Revenue recognition standard technical implementation

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Information about Revenue recognition standard technical implementation

Published on January 8, 2016

Author: typok1


1. Revenue Recognition Rules Technical Implementation Leo Khaskin Solution Architect Content: 1. 5 steps process 2. Impact 3. Opportunity 4. Current State 5. Optimized Data Architecture 6. Integrated RRR example 7. Benefits

2. The Five-Step Process Step 1. Identify contract(s) with a customer Step 2. Identify the separate performance obligations in the contract Step 3. Determine the transaction price Step 4. Allocate the transaction price to the separate performance obligations Step 5. Recognize revenue when the entity satisfies each performance obligation Under IFRS 15, FAS 2014-09 standard business will be required to follow a five-step process to recognize revenue. 2

3. Impact 3

4. Opportunity 4 Deloitte has enumerated affected systems as follow: • Update IT Systems • Business Models • Company Practices • Accounting Policies • Internal Processes and Controls This paper will focus on IT Systems updates. The need to implement new riles and stay in compliance with accounting standard is definitely a major challenge for any IT organization. At the same time it provides unique opportunity to streamline data processing operation, remove redundant procedures, reduce maintenance cost, simplify internal audit.

5. Current State 5 It’s not uncommon to observe multiple redundancies in implementing and interpreting Revenue Recognition Rules (RRR) in different IT Systems and Applications, as depicted in diagram below (use case: retail). RRR are usually implemented as series of hard-coded statements or transformations in each system. Once captured by Point of Sales (POS) application (most likely cloud-based) raw sales data is replicated locally and is shared with other systems. Each downstream system then process transactional records into appropriate buckets, such as revenue, donation, Gift Cards, voids, customer refunds, etc. Validation of data in each system presents a challenge due to synchronization complexity.

6. Optimized Data Architecture 6 RRR are applied to raw sales data as soon as it replicated locally. Any Meta Data Management system (MDM) can be utilized to design, develop and maintained RRR. Transactional records are flagged as Revenue or otherwise and shared with downstream systems. All systems operate with the same dataset. Maintenance of RRR is localized to a single applet and requires minimal efforts to stay in compliance with the standard.

7. Integrated RRR example 7 Abbreviations (retail use case): ROR - Right of return CNS - Sell-through approach/consignment arrangements FOB - FOB synthetic destination INS - Customer incentives LOY - Loyalty programs GFT - Gift cards FRA - Licenses and franchise agreements WAR - Warranties 3RD - Amounts collected on behalf of third parties BHA - Bill-and-hold arrangements RRR process will flag appropriate records with relevant rule code and specify to what account the transaction should be attributed.

8. Benefits 8 • Easy Maintenance • Improved Consistency • No synchronization overhead • Complete, accurate, timely data • Reduced Closing and Consolidation cycle • Fewer entry errors and adjustments • Decreased risk of misstatement

9. Questions 9 Contact us for demo, templates, questions, etc. Thank you

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