The new revenue recognition standards issued jointly by the Financial Accounting Standards Board and the International Accounting Standards Board have been a long time in the making, and merging U.S. and international standards into a consolidated, principles-based rule has required a collaborative effort. With such a long and slow ratification process, it’s surprising to learn most companies are still assessing the impact, according to the results made available from this expansive survey by PwC and the Financial Executives Research Foundation late last year.
Companies are generally struggling to implement the necessary major changes and establish individual policies which accurately account for revenue and produce detailed documentation and analysis to validate the reported numbers.
Many companies are still attempting to manage the process using spreadsheets. In addition to being manual, slow and fraught with errors, spreadsheets do not allow for version controls, security or operational controls, audit functionality or automation. Most notably, they are not scalable to meet large company enterprise-level revenue recognition automation and reporting needs. With ASC 606 and IFRS 15, it’s time to ditch the spreadsheets altogether and move to automation.
Not only does automating revenue recognition free accounting organizations from the tedium and challenges of manual spreadsheets, but it offers companies significant ROI across a number of important vectors.
While some financial leaders may view automation technology as added effort and expense, in reality an automation solution reduces staffing hours and expenditures. Cost savings are realized through reduced staffing hours, infrastructure and auditing fees as well as more indirect means such improved performance through consistent data and rule-making efficiency. A recent report by Gartner Inc. indicated tools that help coordinate financial statement preparation, regulatory reporting and investor report production reduce process costs by up to 30 percent.
During the frenetic, deadline-driven quarter close, often called “the last mile,” accounting and finance teams must close books quickly by consolidating data from a multitude of systems and ledgers, reconciling high-risk accounts, recording adjustments and creating financial statements. More leading companies today are implementing financial close software that automates the many last mile activities to reduce errors and improve process efficiency, according to Deloitte & Touche.
An evolving financial automation process built around a consistent and transparent revenue automation engine improves accountability and control while reducing bottlenecks and duplication of effort. The right automation engine allows a company to re-create and improve upon the often mundane but important last mile tasks, freeing up staff to focus on analysis and decision-making. The incoming guidance, ASC 606, comes with many subjective requirements depending on how it is interpreted by each company. Replacing inefficient manual data entry with automated data validation and collection takes advantage of modern analytic capabilities previously unavailable. Essentially, the more data available, the better the opportunity to build a company’s efficiency and reduce the last mile time to close.
According to Bloomberg BNA, human blunders were behind most tax and accounting mistakes leading to the nearly $7 billion U.S. businesses accumulated in IRS civil penalties in 2013 alone.
The new accounting standards have proven to be one of the key drivers for increased CFO technology adoption.
The threat of restatements keeps every CFO up at night — yet manual data entry into spreadsheets is a significant source of errors. With automation, business processes and controls are repeatable and auditable which, in turn, leads to a smoother, faster, less costly and more accurate audit preparation process and transaction trail.
A recent Accenture study touted today’s CFO as a “technology evangelist” who understands even the so-called soft benefits of evolving technology. For revenue automation, that includes quick and clear visibility to detailed revenue data, availability to management reporting and financial forecasting systems at a granular level.
Revenue is a company’s most critical piece of the quote-to-cash cycle. Automation technology makes it possible to streamline this critical function and be confident that, in the face of changing standards, a company’s reporting is streamlined, accurate, on time and cost effective.
There’s never been a more opportune time to move beyond traditional methods of revenue management to an automated revenue recognition solution in order to streamline required processes for ASC 606.