By now, you’ve heard about the new rules governing revenue recognition rules that took effect on January 1, 2018 for public companies and January 1, 2019 for private firms.
What is ASC 606?
ASC 606 (Revenue from Contracts with Customers) is the new revenue recognition standard that affects all businesses that enter into contracts with customers to transfer goods or services. Developed jointly by the Financial Accounting Standard’s Board (FASB) and Internal Accounting Standard Board (IASB), ASC 606 provides a framework for businesses to recognize revenue more consistently. The IASB refers the new guidelines as IFRS 15.
The new five step model for recognizing revenue
Prepare for ASC 606 with NetSuite Advanced Revenue Management (ARM)
Advanced revenue management (ARM) is an integral component of NetSuite order to revenue workflow, it allows to source from multiple sales contracts and non-sales documents (i.e. project) and construct a consolidated revenue arrangement; while automating revenue forecasting, allocation, recognition, reclassification and auditing through a rule based event handling framework.
With ARM, revenue is deferred across future periods according to the rules configured. It supports fair value based on vendor-specific evidence (VSOE), best estimate selling price (BESP), third party evidence (TPE), and other fair value methods as company uses. These fair values are used to determine the revenue allocation ratios for multi-element transactions.
Advanced Revenue Management (ARM) benefits
· Drive revenue workflow through rule based event management framework that automates the creation, update and posting of revenue records, eliminating error-prone manual work items.
· Allow user to directly execute complex revenue allocation, booking and reclassification without additional scripting, complying with the new ASC 606 regulatory requirements.
· Enable rapid deployment of new product offerings through automated change management (upsell, downsell, contract modification)
· Provide an accountant-friendly user interface, improving visibility throughout order-to revenue
· Introduce fully detailed system notes and audit trail (including version history key of revenue records), improving governance and compliance.
ARM Key Features
- Automate Planning - Automatically schedule revenue to recognize in the appropriate period based on rules.
- Support Multi-Currency Transactions - Ensure that fluctuations in exchange rates are appropriately accounted for in each period.
- Manage Balance Sheet Accounts - Automatically adjust contract liability (deferred revenue) and contract asset balances based on real-time billings and revenue data.
- View Financials in Real-Time - Automatically post to the general ledger from Revenue Plans—on your schedule, as frequently as you wish.
- Flexible Forecasting - Provide flexible forecasting to accommodate revenue projection updates based on real-time business events such as project plan updates or planned revenue withheld to a future period.
- Flexible Revenue Contracts - Drive an agile and accurate view of the revenue contract
- Dynamic Fair Value Pricing – Define the fair value as either a constant or a dynamic formula.
- Powerful Allocation Calculator - Leverage Fair Value Prices to automatically allocate arrangement consideration across all Elements within the Arrangement—including support for ASC 605 and ASC 606/IFRS 15 standards.
- Support Percentage-of-Completion Accounting - Support revenue accounting for projects leveraging percentage-of- completion mechanisms.
- Support Event Driven Revenue Plans - Align revenue recognition with event triggers—for example the fulfillment of an item, the generation of a bill against an order, or work beginning on a project.
- Book-Specific Fair Value Prices, Revenue Rules, Plans and Arrangements – Automate concurrent posting to all books as business transactions occur in real-time, versus “after the fact” posting or waiting until the end of the period to replicate data entry and post adjustments.
- Book-Specific Foreign Currency Management – Enable accounting departments to use book-specific functional currencies when calculating the general ledger impact, including the realized and unrealized foreign currency gain/loss amounts per transaction.
- Book-Specific Financial Reporting – Enable real-time revenue visibility for any book, anywhere, anytime.
Upaya is a 5 Star award winning leading NetSuite partner and is certified to implement Advanced Revenue Management.
Companies that we have implemented ARM:
Contact us today if you have question or need help implementing or transitioning to the new revenue recognition standard (ASC 606).
Wishing you continued success!!!
Till next time,