With the new revenue recognition rules for IFRS 15 / ASC 606 being right around the corner, I have had several customers ask me very recently if there any silver bullets to quickly handle these rules?
The short answer is no.
Over 150 on-going RAR projects have demonstrated to us that the complexity of IFRS 15 / ASC 606 is real. Several Big 4 contacts have confirmed that the average time for a Fortune 2000 company to cover IFRS 15 / ASC 606 is over 12 months and more likely 18+ months regardless of the revenue accounting solution chosen.
SAP has been building accounting software for many years and has a very thorough process for tracking new accounting standards changes around the world, the new revenue accounting regulations are very complex and broad and should be addressed according to an organization’s specific requirements. For most companies, no solution can fully handle this very broad and complex set of requirements out of the box.
So what can customers do now to get ready for the new standards expected to go into effect on January 1, 2018?
The answer is a list of our recommended Best Practices for approaching IFRS 15 / ASC 606 at any time. These are solid fact based recommendations on how to get the most value out quickly of a project using SAP Revenue Accounting and Reporting (RAR). These recommended Best Practices are based on the feedback of the Early Adopter Care program for SAP Revenue Accounting and Reporting [add link] (assisting customers in automating and simplifying revenue accounting activities) and SAP Lease Administration by Nakisa [add link] (for documenting the results of a technical revenue accounting assessment). So, here are our recommended Best Practices for approaching IFRS 15 / ASC 606 at any time that we have learned in approaching the new revenue accounting standards through the feedback of over 150 RAR projects:
Recommended Best Practices for approaching IFRS 15 / ASC 606:
Complete an Accounting Assessment Upfront
Conduct a discovery session with SAP to scope data flow, data quality, revenue scenarios, & key related business processes
Conduct a 6-8 Week Pilot / Proof-Of-Concept (POC) using the SAP RAR solution to identify fit/gaps with key requirements (i.e. complete a fit/gap analysis for your IFRS 15 / ASC 606 requirements and timeline of adoption)
Determine RAR implementation scoping and firm partnership model/roles for deployment
Determine the project plan timeline including RAR and non-RAR work-streams as needed to meet the business requirements & timeline goals of management reporting and IFRS 15 / ASC 606 adoption
Kickoff the IFRS 15 / ASC 606 project with the proper co-located resources following the implementation plan in an iterative project approach utilizing RAR and non-RAR processes and/or manual workarounds needed to meet both the desired business requirements & timeline goals of management reporting and IFRS 15 / ASC 606 adoption
Overall, we have experienced that on average a full implementation of a proper software solution to help a customer in their efforts to be compliant with IFRS 15 / ASC 606 takes 12-18+ months.
For those just starting to tackle an IFRS 15 or an ASC 606 project, we still recommend the best practice of starting a pilot / Proof-of-Concept (POC). The timeline of the POC is 6-8 weeks covering 5 – 20 revenue scenarios using an iterative project approach. Existing SAP ERP Financials and SAP S/4HANA Finance customers who are current on maintenance gain access to SAP Revenue Accounting and Reporting (RAR) at no additional cost. Start with just one scenario, then add another, and then another in an iterative fashion until the 6-8 weeks are up.
The timing and nature of the new revenue accounting standards have yielded a very interesting observation among the involved companies in our Early Adopter Care program for RAR. Those companies taking an iterative approach are making better progress than those taking the “big bang” approach. So, this has led us to the conclusion that this is not a “big bang” project. To be successful, organizations will need to work in iterations across accounting, technology (systems), and people (processes). So, for example, as the accounting teams are working on the technical accounting requirements, the IT teams can be working on portions of the systems based on requirements that are defined to date, and the business owner can be working on identifying the additional new business processes not already defined.
The iterative POC has several benefits: First, after this POC is complete, organizations would have started the process of learning how to work together effectively on tackling the new regulations. Second, the organization now has a much better estimate of how long each revenue scenario will take to implement, this yields much better estimates for the next project steps. Third, organizations can now more accurately forecast what revenue scenarios can be automated by January 1, 2018, and which ones will need manual workarounds.
We have had some customers figure out the technical accounting assessments of the new standard, but then they didn’t have a clear parallel reporting strategy completed. Now, there is some dependency between the two, meaning, choices under the new standard may impact your parallel accounting strategy. But, companies need to be aware of how these choices impact their parallel accounting strategy and consider various options as part of their overall planning. Our recommendation is to include the parallel reporting considerations and potential financial reporting impacts up front as soon as possible during your project.
The new standards for revenue recognition are being considered by many as the biggest accounting change in years. For a smooth transition, early preparation is not only recommended by experts, but crucial for successful compliance.
Contact SAP as soon as practical to ensure that your accounting team can leverage the best strategies possible for meeting the January 2018 deadlines.
For more information on SAP RAR, please contact your SAP sales representative or please visit:
- Summary of the features and functionality of SAP Revenue Accounting and Reporting (RAR) – Updated for RAR 1.3