The deadline for the ASC 606 revenue recognition standard is fast approaching. The new revenue recognition rules (ASC 606 / IFRS 15) will go into effect on January 1, 2018 for public companies and a year later for private firms. Is your business prepared? Salesforce and FinancialForce gathered a panel of finance industry experts to discuss a CFO’s journey to a successful transition. Below are a few key takeaways from the discussion.
Companies make the mistake of thinking that ASC 606 is just a finance and accounting issue. It is not. This transition will affect many departments such as IT, sales, product and legal, just to name a few. Failure to include other departments might hinder process improvements or create unnecessary rework.
Let’s say your company has 1,000 customers and each of them has five contracts. Let’s assume that under ASC 606 you identify ten different performance obligations under each contract. If we do that math, that’s 50,000 data points that you’ll have to track over multiple periods. Automation then becomes the only viable way to automate processes to scale efficiently. Anything you can automate on the front end of your system saves you manual work on the back end.
ASC 606 encompases a company’s entire quote to cash cycle. You need to look at it through a unified process. Automation will be a challenge if you have silos between your front and back office systems.
First, the finance team is now more involved in the sales process. They are part of the product pricing and approval processes. You can actually solve a lot of upfront problems in the sales cycle before getting to finance. Second, instead of thinking in the context of “How can I get this report?”, the finance team now asks the question “What is my data model?”. This shift means that instead of just generating a report blindly without knowing where the data came from, they now understand how the data in the report relate to each other, how it was gathered and how it’s tracked.
Legacy data migration can be a long process and, often times, even gets forgotten. You do not want your go-live date to be postponed because the information needed was not migrated first.
Create a project team that involves the sales, finance, legal, operations and IT departments. Approach the project in a holistic view. Identify your stakeholders and vendors before you even kickoff. Having to unwind a bunch of patched processes because they were not fully vetted will be a waste of time. Involve your auditors early and often during the project. Lastly, also involve your end users early for adoption and do not forget to have a testing and training plan in place.
Watch the complete Prepare for ASC 606 video and hear straight from the finance industry experts, in partnership with FinancialForce.