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In the cloud economy, revenue recognition presents a complex problem for global, multi-entity companies, and the standards for “rev rec” are in the midst of their biggest change in a decade.
There’s a lot of buzz lately about revenue recognition -- at NetSuite’s SuiteWorld 2016 conference in San Jose and elsewhere in Silicon Valley. The reason? The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) have issued new revenue recognition accounting standards, updates ASC 606 and IFRS 15, the most sweeping accounting changes in more than 10 years.
Starting in 2018 for public companies and 2019 for private companies, the new guidelines will require companies to reallocate revenue each time a customer contract changes and defer expense recognition to align with the contract’s delivery. As a result, contract add-ons and renewals must be integrated into a single contract, forcing continuous revisions and expense alignment.
FinancialForce, Intacct, and NetSuite Responding
FinancialForce, a cloud ERP provider on the Salesforce App Cloud, now has partial support for the new revenue recognition standards, and full support comes out in November/December this year, said Sandra Lo, head of global corporate communications of FinancialForce. The company presented the new revenue recognition product, in addition to a new billing product (coming out in September), to its customers last week.
On May 10, Intacct announced the launch of Intacct Contract and Revenue Management. The cloud ERP company says it is the industry’s first automated solution to help companies navigate the complexities created by the ASC 606 and IFRS 15 revenue recognition guidelines.
Intacct says the new module for its cloud ERP solution fully addresses all the upcoming rules for revenue reallocation and expense amortization—using automation, not spreadsheets and a lot of accountants’ time.
As for NetSuite, the cloud ERP vendor this week unveiled a new product, SuiteBilling, which features unified revenue recognition, intelligent order management, customizable invoices, and other features. SuiteBilling is built into NetSuite’s core ERP system and is designed to enable businesses to adopt any business model from product-based, to time- and services-based, to usage- and subscription-based, or any combination of these.
“We have combined all the unified billing into one,” NetSuite COO Jim McGeever said during his SuiteWorld keynote. “If you can sell it, we can bill it.”
New NetSuite Capabilities Beyond Compliance
McGeever told an illustrative story about how some retailers are struggling in the new economy. He tried to buy strings of red and white Christmas lights, which he ordered online, with the intention of picking up the lights in-store. After he was alerted that his lights were in, he went to the store, but he had to wait in line twice, watch while the clerk went over to a shelf, only to return and report that he did not have the white lights that McGeever ordered. The frustrated NetSuite COO eventually walked over to the shelf and grabbed some lights.
“I walked away unhappy, vowing to never return to that store,” he said.
McGeever said the all-too-common problem with retailers is that systems don’t speak to each other, and that makes a huge difference in retail, where speed is essential. “You should not have luck be the strategy to make sure your customers get what they want,” he said. “Luck should not be a business strategy.”
The SuiteBilling program includes the following:
NetSuite typically launches many press releases at SuiteWorld, and this year is no different. Along with SuiteBilling, the company announced enhancements to OneWorld ERP, called OneWorld 16. NetSuite executives aren’t shy about praising the new features: “OneWorld 16 is the best financial system in the world,” McGeever said. “It’s the crown jewels of NetSuite.” CEO Zach Nelson merely calls it the “last ERP system you’ll ever need.”
The new release adds more global financial capabilities, global control, governance, risk and compliance (GRC) features, and enhanced financial reporting. OneWorld 16 further helps global companies increase operational efficiency, streamline financial reporting, deepen local and global compliance, and localize business processes.
Expect more updates soon, because NetSuite says it is accelerating development on OneWorld. Enhancements to OneWorld 16 include:
As companies are innovating their business models, they must pay extra attention to their financial systems. With accounting regulation changes coming soon, companies in particular need to review their revenue recognition and billing procedures and, where appropriate, consider the new tools.
Tom Dunlap is director of research for Computer Economics.