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Taking the Headache out of Revenue Recognition

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5 Ways Credit Teams Can Improve Compliance with ASC 606 and IFRS 15.

This deck covers the goals of the Account Standard Change and provides insights into how to best implement the ASC 606 and IFRS 15. The goals of the ASC include transparency, accountability, and efficiency. The ASC will achieve transparency by improving the ability to easily compare financials around the globe. Accountability will become more prevalent by making financial information more freely available and accessible. Accounting standards will be more efficient by helping investors identify risk and opportunity across the world.

The drivers of the Accounting Standards Change are global consistency, updates to United States standards, broad impacts to global finance, and evolving business models. These accounting standards will be the first sweeping change to US reporting in 40+ years. Account standards need to keep up with business as over 33% of business is now done across boarders, and modern business models are requiring different reporting styles.

The ASC 606 & IFRS 15 Five Steps to New Recognition are: identify, map, determine, allocate and claim. The first step requires businesses to identify the contract with a customer. Next, companies must map the performance obligations to the contract. Companies must also determine the transaction price to each deliverable. Then they need to allocate the price to the contracts performance obligations. Finally business must claim revenue when performance obligations are satisfied.

Here are the most frequently asked questions for the ASC 606 and IFRS 15:
Q) Are there Non-Compliance Penalties?
A) Non-compliance could result in major impacts to investor confidence, share price and eventual stock delisting.

Q) Who is impacted and when?
A) All public companies were to certify compliance with their external auditor with the new GAAP standard within 2018 however some companies petitioned for an extension to 2019. All private companies to be compliant by the end of 2019.

Q) Why would a private company comply?
A) ASC 606 and IFRS 15 are standards which many larger private companies follow to ensure they have access to financial resources that require financials such as bank loans, floating new debt or filing taking company public (IPO).

Did you also know that many large organizations will not extend credit terms to non-compliant suppliers?

Dun & Bradstreet's five ways to simplify revenue recognition are:

1) Identify your contracts
2) Link your customers
3) Evaluate your customers' creditworthiness
4) Align your collections efficacy
5) Monitor changes in your customer portfolio

For more information about how Dun & Bradstreet can help improve your implementation of ASC 606 and IFRS 15 visit our website here:
https://www.dnb.com/solutions/finance-and-risk-management.html

Published in: Data & Analytics
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Taking the Headache out of Revenue Recognition

