Is Your Company Prepared for the Upcoming Revenue Recognition ... - Oracle · Revenue Recognition...

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Is Your Company Prepared for the Upcoming Revenue Recognition Changes?


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Program Agenda

Business problem

Solution

Contract and Service Billing and Project Costing Enhancements

Invoicing Enhancements

Capabilities – Current and Planned

Summary

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Program Agenda

Business problem

Solution




Summary

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Business Problem

• Current processing of invoices recognizes the revenue at the time the invoice is posted

• Business processes and industry standards require the recognition of revenue separate from the invoice process

• New Revenue Recognition Standard to be in effect in 2018 has requirement to only recognize revenue when the performance obligation is complete – Convergence of IFRS and US GAAP revenue recognition standards

– Created via a collaboration between the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB)

– Replaces all existing revenue recognition standards

– All Industries and Countries • Exceptions are the Insurance and Lease Vendor industries

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Why did this change occur?

The Financial Accounting Standards Board and the International Accounting Standards Board initiated a joint project to clarify the principles to recognize revenue and develop a common revenue standard for U.S. GAAP and IFRS that would: – Remove inconsistencies in revenue requirements.

– Provide a more robust framework for revenue.

– Standardize practices across entities, industries, and jurisdictions.

– Provide more useful information through improved disclosures.

– Simplify the preparation of financial statements.

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Revenue Recognition Accounting Standard – High Level

The core principle as stated from IFRS is to

“Recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled

to exchange for those goods or services.” Here are the basic steps outlined related to this new standard:

1. Identify the contract(s) with the customer. 2. Identify the separate performance obligations. 3. Determine the transaction price. 4. Allocate the transaction price. 5. Recognize revenue when a performance obligation is satisfied.

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Over the Counter Sales Use Case

• Goods or services are received

• Payment made at the point of sale

• Transactions finalized in ERP system

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Customer purchases widgets at a retail store

Customer takes possession of the widgets and pays for them at the store

July 3

Performance Obligation Satisfied

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Invoice created for transaction

July 3


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Revenue and COGS amounts booked

July 3


Revenue and COGS

Recognized

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Payment created for transaction

July 3


Revenue and COGS

Recognized

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Payment created for transaction

July 3

No Changes Required to Current Business Process or

Accounting Entries


Revenue and COGS

Recognized

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Shipping of Goods to Customer Use Case

• Sales Order for goods that will be shipped a long distance to the customer

• Customer is invoiced at the time of shipment

• Customer takes advantage of the discounts available and pays prior to receiving the shipment

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Agreement made between supplier and

customer for the sale of widgets

July

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Sales Order Created

July August

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Sales Order Created

Widgets Shipped to Customer

July August

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Sales Order Created


Invoice created

July August

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Current Process -Revenue and COGS

Recognized

New Standard Performance Liability for

Revenue and COGS





Sales Order Created


Invoice created

Customer pays the invoice

July August

Current Process - Revenue and COGS

Recognized


Revenue and COGS

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Sales Order Created


Invoice created


Supplier receives payment

July August

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Recognized


Revenue and COGS





Sales Order Created


Invoice created



Customer receives widgets and notifies supplier they have

accepted them

July August September Performance

Obligation Satisfied

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Current Process -Revenue and COGS

Recognized


Revenue and COGS





Sales Order Created


Invoice created



Customer receives widgets and notifies supplier they have

accepted them

Performance Liability is cleared and the Revenue and COGS amounts are

booked

July August September

New Standard Revenue and

COGS Recognized

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Recognized


Revenue and COGS



What should I do next?

• If you haven't already started, begin to discuss the new Revenue Recognition standards with your auditors or other trusted advisors in order to analyze how these changes will impact your company.

• As well, continue to review the periodicals that many of the audit companies are publishing, in order to stay current with this information.

• Begin to analyze your company's revenue related transactions, as well as their impending exposure to these new standards.

• As you begin to better understand how your transactions need to be handled going forward, continue to educate yourself with how the JDE software enhancements will enable this change.

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Program Agenda

Business problem

Solution




Summary

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JD Edwards Revenue Recognition Solution

• Software changes are required!

• Updates available and planned

– EnterpriseOne 9.1, 9.2

–World A93.1 and A94

• Key challenges for revenue managers

– Identify customer contracts

– Identify the separate performance obligations

– Determine the transaction price

– Allocate the transaction price

– Recognize revenue when a performance obligation is satisfied (Our focus)

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Program Agenda

Business problem

Solution




Summary

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Contract Billing

Contract created with terms and conditions for invoicing and

revenue

• Identify customer contracts

• Identify the separate performance obligations

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Contract Billing


revenue

Costs charged to jobs

Recurring Process

• Determine the transaction price


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Contract Billing


revenue


Costs from jobs added to contracts

Recurring Process

• Allocate the transaction price

New! Summarize Unit Price

and Lump Sum amounts by subledger

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Contract Billing


revenue



Adjustments made to contract and invoice

Recurring Process

New! Adjustments to Stored Material

by subledger

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Contract Billing


revenue




Invoicing / Revenue

Recognition

Recurring Process

New! Detailed revenue

recognition posting report

• Performance obligations met

• Revenue recognized

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Contract Billing


revenue




Invoicing / Revenue

Recognition


Payment received

Recurring Process

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• Ability to summarize Unit Price and Lump Sum contract billing transactions by subledger

