Art and Science of Revenue Automation: Practical Lessons for Automating Revenue under ASC 606 – Part 3

 

Timelines to ASC 606 adoption are short, which is creating significant urgency and a desire to implement revenue automation at a rapid pace and in short time frames. These accelerated timelines are very understandable, but we caution our clients to evaluate their plans and ensure goals are realistic and attainable. Given the complexity involved in revenue automation, rarely have we seen rushed timelines yield the desired outcomes. More often the opposite is true – rushing causes errors, that result in delays or failed implementations.

Public companies were required to apply the revenue standard by January 1, 2018. Private companies may elect to early adopt in line with public companies or apply the revenue standard by January 1, 2019.

As you plan your implementation make sure you understand the factors that drive effort and implementation duration. Additionally, there are several decisions companies make related to revenue automation and implementation of ASC 606 that impact implementation timeframes.

In Parts 1 and 2 of this article, we covered 2 drivers that impact timelines and need to be planned for: uncertainty stemming from the new standard; and effort necessary to get required data. Let’s explore a few other key drivers and decisions.

Defining Future ASC 606 Revenue Policy

Unlike many other systems, revenue automation is entirely dependent on having a fully documented and vetted revenue recognition policy accompanied by clearly defined accounting positions for your revenue use- cases.

Therefore, completing at least Phases 1 and 2 of the adoption approach (outlined in Part 1 of this series) is critical before you can fully engage in the revenue automation initiative. We already explored the fact that conditions surrounding ASC 606 are still evolving, accordingly some change may occur even after you have fully defined your policy. However, the greater the degree of certainty around your accounting policy and positions, the lower the risk of project delays or incorrect outcomes.

Accordingly, make sure your automation plan accounts for the timing of when your company will complete the process of developing the revenue policy. Understanding the degrees of uncertainty, will help you determine how much risk “cushion” you need to include in your timelines.

Selecting Transition Approach

Will you take the “full retrospective” or “modified retrospective” transition approach? There are varying reasons why companies chose one over the other. We have also observed that as timelines to adoption get shorter, companies have less choice, as the amount of effort required for the “full retrospective ” approach in some cases may no longer be a feasible option.

The transition approach also impacts revenue automation, especially if your company is hoping to use the revenue automation tool to support the transition. Generally speaking, the full retrospective approach will create significantly more work for both ASC 606 adoption and revenue automation.

Automating ASC 605 and ASC 606

Some companies desire having revenue automation for both ASC 605 (current GAAP) and ASC 606, especially those who have a longer run-way until adoption. Although there is great value in revenue automation, we do caution clients going down this path.

Given how long it could take to implement revenue automation, will you derive appropriate return on investment when automating ASC 605?

What additional risk are you introducing to the implementation of ASC 606, when performing two complex implementations in parallel?

Factors that can affect the implementation has been the topic of discussion in the latest posts of the Art & Science of Revenue Automation series. Next week we will wrap up the series by exploring how historical and open transactions can substantially impact the implementation timeline and how to achieve short term improvement.

 

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Jason Pikoos is a Partner at Connor Group and leads the Financial Operations practice. Jason brings over 15 years of accounting and operational experience, working with high-growth and technology companies. As the Financial Operations leader at Connor Group, Jason has helped and guide over 30 companies in preparing for being public, planning and managing their IPO plan and/or improving operations and controls shortly after the IPO. Jason is an expert in helping clients drive business transformation through improved processes, systems, controls and organizational changes. Jason works across all finance and accounting functions, helping clients define their business strategy/goals and aligning resources and stakeholders to achieve desired business objectives. Jason’s focus is on high-growth and technology companies.

Connor Group has assisted 30+ companies with adoption of the ASC 606 standard and delivered 20,000+ hours on ASC 606 projects. Connor Group has helped 100’s of companies navigate the complexities of revenue recognition. We are in the forefront of ASC 606 guidance and adoption, participating in the drafting process of the standard through comment letters, roundtables and direct FASB discussions.