NetSuite Inc. has launched a product to help businesses automate the complex process of complying with new rules from the Financial Accounting Standards Board for revenue recognition of multi-element sales.
Known as the NetSuite Advanced Revenue Recognition tool, the company revealed the product at its Revenue Recognition Transformation meeting in Palo Alto, Calif., to over 300 attendees from a variety of Silicon Valley service and software businesses and members of the financial community.
The FASB rules for multi-element sales, known as EITF 08-01 and EITF 09-03, have been compared to the Y2K problem in that there is a hard deadline for implementation. Companies must adopt the new rules no later than the first fiscal year beginning on or after June 15, 2010.
As a CEO overseeing a company that went through this revenue recognition change, I can say this will have a major financial impact, and its an issue that wont be solved with Excel; it must be automated, said NetSuite chief executive Zach Nelson. Ultimately, once you have the new rules in place, it will make it easier to recognize revenue and monitor sales prices not only for your products, but your services as well. Anyone selling products or services needs to plan for adoption now, he added.
A panel of financial community members including NetSuites soon-to-be chief operating officer Jim McGeever reiterated Nelsons call for companies to make plans to adopt the new rules, which many see as a precursor to the impending IFRS standard that global companies have already adopted. The panel also included Deloitte partner Joe Talley, Protiviti managing director Steve Hobbs and Proformative CEO John Kogan.
Anytime there is a change in accounting standards, you have to look at the good and the bad, said Hobbs. The bad news is, this is going to [mean that you will] have to think about reporting revenue in a new way and establish an estimated selling price for every deliverable you provide your customers. The good news is, what you will find once the right [revenue recognition] systems are in place, is that there will be a closer link to reality in your earnings statements. The best thing to do, if you havent already, is meet with your auditors, agree on your approach, gather your data and establish your process.
Talley reiterated Hobbs urge for companies to begin working with their auditors on a plan, and admitted too that the new rules are going to cause some problems. Dealing with the new EITF rules for now will help many companies get ready for IFRS.
Initially you will see many companies have less accurate financial statements, said Talley. The results are going to be very different than they are used to, but [financial statements] will reflect better economics over time. I know the SEC and FASB recognize the regulations being put on the industry at this point are a bit much at once. My hope is they will scale it back some.
The new NetSuite revenue recognition offering will officially be available on July 1. It is specifically aimed at companies running their financial and accounting processes on enterprise resource planning systems provided by SAP, Oracle and Microsoft Dynamics GP.
Companies running these and other legacy systems will be able to integrate them with the new NetSuite revenue recognition product to streamline their revenue management processes and benefit from modern cloud-computing software. For existing NetSuite customers, the new multi-element revenue recognition capabilities are available as an add-on module.
Other key elements of NetSuite Advanced Revenue Recognition include compliance with FASB and SEC regulations (including SOP 81-1, SAB 101, EITF 00-21, EITF 08-01 and EITF 09-03); reduced calculation time and decreased reliance on spreadsheets;
clear visibility and continual monitoring of all aspects of the revenue recognition process, including reporting on key data such as estimated selling prices; support for revenue recognition schedules on all sales transactions, regardless of the channel; immediate notification when revenue is due to be recognized; and templates that allow revenue recognition methods to be quickly assigned to all saleable items.
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