What Executives Need to Know About the New Revenue Recognition Standards, Part 2
If you’re just joining in now, feel free to go back to part 1 of this blog series.
If not, here is a quick recap:
There isn’t much time left to come up with a plan for the new revenue recognition guidelines since they are coming into effect in 2018. There are a lot of factors and hard work that go into complying with these new standards, so we’ve simplified the process by taking a three-step approach to help you on your journey to increasing compliance.
Step 1: Assessment- By now you should have already performed an initial assessment of your systems, processes and internal controls. This is meant to help you understand exactly what information needs to be captured and reported on, and where that may require certain modifications to your current process, system, and/or controls. It will also help you better prepare for the impact it will have on your business.
Step 2: Identifying the Impact
Once you have completed your internal assessment and have a better idea of what information needs to be captured and reported on, you will now need to consider how the new standard will impact your entire organization. How will it affect your sales team? Your accounting department? Do you need to re-evaluate company expenses? Do you know exactly where all of your contracts are located with each customer and are they the correct, finalized and signed version?
In order to fully identify the impact, you will need to locate and organize each customer contract. The new standard calls for a review of each agreement to understand if any modifications need to be made. For example, the performance obligations changes include determining whether or not a good or service needs to be accounted for separately or be combined into one single performance obligation. You may find you have more, or fewer performance obligations than in the past, but either way you will need to double check all contracts to make sure you are in compliance.
If your contracts are not yet organized in one central and secure repository, then you could be putting your entire business at risk. Maybe you have thousands of contracts that are living with the sales or procurement departments. Maybe you don’t have the latest version of an executed agreement. Getting organized is going to be a huge undertaking and will require cross-departmental participation. Implementing enterprise contract management software can streamline the process, save valuable time, and increase compliance and best practices throughout your organization. By implementing a solution you could capture the data from your contracts right off the bat and see the implications on your revenue within minutes. This would save much needed time, resources and costs associated with failing to recognize revenue.
So, since you are already reviewing your process for the new standards consider deepening your insight into your contractual data. It’s the perfect time to incorporate enterprise contract management software into your revenue recognition process.
If you’re interested in learning how an enterprise contract management platform can help you increase compliance throughout your entire organization, contact us here.
Tune in next week for the third and final step of the process where we discuss actions for implementing the changes.