FASBe Not Afraid of the New ASC 606
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Beginning this year, companies must follow a new set of rules for how revenue is recognized—every company will need to update how it treats revenue generated from customer contracts. This session will walk you through the new rules and show you how they will affect multiple roles in multiple, sometimes surprising, ways. You’ll be armed with a better understanding of the impact of ASC 606, so your organization doesn’t have to fear it.
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FASBe Not Afraid of the New ASC 606
- 1. #AccelerateQTC Wednesday May 3rd, 2017 Session Room B, B2B Leaders, Finance Leaders FASBe Not Afraid of the New ASC 606
- 2. Ari Kaplan PRINCIPAL, ARI KAPLAN ADVISORS Brad Koontz VP OF INDUSTRY SOLUTIONS, HITACHI SOLUTIONS Javier Reynaldos PRINCIPAL SALES ENGINEER, CPA Mike Carrell PRODUCT MARKETING DIRECTOR, REVENUE MANAGEMENT
- 3. 3 About ASC606: Revenue from Contracts with Customers
- 4. Financial Accounting Standards Board Issues GAAP rules, ASC 606
- 5. International Accounting Standards Board Issues IFRS rules, IFRS 15
- 6. FAS 87 (1985) changed how companies account for pensions Dramatic and unexpected impact Created 401(k) industry with $4.7 trillion in assets 1985: An Accounting Rule Affects Millions of Workers 77% 40% 22% 0% 20% 40% 60% 80% 100% 1990 1999 2012 Share of Private Sector Workers with Pensions
- 7. 2017: An Accounting Rule Will Again Affect Millions ASC 606/IFRS 15 changes how companies recognize revenue Global Standards Public and Private Companies Effective December 15, 2017
- 8. Fix inconsistencies between US and global accounting standards Address specific weaknesses in revenue recognition practice ASC 606 / IFRS 15 Needed for Four Reasons Standardize revenue recognition practice across industries to improve comparability and reduce complexity Provide more useful information to investors 1 2 3 4
- 9. What does this mean for Finance, Sales, and Legal? ASC 606 / IFRS 15 Creates a Five-Step Rev Rec Process Evidence of Arrangement Reasonably Collectible Price Fixed and Determinable Delivery Occurred 1 2 3 4 Identify Elements5 Allocate Revenue6 Identify the Contract(s) with a customer1 Identify the performance obligations in the contract2 Determine the transaction price 3 Allocate the transaction price to the performance obligation 4 Recognize revenue when the entity satisfies a performance obligation 5 4 Criteria to Recognize SOP 97-2, SAB 104, ASC 605 2 Additional Steps EITF 00-21, EITF 08-1 5 Steps to Recognize ASU 2014-09 (ASC 606)
- 10. Performance Obligations Must Be Identified Total Price Subscription Term Products & Services “Limits on Liability” Every performance obligation must be identified and tied to the revenue recognition system.
- 11. The transaction is affected by explicit and implicit terms Discount Approval SLA Approval Discounts, Terms, Expected Consideration all affect the transaction value
- 12. Imagine the sale of a product or service that takes place in January
- 13. SaaS Subscriptions List: $50/User/Month Sold: $36,000 for 100 users over 3-Year Term Revenue Recognition over 1 Year JANUARY $1,000 FEBRUARY $1,000 MARCH $1,000 APRIL $1,000 MAY $1,000 JUNE $1,000 JULY $1,000 AUGUST $1,000 SEPTEMBER $1,000 OCTOBER $1,000 NOVEMBER $1,000 DECEMBER $1,000
- 14. Physical Goods MSRP: $15,000 Sold for: $12,000 Revenue Recognition over 1 Year JANUARY $12,000 FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER
- 15. Physical Goods with included services MSRP: $16,000 Including $1,000 of 1st year Maintenance Sold for: $12,000 Allocation: Car: $11,250 (15/16) Maint: $750 (1/16) Total: $12,000 (16/16) Revenue Recognition over 1 Year JANUARY Car: $11,250 Maint: $62.50 FEBRUARY Maint: $62.50 MARCH Maint: $62.50 APRIL Maint: $62.50 MAY Maint: $62.50 JUNE Maint: $62.50 JULY Maint: $62.50 AUGUST Maint: $62.50 SEPTEMBER Maint: $62.50 OCTOBER Maint: $62.50 NOVEMBER Maint: $62.50 DECEMBER Maint: $62.50
- 16. 16 About ASC606: Affects on various industries
- 17. Which items are under the scope of ASC 606, according to AICPA Working Guide Issue #9-1? A. Dental plans B. Immunization C. Life insurance fees for asset management fees D. Safety inspections E. Title search F. Performance incentives for claims managers G. Cybersecurity activity H. A P&C carrier processing claims for an independent agency I. High-deductible health plans J. Towing services K. High-deductible P&C umbrella servicing Insurance: Instant Poll 17 Respond at PollEv.com/mikecarrell890 Text MIKECARRELL890 to 22333 (once to join) Then A, B, C, D, E, ….