• Ability to make adjustments for Stored Material for Lump Sum invoices • Reporting changes

• Ability to pass G/L Date from R48131 to R48132 • Detailed revenue recognition posting report

Contract and Service Billing Key Features

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• Identify multiple performance obligations within a single project/job • Run Profit Recognition process by performance obligation • Make adjustments by performance obligation

Job Cost Key Features

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Project Costing

Job 1 – Executive Building Phase I - Excavation

Tower 1 excavation Tower 2 excavation

Phase II - Foundation Tower 1 foundation Tower 2 foundation

Phase III - Framing Tower 1 framing Tower 2 framing

% Complete Revenue Cost

RPO 1: Tower 1 % Complete Revenue Cost

RPO 2: Tower 2 % Complete Revenue Cost

Multiple performance obligations in a single job Revenue Performance Obligations (RPO): Tower 1 & Tower 2

One performance obligation for each job Performance Obligation: Executive Building

Job 1 – Executive Building Phase I - Excavation

Tower 1 excavation – RPO 1 Tower 2 excavation – RPO 2

Phase II - Foundation Tower 1 foundation – RPO 1 Tower 2 foundation – RPO 2

Phase III - Framing Tower 1 framing – RPO 1 Tower 2 framing – RPO 2

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Program Agenda

Business problem

Solution




Summary

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Sale of Goods – Planned Shipment

Agreement made between supplier and customer for the sale

of widgets

• Identify customer contracts

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of widgets

July August

Sales Order Created

• Identify the separate performance obligations


• Allocate the transaction price

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Sales Order Created


July August

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of widgets

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Sales Order Created


Invoice created

July August

New! Performance Liability for

Revenue and COGS

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of widgets

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Sales Order Created


Invoice created

July August


Revenue and COGS

Performance liability accounting •Configuration to include or exclude invoices •Automated evaluation at all invoice entry points •Recognition of revenue or performance liability

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of widgets

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Sales Order Created


Invoice created

July August

Revenue Performance

Liability COGS Performance

Liability Cost of Goods Sold

$ 200.00 $ 175.00


Revenue and COGS

Accounting:

Performance liability accounting •Configuration to include or exclude invoices •Automated evaluation at all invoice entry points •Recognition of revenue or performance liability

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of widgets

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of widgets

Sales Order Created

Invoice created

July August

Customer Pays invoice

Receive Payment

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of widgets

Sales Order Created

Invoice created



Receive Payment

Customer receives

shipment

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of widgets

Sales Order Created

Invoice created

July August September New Standard! Revenue and

COGS Recognized


Receive Payment

Customer receives

shipment Revenue

Recognized


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of widgets

Sales Order Created

Invoice created


Revenue Performance

Liability COGS Performance

Liability Cost of Goods Sold

$200.00 $175.00

$200.00 $200.00 $175.00 $175.00

Accounting:

New Standard! Revenue and

COGS Recognized


Receive Payment

Customer receives

shipment Revenue

Recognized


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Program Agenda

Business problem

Solution




Summary

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Current

• Configuration to include or exclude invoices

• Evaluation of configuration at all invoice entry points

• Recognize all revenue amounts • Recognize all, less, or more of COGS

amounts • Remove an invoice from the process • Batch and interactive process to add

invoice to process

Future

• Recognition of less, more, of none of the revenue amounts

• Reversal of a previous recognition • Integrity processes • Reconciliation of Revenue Recognition

Data • Audit Processes

Invoicing Process Enhancements Capability Availability

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Current

• Ability to summarize Unit Price and Lump Sum contract billing transactions by subledger

• Ability to make adjustments for Stored Material for Lump Sum invoices

• Reporting changes – Ability to pass G/L Date from R48131 to R48132 – Detailed revenue recognition posting report

• Identify multiple performance obligations within a single project/job – Profit Recognition process by performance obligation – Adjustments by performance obligation

Future

• Transition to new standard: Allow Profit Rec to run at a different level for jobs

• Calculate Project Final amounts (HA/HU Ledgers) and run Profit Rec by subledger

• Change requests for T&M and Fee billing lines • Track contract amounts related to change orders • Performance Liability Account amounts visible in

Contract Status Inquiry application

Contract and Service Billing/Project Costing Enhancements Capability Availability

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Program Agenda

Business problem

Solution




Summary

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Summary

• These enhancements allow our customers to: –Comply with Revenue Recognition Accounting Standards and Business

Processes

–Minimize the impact on current business processes

–Minimize the impact on current users

–Utilize additional flexibility for our Contract and Service Billing and Project Costing modules

–Set up the new processes based upon their business processes and needs

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Additional Information

• Frequently Asked Questions - link

• JD Edwards Implementation Guides for 9.1 - link

• Financial Accounting Standards Board (FASB) - link

• International Accounting Standards Board (IASB) - link

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http://www.oracle.com/us/products/applications/jd-edwards-enterpriseone/faq-revenue-contracts-customers-2541047.pdf

http://docs.oracle.com/cd/E16582_01/index.htm

http://www.fasb.org/home

http://www.ifrs.org/


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Is Your Company Prepared for the Upcoming Revenue Recognition ... - Oracle · Revenue Recognition...

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