
Contact us to learn more about Sage Intacct Contract Revenue Management and why it might be the ideal solution for your business as you prepare to embrace ASC 606 and IFRS 15.