  1. 1. 5Ways CreditTeams Can Improve Compliance with ASC 606 and IFRS 15 These materials are provided by D&B as a service to its customers, may not be copied or distributed, and may be used for informational purposes only. Copyright (c) 2018 D&B. All rights reserved. TAKING THE HEADACHE OUT OF REVENUE RECOGNITION COMPLIANCE JULY 24, 2018
  2. 2. Robert Kirk Leader, Finance Solutions Dun & Bradstreet ABOUT THE SPE AK E R With over 15 years of experience in Trade Credit and Risk Management, Robert Kirk helps companies understand their business to business relationships. Specializing in helping improve profitability, increase free-cash flow and mitigating risks of these commercial relationships; he partners with firms to build best-in-class quote-to- cash and supplier risk management policies and implement best practices to maximize the value of their business relationships.
  3. 3. B A C K G R O U N D O N A S C 6 0 6 & I F R S 1 5 T H E 5 - S T E P R E V E N U E R E C O G N I T I O N P R O C E S S T H E I M PA C T TO C R E D I T P R O C E S S E S 5 WAY S TO S I M P L I F Y R E V E N U E R E C O G N I T I O N Q & A AGENDA
  4. 4. B ACK G ROUND ON ASC 6 0 6 & IFRS 1 5
  5. 5. Under the old standard, with regard to contracts for delivery of service over time, companies could only recognize as revenue amounts actually billed to a customer. Under the new standard, so long as a company believes that a customer is creditworthy, the company is allowed to recognize contract revenue ratably over the entire contract term. Data quality, not which IT system to select, is the main hurdle companies will experience in readying for the shift to the new recognition rules. WHAT THE E XPE RTS ARE SAYING This is arguably one of the biggest compliance changes for business since Sarbanes-Oxley. Bloomberg reports that “public companies… are gearing up for the most historic accounting changes to hit U.S. Capital markets in decades. – CFO.COM – BLOOMBERG BNA – CFO.COM
  6. 6. 6 Goals of the Accounting Standard Change TRANSPARENCY Ability to easily compare financials across the globe ACCOUNTABILITY Financial information more freely available and accessible EFFICIENCY Help investors identify risk and opportunity across the world TAKING THE HEADACHE OUT OF REVENUE RECOGNITION COMPLIANCE
  7. 7. 7 Drivers of the Accounting Standards Change There are great benefits from having accounting/reporting standards worldwide. GLOBAL CONSISTENCY UPDATES TO UNITED STATES STANDARDS BROAD IMPACT EVOLVING BUSINESS MODELS US accounting and reporting is undergoing the first sweeping change in 40+ years. Greater than 33% of all business is done across borders including goods, Services, but also global mergers and acquisitions. Business has changed over the past 30 years, and modern subscription businesses are very prevalent. TAKING THE HEADACHE OUT OF REVENUE RECOGNITION COMPLIANCE
  8. 8. THE 5 - STE P RE VE NUE RE COG NITION PROCE SS
  9. 9. 9TAKING THE HEADACHE OUT OF REVENUE RECOGNITION COMPLIANCE IDENTIFY the contract with a customer MAP the performance obligations to the contract DETERMINE the transaction price to each deliverable ALLOCATE the price to the contract’s performance obligations CLAIM revenue when performance obligations are satisfied IDENTIFY MAP DETERMINE ALLOCATE CLAIM ASC 606 & IFRS 15 – Five Steps to New Recognition
  10. 10. THE IMPACT TO CRE DIT PROCE SSE S
  11. 11. 11 Frequently Asked Questions:ASC 606 and IFRS 15 TAKING THE HEADACHE OUT OF REVENUE RECOGNITION COMPLIANCE Non-compliance could result in major impacts to investor confidence, share price and eventual stock delisting A R E T H E R E N O N - C O M P L I A N C E P E N A L T I E S ? All public companies were to certify compliance with their external auditor with the new GAAP standard within 2018 however some companies petitioned for an extension to 2019.All private companies to be compliant by end of 2019. W H O I S I M P A C T E D A N D W H E N ? ASC 606 and IFRS 15 are standards which many larger private companies follow to ensure they have access to financial resources that require financials such as bank loans, floating new debt or filing taking company public (IPO). W H Y W O U L D A P R I V A T E C O M P A N Y C O M P L Y ? DID YOU KNOW? MANY LARGE ORGANIZATIONS WILL NOT EXTEND CREDIT TERMS TO NON-COMPLIANT SUPPLIERS.
  12. 12. 5 WAYS TO SIMPLIFY RE VE NUE RE COG NITION
  13. 13. 13 FiveWays to Simplify Revenue Recognition EVALUATE YOUR CUSTOMERS’ CREDITWORTHINESS LINK YOUR CUSTOMERS IDENTIFY YOUR CONTRACTS ALIGN YOUR COLLECTIONS EFFICACY MONITOR CHANGES IN YOUR CUSTOMER PORTFOLIO 21 3 4 5 TAKING THE HEADACHE OUT OF REVENUE RECOGNITION COMPLIANCE
  14. 14. 1. IdentifyYour Customers & Contracts • Establish a customer master file to understand all contracts and pricing for each customer. • A credit process is required to “identify the contract and customer” and determine the collectability risk of each new sale to a new or existing customer. CUSTOMER CONTRACT IDENTIFICATION BEST PRACTICES
  15. 15. 2. LinkYour Customers • Evaluate how you establish and maintain the relationships between your accounts for consistent treatment. • Finance teams must connect customers to link contracts to drive consistent revenue treatment to the same customer. CUSTOMER LINKING BEST PRACTICES
  16. 16. 3. EvaluateYour Customers’ Collectability • Review options for up-front credit decisioning and automated credit decisioning workflows, leveraging both internal and third-party data. • Discuss options for professional services engagements to review your credit policy. • Create a forward-looking model that helps predict credit losses. CREDIT EVALUATION BEST PRACTICES
  17. 17. 4.AlignYour Collections Efficacy • Accurate identification of collectability determines the revenue that must be deferred. • Create a repeatable, reliable collections strategy and procedure to maximize revenue recognition that will withstand an audit. COLLECTIONS ALIGNMENT BEST PRACTICES
  18. 18. 5. Monitor Changes inYour Customer Portfolio • Ensure you have a best-in-class framework to monitor your embedded base of accounts over time. • The accounting standards require that you maintain awareness of changes to customer identity and collectability over time. CUSTOMER MONITORING BEST PRACTICES
  19. 19. 19APPLYING ARTIFICIAL INTELLIGENCE TO FINANCE Accurate Data:The Foundation for All Business Insights ACTIONABLE INSIGHT COMPLETE CUSTOMER VIEW IDENTITY RESOLUTION CUSTOMER DATA DESTINATION:
  20. 20. 20 How Dun & Bradstreet Can Help Leverage Dun & Bradstreet’s predictive scoring models to evaluate the likelihood of potential credit risks before it’s too late, and address your high-risk portfolio accordingly to optimize cash flow. Establish better payment terms and make better credit decisions using the Dun & Bradstreet Data Cloud integrated directly into your systems. Dun & Bradstreet’s unique Live Business Identity information featuring the D-U-N-S® Number and firmographic data are the industry standard for business identification and identity resolution. TAKING THE HEADACHE OUT OF REVENUE RECOGNITION COMPLIANCE IDENTIFY DETERMINE IDENTIFY DETERMINE
  21. 21. AQ
  22. 22. THANK YOU FOR JOINING US! Robert Kirk, Dun & Bradstreet kirkr@dnb.com

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