You know from experience that the best way to get a job done is to approach it both with a plan and with the tools to carry it out that plan. In our continuing series on the new Revenue from Contracts with Customers (ASC 606) guidance, we propose you apply this same two-tiered approach to bringing your firm into compliance. We call these two tiers Processes and Technology. Let’s take a closer look at how they work together.
Processes are the plan
As you could probably guess, processes are the plan. Processes refer to the business rules, internal controls, workflows, terms of engagement, and any other factors that you need to design, develop and implement to ensure you firm obtains and retains compliance with ASC 606.
Here are just of few of the many things your processes should address:
- When is my product/service considered delivered?
- What constitutes a contract?
- What is our plan for handling contracts that are open at the time the new standards take effect?
- How are we setting a transaction price?
- How will we approach changes to the contract?
- What discounts will we permit and how will they be allocated?
- Does my firm’s compensation system (if it’s based on revenue recognition) need to be adjusted?
- How will we produce our financial statements during and after the transition?
- Are we going to use the retrospective approach or a modified retrospective approach?
Technology is the tool
Technology, then, is the toolset that enables you to deploy and enforce your processes to secure and ensure compliance. Technology helps automate this complex process, enabling you to codify the applicable rules through flexible templates and schedules that reflect the way you do business. Technology assists your future defense of the decisions you make in implementing the new guidance.
Here are just a few examples of how technology can aid compliance:
- Accurate billing - The best financial systems let you separate billing schedules from revenue recognition schedules – fundamental to compliance with ASC 606.
- Connect the organization - The best technology tools are connected systems that integrate front- and back-office functions, spanning sales, services and finance, and providing a single version of the truth.
- Boost productivity – Leverage technology to eliminate the need to create and maintain complex revenue recognition spreadsheets that delay monthly closing, contribute to revenue leakage, and lack both auditability and security.
- Automate revenue calculations - Technology tools can drive the automated calculation of both recognized and deferred revenue schedules and forecasts based on contract terms, subscription length, project milestones and more.
- Manage subscriptions and projects- Integrated subscription lifecycle management and project management systems eliminate duplicate data entry and streamline revenue recognition based on project milestones.
- Analyze operations - Powerful business intelligence and analytics tools let you take deep dives into your data and assemble the reports needed to improve (and prove) compliance, and gain greater insight into the current and future health of your business.
Compliance with the new revenue recognition rules starts with thoughtful, top-down processes. Once those processes are in place, technology is the tool to codify and automate those processes. We’d be pleased to help you with both the plan and the tools -contact us for a free consultation.