Compliance

Article Dean Dorton

Smart SaaS companies have been gearing up to face the challenges that accompany the new ASC 606 and IFRS 15 compliance guidelines on the horizon –  for private companies, starting FY18 (or after December 15, 2017) and a year later for private companies.

No matter whether your company is public or private, it pays to plan ahead to ensure your teams have a good handle on what work will look like at the outset and in the long-run, to keep up with the added complexities without weighing down your team’s time.

ASC 606 Challenges

The FASB now requires that subscription revenues be allocated with greater frequency, and in a more comprehensive fashion, in order to simplify an inherently complex revenue model.

The changes now require that subscription-based service companies reallocate revenue every time a client adds on, renews or modifies their contract, with any changes being integrated into their existing contract, rather than in a new contract.

Further, companies are now expected to defer both expenses and revenues coinciding with contract delivery – not just at the time of add-on, but across the entire span of the contract, including those billing periods already closed.

To add to the complexity, companies are required to adjust active contract revenue to adhere to the new guidelines back through to contract start dates.

Leverage Customized Tools to Stay Compliant

For SaaS companies, these changes mean significant modifications to current internal processes and vast amounts of existing financial data, not only to bring current contracts up to compliance standards but to also adapt current systems to make room for the new guidelines going forward.

Because spreadsheets and manual workarounds cannot realistically accommodate the new ASC 606 guideline complexities, SaaS companies need another software option to adequately manage these new complexities.

Sage Intacct, a best-in-class financial management cloud software, offers solutions that fit the unique accounting concerns of subscription service-based companies. Their Contract and Revenue Management feature saves time and offers up-to-date support for the latest compliance guidelines:

  • It is designed to accommodate the most recent ASC 606 and IFRS 15 Changes.
  • Revenue allocation and expense amortization compliance guidelines are already built into the software feature.
  • Teams rely on fast, ready-to-go automation from Sage Intacct to make adjustments and build reports, instead of digging through spreadsheets, re-keying endless manual entries, or seeking out IT support for help.

If you’re a subscription-based service company working on an in-house system, burning the candle at both ends to be ready for the compliance changes ahead, step back and take a deep breath. There’s a faster, better way.

Reach out to us! We can help you bring in a solution to be ready for ASC 606 and the new standards of compliance.

Article Dean Dorton

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.