- 18. • all contracts within the scope of FASB ASC 944, such as investment contracts, life and health insurance, property and liability insurance, title insurance, and mortgage guarantee insurance, are excluded from the scope of FASB ASC 606 • …insurance risk mitigation or cost containment activities that relate to costs to fulfill the ……….Those fulfillment activities would not be within the scope of Topic 606…. • Health insurance contracts • Safety inspections • Roadside assistance • Cybersecurity activities • A title search provided with a title insurance policy Insurance: Standard Insurance Contracts AND Risk Mitigation and Fulfillment Activity 18
- 19. • TRUTH: Not ALL. Insurance entities can also provide services, such as claims adjudication and settlement, to customers without providing insurance coverage • The revenue recognition policies of all non-risk bearing entities in the insurance sector will be affected by the new guidance (2) Myth: All Insurance Contracts are Excluded from ASC 606 19
- 20. • Examples: – Health insurers administrative contracts – Claims adjudication/processing – Third party claims administration • Carriers servicing claims on behalf of the agency • Combined Contracts – Are activities predominantly performed as part of fulfilling the insurance obligation or mitigating the insurer’s insurance risk? – Not predominantly performed as part of fulfilling the insurance obligation or mitigating the insurer’s insurance risk? Insurance: Included in ASC 606 Examples 20
- 21. Which items are under the scope of ASC 606, according to AICPA Working Guide Issue #9-1? A. Dental plans B. Immunization C. Life insurance fees for asset management fees D. Safety inspections E. Title search F. Performance incentives for claims managers G. Cybersecurity activity H. A P&C carrier processing claims for an independent agency I. High-deductible health plans J. Towing services K. High-deductible P&C umbrella servicing Insurance: Instant Poll - Answers 21 Poll Results
- 22. 22 ASC606 & Quote-to-Cash Contracts, Pricing, Revenue Management
- 23. • Service Provisioning • Usage • Invoices • AR Master • Payments and Collections • Revenue Recognition • Financial System of Record • Tax tables • Tax calculations • Tax line items • eSignature Apttus X-to-Cash and Ecosystem CRM System Customer Systems X
- 24. 24 Step 1: Evidence of arrangement Reasonably Collectible Step 2: Price Fixed and Determinable Step 3: Delivery Occurred Apttus Revenue Management For ASC 605 Contract or Quote Orders Revenue Agreement (Contract) Revenue Allocations Revenue Schedules Revenue Fees
- 25. 25 Step 2: Identify the performance obligations in the contract Step 3: Determine the transaction price Step 4: Allocate the transaction price to the performance obligations Step 5: Recognize revenue when the entity satisfies a performance obligation Apttus Revenue Management For ASC 606 Orders Performance Obligations Transaction Price Revenue Allocations Revenue SchedulesContract or Quote Step 1: Identify the contract(s) with a customer
- 26. 26 Customer Business Practices Yield Use Cases New Contract Combine Contracts Modify Contract Cancel Create New Identify Contracts Identify Perf Ob Determine Txn Price Allocate Perf Ob Recognize Revenue One Good/Service Collection of Good/svc Implied good/svc Satisfied at point in time Satisfied over time Est Stand Alone Stand Alone Observable Calc Txn Price Variable Consideration Reduce Txn for Refund Liab Reduce Txn for rebate Change Txn Price Allocate Order Discounts All Perf Ob Order Discounts Not All RevRec Output Meth Rev Rec Input Methods Rev Rec on Unex Rights Non-Refund Upfront Fees Sales-based Royalties Usage Based Royalties … … … … …
- 27. When do you hope to automate processes around ASC606 compliance? A. It’s done B. Before Dec 15, 2017 C. Q1CY18 D. Sometime in CY18 E. In CY19 F. Never. No plan to automate G. We don’t know yet Instant Poll Question: 27 Respond at PollEv.com/mikecarrell890 Text MIKECARRELL890 to 22333 once to join Then A, B, C, D, E, …. Public Companies Private Companies
- 28. 28 Highlights Demo Quote-to-Cash and ASC606
