Revenue Recognition changes are coming quickly and many companies have already begun to evaluate what compliance with the new standards means to them. Some companies still have to evaluate the impact…to those companies I say the time is now. The new Revenue Recognition guidelines take effect January 1, 2018 and the date is rapidly approaching.
At the recent Revenue Recognition Bootcamp in Boston hosted by Bramasol—along with SAP, PwC, and Nakisa—many companies indicated they had begun evaluating the impacts of the IFRS 15 and ASC 606 (Revenue Recognition) changes but needed direction on how to approach implementing those changes. If this sounds like the situation you are facing, you are not alone and more importantly, we are here to help.
The simplest way to look at how the changes impact you is to do the following:
- Perform an Impact Assessment – Work with an accounting firm to understand how the changes impact your business. In some cases this will not only be a reporting impact, but a business process impact. Consider a company that pays its sales staff based on the revenue they generate. Now the timing of that revenue is impacted. Certainly consideration will have to be given to the compensation of the sales staff as the metric for determining compensation has changed.
- Identify the types of contracts you have – Group like contracts together. If you have time based contracts, milestone based contracts, or contracts that include a gift with purchase component, it is important to identify how many different types of contracts you have. This will help to determine the Performance Obligations (the goods or service) you will need to fulfil under the new method for recognizing revenue.
- Participate in a Proof of Concept (POC) – A POC enables you to actually see how the changes are implemented for your scenarios and what the new standards will look like. A POC will use your data and contracts to prove out the solution provided by SAP. This solution is included in your maintenance (so there is no additional software or license costs) and will work with anyone on SAP ECC EHp5 or higher. It is fully integrated, supported, and ready for HANA. Bramasol has been working with the product since its inception and are experts in its implementation. We work closely with SAP and their development team on identifying requirements, testing the software, and supporting early adopters.
- Initiate a project – After completing the above steps, it is time to take action and start the project to implement a Revenue Recognition solution. Bramasol has been involved in many POCs and several projects and one thing is certain, the time to start is now. The earlier you get started, the more time you have for testing and planning for the change that is inevitable. There is no indication for the standards boards that there will be a delay, so it is critical to start the process. Projects range from six months to over two years depending on industry, volume and type of contract, reporting requirements, and preparation done prior to project execution. I cannot stress this enough, you need to get started as soon as possible if not now.
Hopefully you have found this information helpful. We at Bramasol, and I in particular, would love to discuss any topic with you in more detail. Do not hesitate to reach out to us and let us know how we can help you.
We have a team of consultants and subject matter experts along with our Revenue Recognition Center of Excellence ready to support you throughout the entire process. We wish you success and look forward to helping you get there.
