The Upcoming Change in Revenue Recognition
For professional services companies bracing for the upcoming change in revenue recognition standards, an independent research company has pointed the way to a straightforward solution.
Blue Hill Research’s Hyoun Park, Chief Research Officer, conducted an analysis of Intacct’s Contract and Revenue Management Solution and determined it to be the best fit for mid-sized and larger companies preparing to meet the new ASC 606 and IFRS 15 Revenue Recognition Standards.
In this two-part blog, we’ll look first at Park’s analysis of Intacct’s Contract and Revenue Management Solution and in the second part we’ll go over Park’s recommendations for mid-sized and larger professional services companies.
The ASC 606/IRFS 15 Issue
In recognition of the challenges of tracking delivery of service in professional services contracts, the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) jointly developed the ASC 606 and IRFS 15 Revenue Recognition Standards.
These standards for annual reporting will take effect after December 15, 2017, for public business entities, certain non-profit entities, and certain employee benefit plans. For all other companies, these standards take effect after December 15, 2018. Early application is permitted for annual reporting periods beginning December 15, 2016.
While this extended time frame will provide companies some flexibility in adhering to the new standards, time is crucial as multi-year contracts signed in 2016 and 2017 will fall under these standards, so earlier implementation will be key in compliance.
Intacct’s Side-by-Side Approach
Intacct’s Contract and Revenue Management System, released in May 2016, was the first to be fully compliant with the new standards while allowing companies to track revenue under both the current and upcoming standards.
While many financial departments will be adopting additional scripting and spreadsheet work to come into compliance with the new standards, Intacct’s solution comes right out of the box, with no need to input data into multiple functions.
Blue Hill notes that Intacct has adopted an intelligent approach to its multi-dimensionality, multi-entity and multi-book functionality to support different business rules from a single source of data. Blue Hill recognizes that mid-market organizations, in particular, will face a challenge to keep ahead of the demand for more complicated financial modeling based on a business that covers greater geography, spans more business models and generates various revenue sources. A single-source software solution such as Intacct will streamline the process for these companies with limited financial staff.
Intacct’s contract solution also is designed to deal with increasingly complex contracts that will be necessitated by these changes in revenue standards. Billing and revenue recognition is built into the sophisticated contract solution, allowing bills to be generated off the contract obligations rather than requiring high-frequency billing based on simple revenue recognition.
Intacct’s integrated programs also allow companies to review existing contracts to determine how the new standards could affect future revenue streams, which will significantly improve revenue forecasting.
A Warning from Blue Hill
Park’s analysis includes a warning for financial departments that consider adopting a combination of spreadsheets and customized script to meet the new standards. He says CFOs need look no farther than the March 2016 announcement by Tangoe that it needed to restate its revenues from 2013-2015 because of incorrect usage of ASC 605-25 and ASC 985-605, which led to the CFO’s resignation.
Tracking the scale of data that spans an entire organization through spreadsheets and customized script is a daunting task that is sure to lead to mistakes, Blue Hill predicts. However, providing revenue recognition information through “configurable and rules-based data” under Intacct will ensure CFOs can be confident in providing accurate data in all their reporting.
In the next post, we will delve deeper into Blue Hill’s recommendations for timely action to come into compliance with the new ACS 606 and IFRS 15 revenue reporting standards. Contact us for a full copy of Blue Hill’s analysis.
Contact us to learn how we can assist your company in implementing an Intacct solution to your financial management needs in a matter of weeks.