- 29. Principal Sales Engineer, Apttus Javier Reynaldos Getting to Cash Billing and Revenue Recognition “Everything is what it is, and not another thing.” – Joseph Butler, Philosopher JReynaldos • Principal Sales Engineer, CPA, former CFO, and SME on Revenue Management
- 30. Apttus Quote-to-Cash 1. Integrates - Apttus extends the CRM/CPQ into an organization's ERP of choice and vice versa. – Sales Orders, Invoices, AR and Revenue Accounting – Payment Gateways, Tax Services, Fulfillment & Licensing platforms 2. Orchestrates – Apttus coordinates the timing and creation of Sales Orders, Invoices, Journal Entries in the ERP of record 3. Enables – Apttus extends all of the down-stream systems into the CRM/CPQ to create complete Customer-facing visibility for direct sellers 30
- 31. Manage Different Billing and Revenue Streams 31
- 32. … as well as mid-term changes 32
- 33. Demonstration Agenda • Configure Price & Quote – Discounts & Approvals – Create a Billing Plan for Professional Services – Present and Accept Q/P • Billing and Invoicing – Subscriptions and One-time Invoicing – Milestone & Usage-based Billing • Revenue Recognition – Allocation Policies – Recognition Policies • Mid-term Contract Changes 33 Configure Products Apply Discounts Approvals & Billing Plans Present & Accept Order Fulfillment Billing Revenue Recognition Mid-Term Asset Changes
- 34. Modeling ASC 606 in Apttus 34 Identify the Contract(s) with a customer1 Identify the performance obligations in the contract2 Determine the transaction price 3 Allocate the transaction price to the performance obligation 4 Recognize revenue when the entity satisfies a performance obligation 5 5 Steps to Recognize ASU 2014-09 (ASC 606) ASC 606 Modeled in Apttus CLM and CPQ provide the Details Revenue Recognition Rules define Performance Obligations Selling and Payment Terms Determine transaction prices Revenue Allocation Rules proportion transaction prices by FMV Revenue Schedules are the source for Journal Entries into your ERP of choice
- 35. Selected Products & Services 35 Product/Service Type Price Model Billing Rule Revenue Recognition Portal Infrastructure Contracts Edition CRM Enterprise Bundle +Tier1 Information Sys +Standard Success Plan DL 160 Server DL 160 Server Support Basic Launch Pack Business Analyst Project Manager Usage PAYGO Subscription Annual Subscription Add-On Option Included Option Physical Good Support/Warranty Implementation Fee Professional Service Professional Service Per Unit Per User, Per Month Per User, Per Month Per Unit Percent of Server Flat Fee Billable Hours Billable Hours Monthly, In Arrears Monthly, In Advance Monthly, In Advance One-Time One-Time One-Time Milestone Milestone Usage/Royalty Subscription w/o Def Rev Immediate Subscription with Def Rev Ratably, with Def Rev Immediate Milestone Milestone
- 36. 36
- 37. #AccelerateQTC Q&A in the Speakers Area FASBe Not Afraid of the New ASC 606
Editor's Notes
- So let’s start with a 60-second overview of accounting rules. Accounting rules in the United States are issued by a private, non-profit organization called the Financial Accounting Standards Board, FASB. This organization establishes and continuously improves a widely accepted gold standard for accounting, called Generally Accepted Accounting Principles, or GAAP. Public companies use GAAP standards, as do many private companies. The US is adopting ASC 606.
- Outside the United States, there’s an organization called the International Accounting Standards Board, or IASB. It issues accounting rules called the International Financial Reporting Standards, IFRS. This organization works with national accountancy boards to try to convince those countries to adopt this single set of standards, and they’ve had a lot of success. Most of the world uses IFRS standards. This map shows to the best of our knowledge the countries that will be adopting IFRS 15. So accounting rules aren’t laws, but they are still very, very important because they give investors the confidence to make investments in companies. And in fact, they’re very important for all of us with jobs too. Why are they important for all of us? Let me tell you a story.
