October 4 by Michael Carrell
Today, Quote-to-Cash technology automatically processes certain functions and appropriately separates items to serve the same role for both public and private companies adjusting their practices to comply with ASC 606 / IFRS 15. Software can provide dual reporting under the rules by determining a stand-alone price, separating performance obligations, and processing an array of calculations simultaneously to identify the ideal approach to addressing the new mandate.
What is ASC 606/IFRS 15
ASC 606 is a new standard for recognizing revneu designed to reflect the reality of modern business transactions. It requires that revenue for each obligation within a contract be attributed to that obligation, regardless of how it is bundled in the sales process.
Before ASC 606 and IFRS 15 become effective for public companies on December 15, 2017, and for non-public organizations on Devember 15, 2018, the U.S. will continue to follow current Generally Accepted Accounting Princieples (GAAP) that differ significantly from worldwide guidelines under the international Financial Reporting Standards (IFRS).
ASC 606 and IFRS 15 are substantially the same, and will come into effect at about the same time.
The Practical Impact of ASC 606/IFRS 15
ASC 606/IFRS 15 is likely to generally impact these areas:
• Contract costs
• The sale of non-financial assets
• Income taxes
• Sales returns and allowances
In addition, ASC 606/IFRS 15 is likely to impact across industries and job functions:
Impact Across Industries
The revenue timing for contract for chemicals and manufactured items are recognized based on a percentage-of-completion, units-of-deliver, or attainment of milestones could be affected depending on when a customer receives its delivery. Even airlines will lose the incremental cost approach they use for miles earned through travel.
In the entertainment, media, and communications sector, the upfront installation or set-up fee that is currently recognized immediately conveys a material right and, therefore, will be deferred and recognized over a period of time.
Impact Across Job Functions
In addition to specific changes in different verticals, the new protocols will encourage finance, legal and sales leaders within affected organizations to adjust their respective approaches.
Finance professionals will need to manage the math behind the requirements applying the proper valuation to obligations. More importantly, Finance will need to put in place systems that will automatically manage changes to the obligations, assets, and revenue recognition schedules as their customer change the products and services they use throughout any given contract term.
Legal department leaders are likely to focus on key contract terms and conditions earlier in the process, renegotiate existing agreements and develop more effective approval processes. Sales teams may see an overhaul of their compensation structures in order to better align incentive payments with revenue recognition.
ASC 606 Compliance with Intelligent Quote-to-Cash
The deadline to comply with ASC 606 / IFRS 15 is December 15, 2017. More importantly, any company subject to the changes will now have to identify every one of its performance obligations and tie each to an appropriate revenue recognition schedule. Furthermore, since the value of an obligation such as a warranty, may be in a standard pricing table rather than in the contract itself, companies will require an integrated Configure Price Quote (CPQ) system. Companies will need robust obligation management as part of a complete Contract Lifecycle Management (CLM) system that can model full parent-child hierarchies in contracts, handle identification of obligations in third-party contracts, and track obligations from quote, to contract, to delivery. The only way to achieve this is with an intelligent Quote-to-Cash platform.
Prepare Now for Sustainable Compliance
Join this webinar, presented at 2 convenient times, to learn how you can elevate your ASC 606 / IFRS 15 compliance journey with a plan for how to automate your end-to-end compliance process.
Here are some additional resources that can help you understand the importance of compliance with the new regulations; why manual efforts, spreadsheets and consultants might get you through your first few months; and how to build a sustainable approach to compliance.
- Satash Padala, Director of Product Management, Apttus, explains why change is needed.
- Sarah Van Caster, Director of Product Marketing, Apttus, explains what the new regulation is and how it impacts you.
- Satish Padala walks through a 5-step process to enhancing standard Quote-to-Cash solutions to meet requirements.