Contract Management

Article Dean Dorton

Will Your Organization Be Ready For The Deadlines? 

With 2017 almost behind us, a sense of anticipation pervades the air. All eyes are on the IASB (International Accounting Standards Board) and FASB (Financial Accounting Standards Board), the two regulatory organizations premiering new standards for contract revenue reporting in 2018 and 2019. The formidable ASC 606 and IFRS 15 regulations are fast becoming the nemesis of C-level executives and finance departments everywhere.

Private companies that report under GAAP (Generally Accepted Accounting Principles) need to adopt the new rules after December 15, 2018. So, if your reporting period begins on January 1, 2019, your company will need to show compliance by 1/1/2019. Public entities that report under GAAP need to be in compliance after December 15, 2017. If your reporting period starts in January, your company will need to be compliant by 1/1/2018.

Entities that report under IFRS must comply with the new revenue reporting standards on or after January 1, 2018.

It is worthy of note, however, that CFOs and CIOs demonstrate a significant difference of opinion regarding their industry’s compliance progress. According to Ernst & Young’s Revenue Recognition Survey, 85% of CIOs feel confident that the IT team is successfully facilitating the shift to the new standards. However, only 60% of CFOs share the same confidence in their IT teams’ ability to lead the transition successfully.

In the same survey, 71% of CFOs report that their companies have yet to implement the ASC 606 or IFRS 15 standards. Another 34% of CFOs report that their organizations are at risk of missing the deadline for compliance altogether. The consequences of non-compliance, however, may prove costly in terms of reduced stakeholder and shareholder confidence.

Based on the new standards, investors will be privy to revenue backlog disclosures, a metric that provides further clarification regarding a company’s business operations. By extrapolation, investor reliance on revenue backlog metrics as an ROI gauge will likely increase, especially for SaaS-based businesses. So, compliance is imperative, sooner rather than later.

Why The FASB & IASB Created The New Rules.

Because the GAAP standard allows different industries to follow their own procedures in complying with reporting regulations, there is a wide discrepancy in accounting measures used for similar economic transactions.
So, the FASB and IASB created the new ASC 606 and IFRS 15 standards to:

  • provide a more substantive framework to address complex revenue issues. provide improved disclosure requirements to users of financial statements.
  • reduce the number of regulations companies must comply with during the financial reporting process.
  • remove inaccuracies and flaws in the existing revenue reporting framework.
  • reform and standardize revenue recognition practices across industries.

Which Industries Will The ASC 606 and IFRS 15 Impact?

The ASC 606 and IFRS 15 establishes a five-step process to govern the revenue recognition process. Meanwhile, the AICPA (American Institute of Certified Public Accountants) has formed 16 industry task forces to address how these different industries can comply with the new standards. Each of the task forces highlights implementation issues related to the compliance process and dedicates a period to informal commenting regarding those issues.

Industries represented on the task forces include those that will be impacted by the new standards, especially the airline, healthcare, software, finance, insurance, construction, and utility industries. The best way to comply with the new standards is to deploy a contract management system that, among other things, provides for dual reporting to highlight the new standards’ impact on a business, automatic reallocation of revenue and expenses to match contract changes, and dual treatment capabilities in applying the standards to each transaction.

How Sage Intacct Can Facilitate The Compliance Process.

Sage Intacct is the premier contract management system that will make compliance a reality, not an existential nightmare. Its Cloud ERP solution can handle the requirements of subscription-based operations and comply with new revenue recognition and expense amortization requirements.

Sage Intacct’s comprehensive automated system spares you the challenges associated with spreadsheets. You won’t need to make manual adjustments or navigate complex business reports. The Intacct SaaS dashboard shows key business metrics such as customer churn, revenue churn, and customer acquisition costs. Intacct effectively puts control of the compliance process back into the hands of CFOs.

If you are interested in how Sage Intacct can make the transition to the new standards error-free and timely, contact us at Massey Consulting. We will answer your questions and provide the definitive solutions you seek.

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Article Dean Dorton

Time is running out! The deadlines for private companies to comply with new FASB accounting and reporting standards is less than a year away.

For the first time in several decades, the organizations that establish accounting and reporting standards for public and private companies – the Financial Accounting Standards Board (FASB) in the USA and the International Accounting Standards Board (IASB) – have announced new guidance for contract revenue recognition – ASC 606 and IFRS 15.