- Now this rule FAS 87 required corporations to change how they accounted for their pension plans. Specifically, it required companies to show their pension liabilities on their balance sheets. (1) This had a dramatic impact. Most companies decided that this made it more difficult for them to offer pensions, so they started phasing them out and replacing them with so-called “defined contribution” retirement plans. The most popular kind of defined contribution plan is called a 401(k). (2) In 1990, 77% of private-sector workers in the US still had pensions as their primary non-government retirement plan. But by 1999, that number had fallen to 40%. A few years ago it was just 22%---very few of us in business will ever be offered a pension. (3) And what’s more, the creation of 401(k) plans has spawned a whole new industry in retirement services in the US, with more than $4.7 trillion in 401(k) balances today. So if you have a 401(k) instead of a pension, you have an accounting rule to thank. Don’t think accounting rules can’t affect you—they can, they do, and they will.
- And ASC 606/IFRS 15: Revenue from Contracts with Customer will affect you. Because this rule was issued by both standards-setting organizations, it is a global rule. It covers private and public companies. And it takes effect for company financial years beginning on or after December 15, 2017, meaning that many companies will have to start complying with the rule in their next fiscal year. Back in the 1980s, no one could have predicted that an accounting rule could have a profound impact on the lives of tens of millions of workers. In the years to come, this new accounting rule will have a similarly broad impact. And we’re excited that you’ve joined us for this first look at what these impacts will be.
- So the two accounting boards decided to issue these new rules. The accounting boards have given 4 specific reasons for the new rules. 1. Historically US and non-US accounting rules had some important differences. One reason the boards issued the new rules was to fix inconsistencies between US and global rev rec standards 2. Up to now, there have also been different practices in different industries. So another important purpose was to standardize revenue recognition practices across industries to improve the ability to compare companies across industries, and reduce accounting complexity 3. The rules also address specific weaknesses in revenue recognition practices 4. Finally, the rules enable companies to offer more useful information to investors So with these goals in mind, we have ASC 606/IFRS 15: Revenue from Contracts with Customers. This new rule defines a specific procedure for recognizing revenue when you have a contract with a customer. The rules are very slightly different in the US and outside the US, but these differences are really only relevant to the accountants. You should also know that a few kinds of contracts, most notably some leases and insurance contracts, are exempt from these new rules because they already are accounted for in particular ways.
- [Prior talk track below. Change as you like—at the end please introduce Lynne Funk.] What the rules do is define a specific procedure for recognizing revenue. If you are being paid by a customer that you have a contract with—which covers more than 70% of all revenue earned by businesses—you have to now follow a 5-step procedure. 1. Identify the contract(s) with the customer 2. Identify the performance obligations in the contract: That is, what do you need to deliver? Each part of your deliverable that can be separated from the other things you are delivering, and has a distinct value, is considered a performance obligation 3. Determine the transaction price: What is the customer paying you? 4. Allocate the transaction price to the performance obligations. This is the important step. According to the rules, you need to determine each commitment you have made and assign it a reasonable share of the total transaction value. This can be tricky if any commitments are not explicitly described, or are conditional. Finally, you must recognize revenue when and as you satisfy each performance obligation. This series of steps is very logical, but it leads to complicated outcomes. Indeed, FASB’s official rules document includes 60 different examples of how to apply this guidance in the real world. There’s a lot to keep the accountants busy right now.
