by Jason Pikoos, Partner, Finance Operations at Connor Group
Contributed post by Connor Group.
ASC 606: New Standards, New Opportunities
With the effective date of ASC 606 rapidly approaching for private companies (for public companies the deadline has already hit), many companies are focusing significant attention on the adoption process.
The new standard and adoption process presents companies with many challenges, but also opportunities. Revenue recognition at most companies is a notoriously manual process, inherently risky, and prone to error. Therefore, many companies are seizing this opportunity to invest in technology to automate revenue recognition. Reflecting on our ASC 606 clients, largely all companies have plans to invest resources on technology to support the adoption and, more specifically, automate revenue.
Technology offers enormous benefits in terms of efficiency, controls, and reporting. However, as revenue is inherently complex, to succeed in automating you will need a mix of both “science and art.” Some of the practical lessons we have learned are:
- The standard is new – everyone is learning
- Data, data, data
- Understand the timelines
- It’s a journey
The Standard is New…Everyone Is Learning
It’s not a surprise, revenue—and particularly revenue automation—is complex. Overlaying the fact that the standard is very new serves to compound this challenge. Recognizing the complexity of automating revenue should not deter you. In fact, the timing could be perfect.
Consider these advantageous byproducts of implementing the new standards:
- Access to budget. Adoption of ASC 606 is generally accompanied by budget dollars. Therefore, access to necessary technology investment (capex and opex) may be easier now than waiting until later.
- Management attention. During the adoption process, you will have the attention and focus of executive management and key stakeholders. This level of attention will likely not be available in the future.
- Change management. Adoption will already give rise to changes in processes, policies, controls, systems, etc. Automating now avoids the need for another large and potentially disruptive change or the risk of making changes now that limit automation later. Remember this is more than just an accounting change. It could impact many functions including sales, operations, product management, deal-desk, IT, internal audit, etc.
The key is to expect and plan for changes. Know your areas of risk, the most acute of which is having accounting positions that are not “locked-in.” Simple steps can limit these risks:
- Define your use-cases. Clearly define your revenue scenarios or use-cases and the proposed accounting treatment to create clarity on fact patterns and accounting. These will also be foundational for later automation. Apply a practical lens to use-case development, that reflect operational practices which may differ from theoretical simulations. This helps to reduce rework and inform automation requirements.
- Auditor buy-in. Don’t “go it alone.” The standard is complex and interpretations continue to evolve. Make sure you engage your auditors early and get their buy-in and sign-off as you document your policies.
- Plan for changes. Capture open items and uncertainties. Changing an accounting position during the implementation of revenue software can be very disruptive and cause delays and rework. Therefore, knowing your areas of uncertainty can help determine project scoping and timelines.
The standard is new, the systems are new and evolving, and there are limited publicly available examples to reference. Waiting, unfortunately, is not an option. You must plan for these potential challenges, whether this means adjusting project scope, timelines, or budget. Given these circumstances, there is no perfect prescription to managing these implementation. You will need to artfully manage the project, timelines, and balance expectations.
To read more about the importance of data, timelines, and the journey of implementing these new standards, download the full white paper.
Or for more on rev rec and revenue automation, join us at Subscribed 2018, June 5-6 in San Francisco. We’ll have breakout sessions devoted to revenue recognition, a state of the union for ASC 606, and you can swing by the expo hall to meet with representatives from the Connor Group, a Gold sponsor of Subscribed!
Jason Pikoos is the Partner-in-Charge of Connor Group’s Finance & Operations Consulting practice. He focuses on helping clients develop a Finance and Accounting function that adds value to the business, is globally consistent, and can scale with their growth. For IPO engagements, he helps our clients implement processes that give executives the visibility they need and the process effectiveness to be a public company, especially in areas such as revenue, financial close, order-to-cash, hire-to-retire and procure-to-pay.