The complexities of FASB and the IASB’s new revenue recognition guidelines will place heavy strain on back office processes. For quarters starting after December 15, 2017, companies will be required, under ASC 606 and IFRS 15, to perform specific accounting processes that their existing ERP software or legacy systems don’t execute well or, in some cases, don’t offer at all. Companies considering making changes to their ERP or financial system, should have a clear strategy when it comes to complying with the new revenue recognition rules. ERP systems, by their nature, tend to be a ‘mile wide and ½ inch deep’. They may not be up to this task, nor for that matter, well suited to the new recurring types of revenue associated with the subscription economy. This blog post is the last in a four part series and focuses on a new approach called ERP augmentation.
With the new ASC 606 and IFRS 15 regulations, companies cannot continue with their current revenue accounting practices. When legacy ERP systems no longer support financial processes, it's time to take action and analyze the options for upgrading ERP and financial systems. Organizations with complex revenue recognition must implement a system and a process to remain compliant. This blog series examines four options to get systems up to date – invest in the existing ERP system, supplement with spreadsheets, rip and replace systems, and augment the ERP system. In this blog post, we will help companies analyze the possibility of a “Rip & Replace” of their ERP system with new software.
When it comes to revenue recognition and billing, ERP systems do not have the depth of functionality needed to process revenue under the new ASC 606 and IFRS 15 guidelines. Many finance professionals must use manual methods outside the ERP system to address these challenges.
New business models and FASB’s new revenue recognition guidelines pose a threat to existing ERP systems. Some companies have achieved business improvement from their ERP systems. However, many companies are quickly realizing that the key benefits, once leveraged from their Enterprise Resource Planning (ERP) system, are now unavailable due to the increasing complexities stated above.
Enterprise Resource Planning Systems are vital to a company’s success. However, these systems need to be maintained and enhanced to protect their value and serve a company’s changing regulatory needs in an ever changing business landscape. For instance, new business models such as IoT, recurring revenue, and changing regulations (ASC 606 and IFRS 15), all put pressure on back office processes to keep up.
It’s time to start preparing for the new revenue recognition guidelines. Whether you like it or not, ASC 606 / IFRS 15 changes are here and could have a significant impact on your company's reporting, systems, processes, and controls. Companies should start planning now in order to ensure a successful transition to the new ASC 606 / IFRS 15 guidelines.
Organization must keep pace with new recurring revenue models while complying with tremendous change brought on by the new revenue recognition standard embodied in IFRS15 / ASC606. Companies who want to be successful in overcoming revenue recognition challenges should be proactive and start implementing a plan for ASC 606 immediately. Public companies must adopt the new standard for periods starting after Dec, 2017. Private companies must adopt for periods starting after Dec, 2018. There is a lot of work to be done.
To ensure consistent application of rev rec rules, companies need to be armed with a strong internal understanding of how ASC606 applies to their particular business model. Where internal know-how comes up short, third-party consultants can provide the additional expertise – and peace of mind – when assessing the impact of revenue recognition.
The new revenue recognition standard is being converted into a single model across all industries. The new global framework for revenue accounting has numerous challenges for companies including: Application and Controls. Application was described in the previous blog post.
Application of ASC 606 is a major issue for businesses impacted by the new revenue recognition rules. Most companies seem to be generally familiar with the new revenue recognition standard; however, there are specific areas within the rules are vague. Many are left with wondering how the new revenue recognition rules will impact their business. This causes major challenges and risks for any business that doesn't take the time to fully understand how ASC 606 and IFRS 15 affects their operations.