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- Are you fulfilling insurance contract or MITIGAGING risk? https://www.aicpa.org/interestareas/frc/accountingfinancialreporting/revenuerecognition/downloadabledocuments/working_drafts/insurance/insurance_9-1_applying_scope_exception_fasb_asc_606-10-15-2_4.pdf https://www.pwc.com/us/en/cfodirect/assets/pdf/in-depth/2014-01-revenue-recognition-insurance-supplement.pdf
- . Claims adjudication/processing: These activities can be included with commercial property casualty insurance contracts, (e.g., general liability, property, automobile, workers compensation) offered as a high deductible policy, such that the policyholder is “self-insuring” numerous claims below the deductible, that specifies that the adjudication/processing of claims both above and below the deductible amount will be performed by the insurer. These claim adjudication/processing activities are performed even if the high deductible is ultimately not reached. Compensation for claims adjudication/processing below and above the deductible is either (1) an explicit or implicit component of the policy premium; or (2) separately billed to the policyholder based on a percentage of paid or incurred losses, or as a flat charge per claim and referred to as a claims servicing charge. For those claim activities below the deductible, although the activities are partially provided as a service to the customer, they also mitigate the insurer’s risk of loss above the deductible. Generally from the insurer’s perspective, a holistic view is taken in managing claims from the ground up (i.e., from below the deductible through the insurer’s limit), whether the insurer performs the claims adjudication or if it is outsourced to a third party. The insurer is integral in developing the strategy/approach for settling a claim below or above the deductible, along with the insured or the third party administrator if one is involved (i.e., whether a loss event is ultimately covered within the insurance protection provided or not). b. Health insurance contracts within the scope of FASB ASC 944 (e.g., medical including high deductible health plans (HDHPs), dental, vision, etc..): Additional activities related to the fulfillment of the insurance contract may include but are not limited to: enrollment (for group plans), provider network access, routine physicals and screenings, immunizations, preventative care and wellness benefits, transportation to facilities for treatment, and access to durable medical equipment (e.g., wheelchairs and crutches), and wellness benefits that include biometric screening, tobacco cessation, personal health assessments and records, health coaching, and disease management provided with health insurance contracts within the scope of FASB ASC 944. c. Safety inspections: These activities are sometimes provided with a property and liability insurance contract and such activities can be viewed as mitigating the insurer’s risk. d. Roadside assistance provided with an automobile insurance policy: Examples of activities provided are: towing cars from an accident location or changing a flat tire, which both help mitigate the risk of a further accident or damage to the car. e. Cybersecurity activities: These activities are sometimes provided with a general liability insurance contract and such activities can be viewed as mitigating the insurer’s risk. f. A title search provided with a title insurance policy: These activities are part of fulfilling the insurance contract and mitigating the insurer’s risk.
- https://www.aicpa.org/interestareas/frc/accountingfinancialreporting/revenuerecognition/downloadabledocuments/working_drafts/insurance/insurance_9-1_applying_scope_exception_fasb_asc_606-10-15-2_4.pdf 2 http://rsmus.com/pdf_download/wp_nt_aud_all_changes_to_revenue_recognition_impacting_insurance_entities.pdf COMBINED CONTRACTS: FinREC believes that the combined contracts should be accounted for as one contract under FASB ASC 944 FinREC believe that the guidance in FASB ASC 606 should be applied to determine the allocation of the combined consideration between (a) those non-insurance performance obligations to be accounted for under FASB ASC 606 and (b) insurance coverage (assuming that it meets the criteria to be classified as an insurance contract under ASC 944) to be accounted for under FASB ASC 944.
- . Claims adjudication/processing: These activities can be included with commercial property casualty insurance contracts, (e.g., general liability, property, automobile, workers compensation) offered as a high deductible policy, such that the policyholder is “self-insuring” numerous claims below the deductible, that specifies that the adjudication/processing of claims both above and below the deductible amount will be performed by the insurer. These claim adjudication/processing activities are performed even if the high deductible is ultimately not reached. Compensation for claims adjudication/processing below and above the deductible is either (1) an explicit or implicit component of the policy premium; or (2) separately billed to the policyholder based on a percentage of paid or incurred losses, or as a flat charge per claim and referred to as a claims servicing charge. For those claim activities below the deductible, although the activities are partially provided as a service to the customer, they also mitigate the insurer’s risk of loss above the deductible. Generally from the insurer’s perspective, a holistic view is taken in managing claims from the ground up (i.e., from below the deductible through the insurer’s limit), whether the insurer performs the claims adjudication or if it is outsourced to a third party. The insurer is integral in developing the strategy/approach for settling a claim below or above the deductible, along with the insured or the third party administrator if one is involved (i.e., whether a loss event is ultimately covered within the insurance protection provided or not). b. Health insurance contracts within the scope of FASB ASC 944 (e.g., medical including high deductible health plans (HDHPs), dental, vision, etc..): Additional activities related to the fulfillment of the insurance contract may include but are not limited to: enrollment (for group plans), provider network access, routine physicals and screenings, immunizations, preventative care and wellness benefits, transportation to facilities for treatment, and access to durable medical equipment (e.g., wheelchairs and crutches), and wellness benefits that include biometric screening, tobacco cessation, personal health assessments and records, health coaching, and disease management provided with health insurance contracts within the scope of FASB ASC 944. c. Safety inspections: These activities are sometimes provided with a property and liability insurance contract and such activities can be viewed as mitigating the insurer’s risk. d. Roadside assistance provided with an automobile insurance policy: Examples of activities provided are: towing cars from an accident location or changing a flat tire, which both help mitigate the risk of a further accident or damage to the car. e. Cybersecurity activities: These activities are sometimes provided with a general liability insurance contract and such activities can be viewed as mitigating the insurer’s risk. f. A title search provided with a title insurance policy: These activities are part of fulfilling the insurance contract and mitigating the insurer’s risk.
