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What do professional services need to know about the new rev rec changes?

Big changes to rules and regulations can take time to get used to. For example, several widely contested sports, including amateur boxing and volleyball, have adjusted their standards over the years and transformed how athletes, coaches and fans perceive their events. Boxing recently dropped the requirement for headgear at its international competition in Rio, while it has been more than 15 years since volleyball switched to a rally scoring system so that teams could score even when not serving.
How revenue recognition changes could complicate your processes

Professional services organizations have their own shifting rules to deal with before the end of the decade. The updated revenue recognition guidelines included in ASC 606, ASU 2014-9 and IFRS 15 are all intended to modernize contract accounting as well as revenue and expense management for finance teams. However, these updates have the potential to greatly increase complexity for accountants, as there is a new five-step process that replaces the different procedures from before:

ASC 606 eBook Download

  • During its adoption, this updated process is applied retroactively to each prior reporting period presented. There are also its cumulative effects, which stem from including additional financial disclosures such as noting the differences in reporting results between old and new books.
  • Doing so requires maintaining two sets of books: Side-by-side comparisons become essential in this context for managing the transition, which should be started as early as possible. Even though the rules do not kick in until 2018 and 2019, the regulations will need to address old contracts extending past the start date, along with forecasts.
  • Fundamental tasks such as revenue reallocation and expense amortization should be automated with cloud accounting software. This helps avoid the spreadsheet sprawl that wastes so much time and results in numerous errors when maintaining old sets of books, and which does not scale well for the fresh set of rules.

Ultimately, it is not just the new rules introduced by ASC 606 et al. that can make life more complicated for professional services organizations. It is also how they affect existing customer contracts, especially sophisticated ones. Robert Kugel of Ventana Research has deemed the rev rec updates complex enough to preclude using spreadsheets for revenue recognition, in order to avoid drastically increasing accountant workloads and running into many errors.

Dealing with complexity: Why a cloud-based solution makes sense

On top of these challenges, professional services organizations also have to navigate many existing processes such as all of the sales, marketing, invoicing, collections and general accounting efforts that go into selling their services to clients. Relying on Excel and legacy desktop accounting software is a recipe for trouble in light of the broad scope of the problem.

Without a modern accounting system, professional services organizations may struggle with new rev rec rules.
Without a modern accounting system, professional services organizations may struggle with new rev rec rules.

Enter cloud financial software like Intacct. It provides much deeper automation and scalability than any stack of Excel sheets, thanks to:

Support during the transition
Adjusting to the new rev rec rules must be done with the right tools. A solution such as Intacct provides sophisticated, multi-book accounting that enables you to perform comparative analysis and keep all stakeholders updated. Automated dual reporting lets you meet the sometimes onerous requirements of the rule shift.

Improvements to forecasts and planning
A cloud solution offers a clear view into how the new standards will impact the organization's overall financial performance. Its instant insights also help reveal how closely the business is tracking compared with its operational models. Revenue and expense forecasts can be made more accurate.

"A cloud solution offers a clear view into how the new standards will impact your financial performance."

Real automation
Complex financial processes shouldn't be done by hand: There is too much at stake to get them wrong because of a botched Excel formula. Intacct automates intricate operations such as subscription billing so you can focus on something else.

The rev rec deadlines are closer than you think. Get started on your transition soon by contacting RKL, an Intacct Premier Partner with specific expertise in helping professional services organizations set up an accounting system that is sustainable and appropriate for their needs.

 



 

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