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If You've Been Using SD RevRec for ASC 606, It Can't Last Much Longer

Posted by Bramasol RevRec Team on Tue, Jul 24, 2018 @ 09:46 AM

RevRecReady-HotTip-12-1During the lead-up to implementation of the new Revenue Recognition standards, ASC 606 and IFRS 15, companies chose a variety of paths to get ready. 

In some cases, they took a long term view and implemented purpose-built solutions such as SAP Revenue Accounting and Reporting (RAR) to achieve compliance, while also laying the groundwork to optimize and transform their financial operations.

However, in some situations, companies simply tried to make as few changes as possible while cobbling together bare minimum compliance approaches.  One of these shortcuts used by companies running SAP was to try and squeeze compliance functionality out  of existing SAP SD Revenue Recognition functionality running in ECC environments.

From the outset, SD RevRec posed a number of shortcomings with regard to meeting the new requirements, including:

  1. No Multiple Element Arrangements: SD RevRec does not support allocation of transaction price, one of the fundamental steps for ASC 606 and IFRS 15. Revenue is always recognized separately for every SD order item according to its specific pricing conditions.
  2. Parallel Accounting: SD RevRec cannot manage different accounting principles, with makes it difficult to leverage automation and increases the effort needed for reconciliation by accounting teams.
  3. Cost Recognition: Cost of Goods Sold (COGS) is not reconciled with revenue recognized.  SD can only recognize cost at the time of PGI or billing, depending on set-up of the pricing scheme in SD.
  4. Disclosures and Reporting: Tranditional SD RevRec is not capable of meeting the new disclosure requirements for ASC 606 and IFRS 15.

SD RevRec tue-tip-24-JulDespite these limitations and the recommendations from SAP that customers transition to RAR, some companies managed to get by with SD RevRec for initial implementation of the new standards.

Unfortunately those companies are now facing another big hurdle in the near future because SD RevRec will no longer be supported as the SAP technology environment moves ahead to S/4HANA.  Current estimates indicate that SD RevRec will become dead-ended by the end of 2020.

SD-RevRec-Deadend

 

So, if your company is in this situation, what should you be doing now?

  1. The first step is to look at implementing SAP RAR as soon as possible.  If you have SAP, you already own the RAR solution as part of SAP FICO. Also RAR can be deployed as a RevRec engine for other ERP legacy environments.
  2. Consult your outside accountants and knowledgeable SAP consultants to define a pilot program running SAP RAR in parallel with existing methods.
  3. Look into leveraging a purpose-built fast-track approach such as Bramasol's Rapid RevRecReady Compliance Solution.

The most important issue is DO NOT WAIT!

The clock is ticking toward the end of SD RevRec and you're going to need a viable alternative in place!

 

Request RevRec Consulting Support

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Topics: revrec hot-tips

Improving Financial Transparency with Adoption of ASC 606

Posted by Bramasol RevRec Team on Tue, Apr 10, 2018 @ 06:15 AM

RevRecReady-HotTip-12-1Now that the adoption deadline for ASC 606 ( IFRS 15 for IFRS filers), revenue recognition for public entities has passed, the readers of companies’ financial statements should expect a much more robust financial reporting over revenue recognition.  

In addition to the new five step model, companies now are required to disclose in a separate footnote, a new set of data points both quantitative and qualitative  about the company’s revenue recognition processes.

The objective of the new standard is to “disclose sufficient information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows. Entities can accomplish this by providing qualitative and quantitative information regarding its contracts with customers, the estimates and judgments used to measure its revenue, and the nature of any assets recognized related to the costs of obtaining the contracts.”

How extended payment terms can mask important revenue recognition info in financial statements:

In a recent article published on cfo.com by Vincent Ryan on March 27, 2018, titled “Controller Charged in Revenue Recognition Scheme” he states that the SEC charged a public company controller with fraud by using a number of “improper tactics” including extended payment terms and then goes on to say that the SEC noted in its enforcement order that “The fraud created the misperception that Maxwell’s ultracapacitor growth was far more successful than reality,”  Extended payment terms are very common tactics to entice potential customers into a sale because the customer will get the good or service now but will not have to pay immediately. From a company perspective, this will increase the revenue recognized but a reader of the company’s financial statements will not be able to assess the payments terms and whether there is a significant financing component embedded within the company’s revenue recognition accounting processes.

