With the effective date of ASC 606 and IFRS around the corner, many people are wondering
subscription based about the effect that the new contract revenue recognition guidelines will have on their specific line of business. We have already talked about what the changes are for revenue management and today we’ll discuss how subscription-based companies are affected by the new standard.
Today I want to spend some time talking about how the new contract revenue recognition guidelines under ASC 606 & IFRS 15 subscription-based businesses and what you have to do to be in compliance.
Under the new guidelines:
When subscriptions and contracts change because of add-ons, discounts, upgrades, etc. revenue will have to be reallocated across the contract. To make things a little more complicated this reallocation will have to be made to all periods, including those already closed.
Not only revenue is deferred across the contract, you will have to defer expenses as well. This could be a big reason of concern if you have contracts that will be active when the new guidelines take effect.
In order to have full visibility of the effects on your business of the transition from the old rules into ASC 606 you will need two sets of books. That’s right. You need to book the same revenue and expenses twice, according to each set of rules.
Can all these be accomplished with spreadsheets or without making significant changes to your accounting solution? Definitely not. You need a contract management system that at least gives you the following:
Automatic reallocation of revenue and expenses when a contract changes.
Dual treatment capabilities that apply both sets of rules to each transaction.
Dual reporting so you can see right away and side by side the effect of the new allocation rules on your business.
Intacct, the best-in-class cloud ERP solution, comes out-of-the-box, with a Contract Revenue Management module. This module automatically takes care of all the additional tasks required to be in compliance with the new guidelines. In addition, you have:
No custom code or dependency on your IT resources to make changes to the system so you can have reallocation of revenue and expenses, dual treatment and dual reporting.
Real time visibility over the effect of the revenue and expense allocations on your financial reports, detailed reports and forecast reports.
Board-ready insights that show the effect of the allocations on key subscription business metrics including Churn, Customer Lifetime Value, Committed Monthly Recurring Revenue, Cash and Customer Acquisition Cost.
Control over the configuration so you can setup your contract and revenue policies. You also have flexible templates that you can customize to reflect your current allocation and amortization methods.
In closing, your Intacct solution takes care of your contract expense allocation and the reallocation of revenue and expenses when subscriptions and contracts change. It provides you with dual treatment and reporting that you can control and configure. It gives you deep and broad revenue insights of your orders, contracts and metrics. And all these is available out-of-the box, not code changes, no dependency on it.
Contact us so we can tell you more about the upcoming contract revenue recognition changes and how Intacct takes care of the transition for you.
