2016 Revenue Recognition Transition Issues – ASC 606 Training
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Discussion Leader Info:
Pavel Katsiak presented Transition Issues: Systems and Processes on June 2, 2016 at the Revenue Recognition Accounting Conference in Philadelphia
. Pavel Katsiak is a Director at PWC and located in Washington DC.
-Pavel has served PwC audit and non audit clients for over 10 years.
-Pavel specializes in helping clients evaluate the accounting and reporting implications of the new revenue recognition standard.
-His combination of audit background and understanding of technical requirements of the new standard brings a practical perspective to the new revenue recognition implementation.
-Pavel’s clients include companies in industrial products, retail and consumer, technology, entertainment and media and services industries.
Executive Summary:
Katsiak began his presentation with an explanation that the effects of transition issues extend beyond accounting and continued by discussing an approach to implementation in three phases as listed below.
- Impact Assessment: Assess impact and determine strategy.
- Conversion: Establish policy and prepare initial financial results.
- Embedding: Embed as the primary revenue standard.
The speaker displayed implementation challenges including
- Centralized or dispersed business units
- Cross-functional communication and education
- Diversity of terms and conditions
- Tax implications
The speaker provided data supporting that in the Revenue Recognition Survey of 2015, 30% of respondents said their systems are centralized in one location; 21% said systems are somewhat centralized in a few locations. Of respondents who answered the question, 77% said they expect to make some to significant changes to IT or ERP systems. Furthermore, 84% believe implementing a parallel reporting system will take at least 6 months 59% expect they need a parallel reporting system and 87% of respondents anticipate some change in their internal controls 55% do not expect to make significant changes to their business models.
He discussed some changes that would need to be made as a result of the Revenue Recognition System such as
-New data may be needed from:
Ordering systems, Quoting systems, Contracting systems, Billing and invoicing systems, Cash and treasury processes, Licensing operations, and CRM.
Katsiak’s presentation displayed a list of expected master and transition data sets that will be impacted by topic 606 such as
- Volume licensing offer
- Contract (MPSA, PAR agreement)
- GL posting for revenue adjustments
The speaker spoke on the expected functionality of revenue automation capabilities for Topic 606. The expected functionalities include
- Analysis of historical sales data to determine SSP (stand alone selling price)
- Link related transactions into single contract
- Break out of performance obligations
- Booking of contract asset
- Relative allocation method
- Accounting for contract modifications
- Ability to “turn off” contingent revenue limitation
- Dual reporting
- Reporting based on adjusted revenue
Katsiak concluded his presentation with Build vs. Buy considerations of the Revenue System as listed below.
Build
-In house experience on systems, data, revenue
Transactions and expected results
-Requires in-house specialized revenue accounting
and technical expertise and skillsets to build a
scalable system and continually update to adapt to
changes in a timely manner
-Consider time required to build.
Buy
-Solution providers will need to learn client’s systems,
data and requirements, and may not gain full knowledge
-Experienced solution providers are subject matter
experts in technical revenue accounting and
related systems. They are expected to continue
investing in their solutions to improve.
-Consider availability and long term viability of
vendor solutions and their resources to implement
and support.