How ASC 606 new disclosure requirements can bring more transparency to financial reporting:

ASC 606 strives to change that issue by requiring significantly more disclosure regarding that missing piece of information and also will require companies to bifurcate the related interest portion from the revenue portion. It could also cause more questions from the readers of a company’s financial statements knowing that there is a significant financing component disclosure. 

Disclosure of Significant Financing Components:

One of the new disclosure requirements specifically relates to the existence of a significant financing component in a revenue contract. Therefore companies will now be required to disclose to the readers of their financial statements in the new revenue disclosure any effects of financing separately from contracts with customers. The nature of the disclosure will inform the reader about whether there is any significant financing components that are over one year old. This new disclosure will inform the reader that the company is essentially financing the revenue transaction because for some transactions, the receipt of consideration does not match the timing of the transfer of goods or services to the customer (e.g., the consideration is prepaid or is paid after the services are provided). When the customer pays in arrears, the entity is effectively providing financing to the customer. Conversely, when the customer pays in advance, the entity has effectively received financing from the customer.

Relevant ASC 606 Excerpt: (ASC 606-10-32-20 An entity shall present the effects of financing (interest income or interest expense) separately from revenue from contracts with customers in the statement of comprehensive income (statement of activities). Interest income or interest expense is recognized only to the extent that a contract asset (or receivable) or a contract liability is recognized in accounting for a contract with a customer. In accounting for the effects of the time value of money, an entity also shall consider the subsequent measurement guidance in Subtopic 835-30, specifically the guidance in paragraphs 835-30-45-1A through 45-3 on presentation of the discount and premium in the financial statements and the guidance in paragraphs 835-30-55-2 through 55-3 on the application of the interest method.”)

Improving Financial Transparency with Adoption of ASC 606-blog-graphic-10-04-2018

Summary:

The new revenue recognition standard will bring much more visibility to a company’s revenue recognition processes and new data points that will help readers of the company’s financial statements more clarity to make more informed financial analyses.

Click here to learn more about how Bramasol can help with RevRec compliance and optimization.

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Topics: revrec hot-tips, ASC606

Most Companies are Underestimating RevRec Changes According to SAP CAO

Posted by Bramasol RevRec Team on Tue, Mar 27, 2018 @ 08:18 AM

RevRecReady-HotTip.jpgIn a recent interview with CFO.com, Christoph Hütten, chief accounting officer for SAP, discussed the readiness (or lack of readiness) of companies for meeting the new RevRec standards, ASC 606 and IFRS 15.  

Hütten has a broad understanding of the issues, having served from 2009 to 2014 on the IFRS Advisory Council for the International Accounting Standards Board, during the period when IASB issued two exposure drafts of the new standard and published the final rule.

For the past four years Hütten has been part of the Joint Transition Resource Group for Revenue Recognition, formed by the U.S. and international standard setters after the standard’s 2014 publication to answer questions and clarify uncertainties around its application.

According to Hütten, most companies are ready to produce a revenue number for the first quarter. But a majority of those are using what he describes as “interim processes.”

“I see a lot of companies underestimating it,” says Hütten. “They don’t see a big issue for revenue on the face of their income statement. But at some point somebody will be looking at the very detailed disclosures that are required and realize they’re not prepared to make them.”

A key take-away from this article is that companies should not underestimate the complexities of achieving compliance and the importance of implementing automated solutions that can seamlessly mesh revenue recognition with overall accounting processes and business systems.

Click here to read the full article in CFO.com

Click here to learn more about how Bramasol's experts can help you get RevRecReady

 

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Topics: revrec hot-tips

Disclosure requirements under ASC 606: Allocation of transaction price to unfulfilled performance obligations

Posted by Bramasol RevRec Team on Tue, Mar 27, 2018 @ 01:51 AM

RevRecReady-HotTip.jpgNow that the January 2018 deadline has passed, and public companies must now adopt the new revenue recognition standard, ASC 606, disclosures become the central focus of the implementation process.

This assumes that companies have already diagnosed, scoped and concluded how they will implement the new standard - and also assumes your external auditors have already signed off on your implementation project!

Now you must consider what readers of your financial statements will see when they read your Q1 2018 financial statements. Q1 2018 is the first reporting period that companies will disclose the new revenue recognition footnote and all the related new informational data points that it includes.