To comply, affected companies will need to review contracts and possibly restate timing of their revenue. It may be necessary to modify computer systems and change procedures in areas such as sales, accounting, financial reporting and internal audit.

What is ASC 606 and IFRS 15?

The Accounting Standards Codification (ASC) 606 issued by FASB and the International Financial Reporting Standards (IFRS) 15 issued by IASB are both titled Revenue from Contracts with Customers and reflect the organizations’ agreement on best practices for contract revenue recognition across industries.

What is changing?

The new standards define Contracts with Customers as transferring goods, services or non-financial assets unless the contracts are already covered by other standards such as leases or insurance contracts. The change establishes a 5-step process for revenue recognition:

  1. Identify contracts signed with customers.
  2. Identify timing of separate performance obligations in each of those contracts.
  3. Determine the transaction price for the contract.
  4. Allocate the transaction price to each of the performance obligations.
  5. Plan for and recognize revenue as performance obligations are satisfied.

A major implication of the new process is that instead of recognizing revenue when the cash is received, companies will recognize revenue when performance obligations – formerly referred to as deliverables – are met.

Who is affected and how?

Companies who frequently change the terms of a customer contract will be most affected. Each time a customer contract changes, the new standards require companies to reassess the performance obligations and if necessary, reallocate revenue across the contract and defer expense recognition to align with the contract’s new delivery schedule.

So, it should be obvious that companies relying on Excel spreadsheets to prepare financial statements will see their workload significantly increased with the change. Additionally, accountants will have to keep two sets of books for a number of years to show and compare revenue recognition under old and new regulations.  

Take a look at this video for details on how easy Intacct makes ASC 606 and IFRS 15 compliance

Article Dean Dorton

Good news for software and professional services companies – Intacct has packed colossal functionality into Intacct 2016 Release 2 with Contract and Revenue Management.  This is designed to give you the tools to adequately prepare for the most significant changes in accounting requirements to happen in the last ten years.

Finance teams are bracing for ASC 606 and IFRS 15, which require sweeping changes to the accounting treatment of revenues and expenses. This represents a lot of painful change for subscription-based companies—from understanding the impact on existing contracts to reallocating revenues when customers renew, upgrade, or add-on to subscriptions. That is, unless you have a future ready solution to help you automate, prepare and deliver accurate reporting and tracking.

That’s right – an automated solution from Intacct

Intacct 2016 Release 2 delivers Contract and Revenue Management, the first automated solution that comprehensively addresses the new complexities of ASC 606 and IFRS 15.

Dual reporting makes it a snap to monitor change

Intacct Contract and Revenue Management includes automated dual-reporting with side-by-side results based on current and new guidelines, so you can spot the impact of the rule changes on your bottom line. Built-in forecast reports show you expected revenues, expenses, billed and unbilled revenues, and cash, based on both current and new guidelines.

You also get faster and more accurate board-ready SaaS metrics, such as churn, customer lifetime value, committed monthly recurring revenue, and customer acquisition costs.

Comprehensive, simple – and no spreadsheets required

With Intacct Contract and Revenue Management, you can automatically handle your ASC 606 and IFRS 15 requirements and see your subscription business from numerous angles using simple configurations that you choose yourself. And you even have the option to capture and edit contracts natively in Salesforce. That’s complete, automated compliance without the external spreadsheets, IT consultants, costs, and headaches.

We’re impressed with what this will mean for our clients.  But we’re not the only ones who are impressed, Blue Hill Research has published their review of Intacct in light of the coming revenue recognition changes.  Their conclusion?  “…Blue Hill finds Intacct’s solution for revenue recognition to be compelling in that it provides a governed environment and clear visibility for revenue recognition.”

Download the Blue Hill Research report ‘Intacct Leads the Way in ASC 606 and IFRS 15 Revenue Recognition‘

The analysts take it a step further, and warn against trying to prepare for the changes using manual precesses:

Blue Hill is concerned that a majority of financial analysts and accountants tasked with enacting these new accounting rules will do so through a combination of spreadsheets and customized scripting based on VBscript or other code.  However, this approach will inevitably lead to failures due to poor governance and the inability to track or scale this work across the entire organization.

With Intacct, you don’t have that worry.  Would you like a closer look at how Intacct addresses ASC 606 and IFRS 15?  We’d be happy to show you.  Contact us or attend one of the webinars on the topic.