Turn ASC 606 into a transformation opportunity
You can look at ASC 606 in one of two ways — as a compliance burden, or as an opportunity for finance leaders to emerge and change the game.
A survey by Big Four firm EY found that 94 percent of CFOs and CIOs anticipated that implementing revenue recognition changes would deliver a value return exceeding the investment they will make in the long term. This couldn’t be more true.
As vice president and assistant controller — now vice president of finance transformation — at CDK Global, I was tasked with the implementation of the ASC 606 revenue recognition program. With more than $2 billion in revenues, providing integrated IT and digital marketing solutions to approximately 30,000 automotive retail locations and automotive manufacturers in more than 100 countries, this was no easy feat at CDK. With the support of an incredibly talented team, executive sponsorship, strong solution vendors and cross-functional stakeholder alignment, we achieved compliance on time, while learning a few key lessons along the way.
Lesson 1: Having an automation solution is a requirement, not an option
Revenue recognition and the new requirements in ASC 606 can be extremely complicated. Having an application is essential to supporting your business and setting it up for future growth and scale.
With a systematic solution in place at CDK, we could guarantee that accurate revenue recognition had been applied to all our transactions, leveraging standard rules and applied to all performance obligations on our contracts. When a contract modification occurs, a systematic approach is employed to capture and process changes to the revenue recognition on the contract. This includes considering how to pause the existing contract and intelligently adjust the revenue going forward — whether that means no reallocation, allocations with prospective treatment, or allocations with retrospective treatment.
This automated functionality gives us confidence that our revenue accounting process can support the business in pursuing new kinds of monetization models, and give our customers flexible contract arrangements. This greatly improves our customer experience and enables us to deliver competitive solutions to our clients.
Lesson 2: Data integrity is critical for revenue accounting automation
The more proactive you are — getting in front of the data, understanding the junctures of data capture in end-to-end order-to-cash processes — the more likely you are to set the business up for success.
It’s paramount that you take a hard look at all the data that comes from your quote-to-cash processes into your revenue recognition solution, ensuring it is in a consistent format. Under 606, revenue automation solutions consume existing data in new ways. Solve for gaps in the following:
- What data does the revenue automation system require?
- How will the automation tool handle this transaction?
- Do I need to augment my existing data to support new processing requirements?
- Do I need to change any processes to meet the new data processing requirements?
Finance leaders need to collaborate with their IT, operations and sales teams to make sustainable changes to business processes and IT systems for consistency and quality to avoid pitfalls of manual-intervention or temporary system changes that are not scalable for the future. This is an opportunity to reimagine what the business wants to do, as opposed to forcing the business to do what the systems can do.
Lesson 3: A successful implementation requires cross-functional collaboration
The source of revenue data comes from the sales team. When they execute a contract with the customer, information flows into demands for the implementation team, billing operations, and cash collections. IT ensures all the systems and processes are set up to support these teams, capture information, and pass it to the revenue accounting solution. This transformation truly required all departments to work together.
Ultimately, this incredibly rewarding experience earned me a new challenge and my latest role with the company, vice president of finance, in which I get the delicious challenge of modernizing our financial systems and processes.
ASC 606 can be a painful and purely compliance project, but it doesn’t have to be. It can be a great opportunity to unlock talent on teams, collaborate with peers and leaders, and help a company embrace 21st century technologies to support business growth and agility.