The objective of the standard is to disclose sufficient information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows. Entities can accomplish this by providing qualitative and quantitative information regarding its contracts with customers, the estimates and judgments used to measure its revenue, and the nature of any assets recognized related to the costs of obtaining the contracts.

Although ASC 606 is a principle-based standard, it does provide many requirements.  The following briefly describes the requirements within the broad disclosure topics:

  • Disaggregation of revenue
  • Contract balances
  • Performance obligations
  • Transaction price allocated to remaining performance obligations
  • Significant judgments in the application of the guidance

In this blog, we touch on a new requirement within the performance obligations reporting:
Transaction Price allocated to the Remaining Performance Obligations.

ASC 842 states the following:

“An entity shall disclose all of the following information about its remaining performance obligations:

  • The aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied (or partially unsatisfied) as of the end of the reporting period
  • An explanation of when the entity expects to recognize as revenue the amount disclosed in accordance with paragraph 606-10-50-13(a), which the entity shall disclose in either of the following ways:
  1. On a quantitative basis using the time bands that would be most appropriate for the duration of the remaining performance obligations
  2. By using qualitative information. “

So, what does this mean?  Companies in the construction and project-based industries where they currently use percentage of completion accounting will be familiar with this because it is similar to backlog.

There are three main differences though that you need to consider upon ASC 606 implementation:

  • Previously, backlog was never audited and was never part of the footnotes to the financial statements. Now they will be and that means that it will receive more scrutiny from your external auditors.
  • There is no official definition or a standard way to calculate backlog. Some companies’ inbound orders based on signed deals, others inbound based on likelihood or verbal contracts. As you can see there is no official definition of backlog.
  • Companies who are not accustomed to preparing a backlog type analysis will now be required to prepare such analyses.

Tips and Implementation Insights:

  • New process: A new process will need to be created for being able to disclose the transaction price allocated to the unfulfilled performance obligation. In the creation of a new process, you must ensure that there are proper controls built within the process. Questions such as, “Who is going to prepare the data in the report? Who is going to approve the data in the report? Is it going to be a system control or a manual control?
  • Auditable: The new disclosure should be auditable for your external auditors to review appropriately. The easier for the auditors, the potential for less incremental fees exists!
  • Element of Forecasting: The transaction price allocated to remaining performance obligations will be a key data point that readers of your financial statements will be monitoring every quarter because it has an element of forecasting or looking into the future. Readers of your financials will likely cross reference this to your guidance (if in fact your company does give guidance) so there is a real need to make sure that FPA, Accounting and Reporting are all in sync. More likely than not, FPA would probably use the new disclosure point as a starting point for the forecast process.Disclosure requirements under ASC 606 _blog-graphic-27-03-2018.jpg
It is critical to be addressing the above issues now in order to assure compliance and to establish the framework for accurately reporting and disclosing the allocation of unfulfilled POBs.

If you need assistance understanding, implementing and/or optimizing these and other requirements of the new RevRec standards, Contact Bramasol for s RevRec Demo.

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Topics: revrec hot-tips

RevRec Ready Rapid Compliance Solution for ASC 606 & IFRS 15

Posted by Bramasol RevRec Team on Mon, Mar 19, 2018 @ 04:15 AM

RevRecReady-HotTip.jpgBramasol, the leader in Revenue Recognition solutions, has announced a new, purpose-built product that reduces complexity and gives companies across a variety of industries a ready-to-deploy turnkey solution for disclosure reporting and compliance.

The RevRec Ready Rapid Compliance Solution leverages the power of SAP RAR and combines it with Bramasol’s deep experience to provide a quick start that can get companies up and running in weeks instead of months and for an affordable price. 

This complete, ready-to-deploy approach gives CFOs a proven, fast and reliable way to meet RevRec compliance requirements without the risk of getting stuck in a long, open-ended process that might not yield the desired results.

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The deadline to get compliant with ASC 606 and IFRS 15 has passed but many companies are still struggling with complex reporting requirements. Many companies with relatively straight-forward sales structures and simplistic multi-element products/services don’t want or need to become mired in overly complex RevRec solutions or long implementation processes.  But compliance with the new standards is NOT optional, so they need a risk-free solution that fits their specific situations.

