The Upcoming Change in Revenue Recognition
With the change in revenue recognition standards looming over professional services companies, CFOs would be well advised to take note of an independent research company’s analysis of Intacct’s Contract and Revenue Management Solution.
Blue Hill Research noted Chief Research Officer Hyoun Park conducted a thorough analysis of the software as a solution (SaaS) and found it to be the best solution for mid-market and larger professional services companies to meet the new revenue recognition standards.
In an earlier blog post, we reviewed Park’s assessment of the Intacct Contract and Revenue Management Solution and how it addresses the new ASC 606 and IFRS 15 Revenue Recognition Standards issued jointly by the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (ISAB).
In this second post, we turn to Park’s recommendations on how professional services companies respond to these changes and prepare to comply with the new reporting standards.
The Time to Act Is Now
With public business entities, certain non-profit entities and certain employee benefit plans facing a one-year deadline to meet the new standards, Park warns that delaying action is not an option. These entities must meet the new revenue reporting standards beginning December 15, 2017, so all current contracts and those in the works must be brought into or written in compliance. All other companies must be in compliance by December 15, 2018. Early application of the standards is permitted beginning December 15, 2016, so companies can get their act in order immediately.
Professional services companies will need to leave behind their “cash on receipt” mentality for revenue reporting and projections and adopt the obligation-based recognition milestones.
Park predicts that CFOs will lose their jobs in three to five years when it becomes apparent they have not adapted to the new revenue reporting standards.
An Out-of-the-Box Solution
Park fears many CFOs will make the mistake of trying to comply with the new standards through a combination of spreadsheets and custom scripts. This approach will create more problems as data must be entered from a wide range of sources, enhancing the opportunity for mistakes that will compound themselves through the process.
Instead, Park recommends mid-market and larger companies adopt Intacct’s Contract and Revenue Management Solution, bringing all the divergent pieces of data into a one-source system. Because Intacct offers an out-of-the-box solution that allows companies to run reports under the current and future standards, side by side, financial departments will be able to adapt gradually to the change and better understand how the new standards will affect their reporting and projections.
This multi-dimensional functionality also put the information into the hands of the entire financial management team, instead of relying on one person or a small team to manage all the revenue reporting changes that will be necessary for full compliance.
The Company-wide Impact
The new revenue reporting standards also will require the finance department to work more closely with the sales and operational departments to ensure contracts and service delivery are reflected accurately in the revenue reporting.
An integrated system like Intacct’s will ease this effort as contract changes and edits will be incorporated into the system and deliverables are integrated directly into the system, meaning changes there also will be reflected directly to revenue flow.
Without a fully integrated system, communication between sales, operations and finance will be on ongoing challenge to ensure companies stay in compliance with revenue reporting standards.
Park noted Intacct already has a Salesforce-native user interface, so Salesforce customers should consider an immediate switch as a turnkey solution to their revenue reporting needs. Here’s a full copy of Park’s analysis for Blue Hill Research.
As your mid-market or larger company considers the best solution to adapting to the ASC 606 and IFRS 15 Revenue Recognition Standards, contact us for a reliable partner who can ease the transition into a fully integrated Intacct solution for your financial management.