NetSuite Can Help Business Comply with Revenue Recognition

Scheduled to go into effect in 2017, the new Revenue Recognition Standard (ASU 2014-09) will have companies that do not properly prepare for the changes bracing themselves for an onslaught of chaos. The new revenue recognition standard will affect all entities from public and private to not-for-profits. While the transition process may seem daunting, all companies should take advantage of this year to prepare and evaluate potential impacts on financial statements, information systems, processes and controls.

The impact on your business will greatly depend on which rules you currently use to determine your company’s revenue recognition. For example, technology companies that sell upgrades and manufacturers who offer warrantees on their products will experience different changes.

Regardless of industry, it is important to make sure the proper solutions are in place to avoid further challenges to recognizing your revenue.

NetSuite for the Revenue Recognition Win

While you should prepare yourself for a great deal of work, the transition will be smoother if you have the proper solution at your disposal. NetSuite has historically assisted companies with adoption to previous revenue reporting guidelines and has deep insight on how businesses can overcome the transition. With NetSuite’s financial management software, accounting departments will feel empowered to comply with the new revenue recognition standards and ensure their financial statements are accurate.

Below are key areas that will be affected by the new standard and how NetSuite can ease the transition.

Selling Solutions vs. Products

If your company offers complex solutions, you will need an integrated financial management system that has a flexible calculation engine for multifaceted revenue recognition and billing. This system can deliver recognition that satisfies the new regulations and even triggers for compliance.

Financial Statement Preparation

Under the new standard, companies have two ways to make and report the transition, both of which require the ability to simultaneously calculate revenue. To accomplish this, you will need more than a spreadsheet to calculate all current and historical revenue in an error-free way. This is where an enterprise resource planning (ERP) solution will be your wingman. An ERP solution with a combination of a powerful built-in revenue recognition functionality along with a multi-book can calculate revenue under two completely different set of rules.

Sales Compensation

If your company built sales compensation around the previous revenue recognition, you will need to reevaluate those plans to comply with the new rules. This will mean taking a look at your company’s contract language to determine if changes need to be made to obtain consistent revenue recognition. A financial management system with compensation capabilities will provide you with the tools necessary to determine if applying the new standard will change your recognition and the impact a potential restructure will have on your sales teams.

Expense Matching

If your company expects to see significant changes, you will need to match expenses to meet the new standard. However, as product offerings become more complex, the ability to track and recognize expenses will require multifaceted costing methods. Under the new standard, your company will need to allocate costs in a multi-element arrangement to establish the reporting of additional dimensions, charge methods and automated reconciliations in order to comply. Standalone financial solutions will not have enough information to allow for these complex tracking. Instead, you will need an integrated system that can track labor, vouchers and other costs linked to particular customer contracts.

Communication to the Board and Investors

Depending on the impact of transition, it is important your CFO compares and communicates any revised policies and trends with all stakeholders. With the right tools in place, it will be more efficient to stay on top of any changes that will affect your company such as accurate forecasts and financial impact.

While larger companies will experience a greater impact than smaller companies will, you should begin planning for the transition sooner rather than later, and invest in a financial management system that can truly support the complexities of migrating to the new revenue recognition rules.

Are you ready to make your revenue recognition transition a less stressful experience? Contact one of our NetSuite professionals to discuss your options to plan for a smooth transition to the new standard.

Learn more about the revenue recognition impact and download the NetSuite white paper, “Revenue Recognition Changes Coming Sooner Than You Think: Five Key Considerations for Adopting ASU 2014-09.”