“I am very excited about our new RevRec Ready Rapid Compliance Solution” said Dave Fellers, CEO of Bramasol.  “This solution delivers on our desire to help all companies comply with the new ASC 606 and IFRS 15 standards.   It is designed for companies that have simple needs or found that a brute force method doesn’t work and need a quick way to comply.   We have leveraged our more than three years of expertise and created a solution that includes the key elements anyone would need for basic compliance. It is a great first step on the way to transforming compliance into competitive advantage.”

Bramasol’s RevRec Ready Rapid Compliance Solution enables organizations to get ASC 606 & IFRS 15 compliance on a fast track and in a very cost-effective manner. For a starting price of $175,000, the pre-configured starter package includes the following:

  • Set up of SAP RAR in your environment
  • 5 of the Top Most Common Scenarios for Revenue Recognition (scenarios only, no variants)
  • Set of BRF Plus Rules to Drive
  • Documentation
  • Minor Customization - labels, fields, descriptors, materials
  • Out of the Box SAP RAR Reporting
  • Support for First Quarterly Reporting
  • Time with our Center Of Expertise
  • Basic Training Package

Click here to learn more about the RevRec Ready Rapid Compliance Solution

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Topics: revrec hot-tips

For SAP RAR Success, Only Trust the Best

Posted by Bramasol RevRec Team on Mon, Feb 26, 2018 @ 07:05 AM

RevRecReady-HotTip.jpgThe new Revenue Recognition standards deadline has arrived but the road to successful implementation, disclosure reporting and operational optimization continues throughout 2018.

You made a significant investment in making sure you comply with the latest regulations for revenue recognition, ASC 606 and IFRS 15.  Why trust just anyone to help you optimize your investment?

Other companies claim to know about SAP RAR, but are they the leaders with deep, proven experience on more projects and co-innovators with SAP?  Only one partner is – Bramasol.

Bramasol is leader in revenue recognition consulting and implementation.  And, with over 21 years of SAP experience we have the experience, expertise and people to help you maximize your investment in SAP RAR.  We offer comprehensive ongoing support for your SAP Revenue Accounting solution with support packages tailored to your needs that are flexible, affordable and will help you optimize your investment.

Bramaso Revenue Recognition Leader _tue-tip-27-feb.jpg

Click here to learn more about how Bramasol can help.

 

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Topics: revrec hot-tips

Video: RevRec Lessons Learned from Customer Projects

Posted by Bramasol RevRec Team on Mon, Jan 29, 2018 @ 06:38 AM

RevRecReady-HotTip.jpg

The deadline for new Revenue Recognition standards, ASC 606 and IFRS 15, has arrived. 

 

Are you #RevRecReady ?

 

For more than two years, Bramasol has been at the forefront of RevRec implementation, helping many companies understand and prepare for the new standards.

In our most recent monthly Revenue Recognition webinar, we provided a look back on lessons learned from these implementation projects and reviewed where you should be now from a forward-looking perspective.

In this video, recorded on January 16, 2018, you can hear the perspective of the auditor, IT, Finance and Business leaders to understand what they're learned from RevRec projects and the key points about what worked and what didn’t. 

Key issues addressed in the webinar video include:

  • Looking Ahead in 2018
  • Shifting Focus from Early Adoption
  • Considering All Stakeholders Involved
  • Understanding Drivers Behind Each Perspective

Click Here to View Video in Bramasol Resource Center

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Topics: revrec hot-tips

How to Engage with Auditors During Your Revenue Recognition Implementation

Posted by Bramasol RevRec Team on Mon, Jan 22, 2018 @ 07:18 AM

RevRecReady-HotTip.jpgWith implementation of ASC 606 and IFRS 15 now in full swing, one important area that has moved to the forefront is how to work with your auditors to help with a smooth transition and to assure compliance. 

Below is a checklist of key factors to keep in mind for optimizing the audit process and engage with your auditors.

  • Involve your auditors early and often!
  • Perform a thorough assessment of risks that may arise as a result of applying the new standard, considering both the accounting requirements and the disclosure requirements.
  • Use your auditors as a sounding board. Ask for their reactions, while there is still time to reevaluate, modify, and achieve high-quality financial reporting.
  • Communicate initial accounting conclusions.
  • Plan your disclosures early, communicate those plans, and share draft disclosures.
  • Discuss potential changes to internal processes, systems, and controls. Work with your auditors to develop plans for testing new or modified internal controls, including controls over the implementation of new systems to track new or different information.
  • Develop action plans that outline when key analyses, estimates, and disclosures will be ready for audit.
  • Keep your auditors informed as to your implementation timeline and status.
  • Bottom line: engage in open dialogue with your auditors. Share. Involve. Listen. Repeat.

