the new revenue standard is here: next steps

Confidential

The New Revenue

Standard is Here:

Next Steps

Jeffrey Werner, Werner Consulting Group

September 23, 2014

© 2014 Tensoft All Rights Reserved. 1

Confidential

Welcome to

Today’s Event

Caprice Murray, Tensoft


3Confidential

• Submit questions any time using the “Question and Answer” pane.

• CPE certificates will be emailed to everyone who is eligible by end of business on Friday 9/26.

• Submit questions after the webcast to Jeffrey Werner, [email protected], or to Caprice Murray, [email protected].

Webcast

Briefing

© 2014 Tensoft All Rights Reserved.

mailto:[email protected]


4Confidential

Tensoft, Inc.

●Business software solutions provider

●Revenue and billing management for Technology Companies

Tensoft RCM Product Line

●Contract Billing Management (CBM) – Contract based customer management

– Contract based revenue option

●Revenue Recognition Management (RRM)– Sales contract creation and management

– Revenue rules and delivery models

– Workflow for sales contracts

– Compliance Module for Fair Value management

About Tensoft


Confidential

Tensoft RRM Process Flow


Revenue

Engine

Reporting

and Analytics

Revenue

Rules

Determined

Valuation

SalesTransaction

Document

Flow

Revenue

Sub-Ledger

RCM Contract

ERP Document

Website or CRM

To ERP

6Confidential

Sales Contract (Agreement):

● Rules Based Methodology

– Document workflows

– SKU Business Rules

– Hold and approval options

– Fair value allocation models

● Agreement Management

– Living, editable document

– Separate from cash & A/R process

– Updatable for fulfillment, change

● Source Options

– Agreement defined by go-to-market

– Multiple integration models standard

– Updates from appropriate source(s)

Revenue Management

Revenue Recognition:

● Compute Process

– Revenue agreement to date

– Always self correcting

– Available for review / edit prior to final

– Multiple options to compute/review

● Final Revenue

– Finalize / post process

– Revenue journal

– Revenue history

● Reporting and Analytics

– Deferred revenue sub-ledgers

– Revenue change analysis

– Forecast deferred revenues

– Excel-based reporting options


Confidential

Today’s Presenter:Jeffrey Werner, Werner Consulting Group


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Agenda

• Overview – Who, What, When, Where, Why

• Process and Scope

• Adoption Methods

• Five New Principles of Revenue Recognition

• Significant Changes to Revenue

• Impact Assessment

• Implementation Plan

• Project Management

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New Revenue Standard

Who Is Issued the Standard?

– Jointly issued by the FASB (US) and IASB (Worldwide)

– Will be part of US GAAP when effective

– Will be part of IFRS when effective

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What Is the New Standard?

ASU 2014-09 – Topic 606

– 150 page set of accounting standards for revenue recognition

– 350 pages Conforming Amendments to US GAAP

– 200 pages of background and Basis for Conclusions

– Copies at FASB.org

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When Is the New Standard Effective?

– Effective 2017 for public companies

– Effective 2018 for non-public companies

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Where Will The New Standard Be Effective?

– The new standard when effective will be required accounting:

– In the US under US GAAP issued by the FASB

– In Countries following IFRS • (more than 113 countries Worldwide)

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Why Is This Happening?

– Part of ongoing process to align or “harmonize” accounting worldwide

– To establish one comprehensive revenue recognition approach for all customer contracts

– Remove current inconsistencies

– Improve comparisons between companies

– Provide more information and disclosures

– Simplify accounting and guidance

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• Process

– Years of discussions

– Exposure Draft # 1 June 2010

– Comment period closed October 2010

– Exposure Draft # 2 November 2011

– Second Comment period closed March 13, 2012

– Project Update July 24, 2013

– Issue final standard in Q2 2014

– Effective Date January 2017

– Transition Resource Group - TRG

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• Scope

All Contracts with customers

(except those covered by another rule Leases, Insurance and Financial Instruments)

Year of adoption methods and disclosure

No early adoption

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Retrospective adoption

Requires comparable presentation

2017 with 2015 and 2016 restated

Simplified Transition Method

Apply to all active contracts at transition date

Cumulative effect of change in balance sheet

Disclose amount of change each line item

Explain difference between new and old in year of adoption (and quarters)

17


Current Revenue Model

• Four Principles of Revenue Recognition

– Evidence of Arrangement

– Fixed and Determinable Fee

– Delivery

– Collectability

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New Revenue Model

Core Principle

- “Recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services”

- Five Steps to Apply Core Principle

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Five Steps to Revenue Recognition

• Identify the Contract with Customer

• Identify the Separate Performance Obligations

• Determine Transaction Price

• Allocate Transaction Price to Obligations

• Recognize Revenue on Satisfaction of Performance Obligation

20


Significant Changes to Revenue

• Change your mind set

• Principles instead of “rules”

• Expectation and Estimates

• New Vocabulary and Guidance

• Read the Standard / Get Training

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• Contingent Revenue / Unbilled

• Stand Alone Selling Price Valuation • Bundles

• Specific discounts and reductions

• Cash Basis / Collectibility

• Estimates vs Fixed and Determinable

22



• Sell In vs Sell Through

• Point in Time vs Over Time

• Time Value of Money

• Software

• Licenses

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• Policies and Procedures

• Internal Controls

• Disclosures

• Taxes• Timing

• Apportionment

• Transfer Pricing

24


Impact Assessment

• Determine Revenue Streams or Types

• Analyze Current Deferrals

• Determine Areas of Change

25


Impact Assessment

• Increases or Decreases in Revenue

• Forecasting and Street Expectations

• Accounting System Changes• ERP System

• Revenue Module

• Tracking Disclosures

• Excel

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Implementation Plan

• Determine Time Lines

• Scope and Tasks

• Project Management

• Additional Resources

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Implementation Plan

• Determine Impact on Marketing and Sales

• Legal Contract Review• Debt Covenants

• Revenue Sharing

• Legal Terms

• Compensation Plans

• Training and Education

28


Implementation Plan

• Business Practices• Road Maps

• Pricing and Product Marketing

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Implementation Plan

• Adoption Method• Dual reporting

• Restatement

• Impact on Forecasting

• Lost Revenue

• Draft Disclosures and New Financial Statements

30


Project Management

• Assemble a Team• Finance

• Accounting

• HR

• Sales

• Legal

• Tax

• IT

• Investor Relations

• Board of Directors / Audit Committee

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Project Management

• Steering Committee

• Project Manager

• Reporting Structure

• Change Management

32


What Are Companies Doing Now

• Nothing

• Education and Training

• Pre-planning

• High Level Impact Analysis

• In Depth Impact Analysis

• Contract Review

• Tracking & Metrics

• Testing

• Hiring Resources

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Conclusion

Revenue Recognition Resources• Auditor Revenue Recognition Guides and Updates

• Auditor Revenue Recognition Whitepapers

• Revenue Conferences, Webcasts and Classes

• Transition Resource Group

• AICPA

• Journal of Accountancy July Issue

• FASB website

• SEC Filings

• Webcasts

• Web Searches

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Conclusion

• Questions after class by email

[email protected]


New Revenue Recognition Standard

Thanks for Joining Us today

35

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