Click here to learn more about RevRec compliance issues and/or request assistance to get #RevRecReady

Checklist key factors for optimizing audit process and engage with auditors Revenue Recognition R1.jpg

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Topics: revrec hot-tips

The RevRec Deadline is Here! Open This for Answers.

Posted by Bramasol RevRec Team on Mon, Dec 25, 2017 @ 04:24 PM

RevRecReady-HotTip.jpgThe deadline for new Revenue Recognition standards, ASC 606 and IFRS 15, is arriving on January 1, 2018. Yes, that is next week!

Many companies have been working diligently over the past year or more to get ready. Bramasol has actively been working with lots of them to provide software solutions, data migration services, consulting on best practices, Proofs-of-Concept (POCs), Pre-Built Disclosure & Compliance reports, and overall change management assistance.

Of course, not everyone is perfectly ready to go.  We know this because thousands of attendees in our monthly RevRec webinars over the past two years have told us via their responses to survey questions. 

The good news is that it's not too late! Yet! (But it will be soon)

The first quarter of 2018 will be an absolutely crucial time for making sure that the most important steps and processes are in place for timely data collection and compliance reporting.

Our Bramasol Center of Excellence experts in Revenue Recognition are seeing a surge of companies that are looking for answers to key questions such as: 

  • What should you definitely have done by now in the implementation process? 
  • How can I make sure that my data migration is on track? 
  • What's the difference between data migration and transition processes? 
  • What are the reporting requirements in the near term and over the next year? 
  • What changes are considered "material" and how/when do we address them in our standard disclosure reporting processes? 
  • How can we coordinate the go-live processes between IT and Finance? 
  • What comes next to ensure long-term success? 

If you'd like catch up now so you can avoid the dire consequences, regulatory sanctions, financial impacts and stock market impacts of being judged non-compliant...

Or, if you just want to make sure that all your efforts thus far are coming together to meet requirements of your auditors and other key stakeholders such as your Board of Directors and shareholders...

Then you're in luck! 
There's one more present to open as you leave 2017!

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Contact Bramasol's RevRec Experts for a Free Demo and consultation.



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Topics: revenue recognition, revrec hot-tips

RevRec: FASB Update Regarding Principal vs Agent Considerations

Posted by Bramasol RevRec Team on Mon, Dec 4, 2017 @ 01:25 PM

RevRecReady-HotTip.jpgFASB Issues Accounting Standards Update 2016-08

Revenue from Contracts with Customers
Principal versus Agent Considerations

An issue discussed by the Transition Resource Group (TRG) for Revenue Recognition relates to when another party, along with the entity, is involved in providing a good or a service to a customer.

In those circumstances, Topic 606 requires the entity to determine whether the nature of its promise is to provide that good or service to the customer (that is, the entity is a principal) or to arrange for the good or service to be provided to the customer by the other party (that is, the entity is an agent).

This determination is based upon whether the entity controls the good or the service before it is transferred to the customer. Topic 606 includes indicators to assist in this evaluation. Discussions at TRG meetings informed the Board about implementation issues related to the guidance on principal versus agent considerations, including:

  1. Identifying the unit of account at which an entity should assess whether it is a principal or an agent
  2. Identifying the nature of the good or the service provided to the customer (for example, whether it is a good, a service, or a right to a good or service)
  3. Applying the control principle to certain types of transactions, such as service arrangements 4. Interaction of the control principle with the indicators provided to assist in the principal versus agent evaluation.

To address those issues, the Board decided to add a project to its technical agenda to improve Topic 606 by reducing:

  1. The potential for diversity in practice arising from inconsistent application of the principal versus agent guidance
  2. The cost and complexity of applying Topic 606 both at transition and on an ongoing basis.

Who Is Affected by the Amendments in This Update? The amendments in this Update affect entities with transactions included within the scope of Topic 606. The scope of that Topic includes entities that enter into contracts with customers to transfer goods or services (that are an output of the entity’s ordinary activities) in exchange for consideration.

For more information, read the FASB Update here.

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Topics: revrec hot-tips

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