- Are you fulfilling insurance contract or MITIGAGING risk? https://www.aicpa.org/interestareas/frc/accountingfinancialreporting/revenuerecognition/downloadabledocuments/working_drafts/insurance/insurance_9-1_applying_scope_exception_fasb_asc_606-10-15-2_4.pdf https://www.pwc.com/us/en/cfodirect/assets/pdf/in-depth/2014-01-revenue-recognition-insurance-supplement.pdf
- --- older talk track notes below Let’s take a look at how Apttus typically works with your other applications to complete the Quite to Cash Process: All Orders and Amendments originate in Apttus CPQ and move to Apttus CLM for contract finalization Once the contract is ready for signature, Apttus Order Management will orchestrate the order Apttus OM will send order details to eSignature, where customer will e-sign the Quote completing the order Apttus Order Management will communicate with customer systems for fulfillment, customer system will send back activation/license notifications Apttus Billing will create Billing schedules, or will overwrite billing schedules in the case of amendments Apttus will leverage detail sent from customer systems to generate invoices Apttus will communicate with an external tax solution for tax line items, tax line items will be added to the finalized invoice record Invoices created in Apttus will be sent to customer’s ERP at the detail level; initial GL Impact is completed by invoice creation in customer’s ERP Related AR transactions (payments, credits, etc.) will be sent back to Apttus to ensure AR visibility Revenue Recognition Journal Entries will be created in Apttus and sent to customer’s ERP finalizing recognition of revenue
- At Apttus, we are working with a diverse set of customers, across industries and, who have different business models in place. We are working with them to support their specific needs, while considering across the 5 steps of Recognizing Revenue from Contracts with Customers. These are some of the enhancements for Revenue Management products which are targeted for General Availability in the Summer17 release. (August 2017). [ note to self: I don’t have details on the enhancements to automatic contract interpretation.} Identify Contracts, 4 use cases Identify Performance obligations, 5 use cases Determine transaction price, 7 use cases Allocate performance obligation, 3 use cases Recognize revenue, 5 use cases Basis: direct measurements of value to the customer of the goods/services transferred to the customer relative to the remaining goods or services promised under the contract Examples:, Time elapsed, Milestones, Units delivered/produced (usage) Basis: the entity’s efforts or inputs to the satisfaction of the performance obligation relative to the total expected inputs to the satisfaction of that performance obligation Percentage complete models Examples: Resources/labor hours consumed, Costs incurred, Hours expended (relative to total expected hours) Referred to as “breakage”, Recognized when possibility of exercise becomes remote. Example: Prepaid wallet with an end date. Use it or card expires and customer loses that. Non refundable upfront fee: Can be recognized beyond initial contract term if customer has a right to renewal Example: SasS SW for 1 year Basis is on sales based or usage-based fee. Example: 6 mo contract to provide service, rate per hour, and have an estimated rev amount at beginning.
- Three key functionalities. Apttus Integrates your CRM into all of your downstream systems with transaction-level APIs Apttus Orchestrates processes using highly-configurable intelligent work flows and automation tools Apttus Enables visibility for your customer-facing team monitoring the effects of downstream processes.
- Our Key differentiator is the ability create and manage different billing and revenue recognition streams
- as well as manage any changes to those streams over the life of the contract.
- Our demonstration will start out in the Apttus shopping cart with a variety of Products & Services including SaaS Subscriptions, Physical Goods with Support Agreements, and Professional Services that cover the most common use-cases. To complete the quote process we will Apply discounts Get management approval Create a Milestone-Based Billing Plan for Professional Services Present our Quote to a Customer. With an electronic signature in hand, we’ll then convert the Quote to an Order to kick off the “To-Cash” Process Next we’ll cover subscription billing and one-time invoicing for physical goods before creating Usage and Milestone-Based invoices. In the third Section, we take a look at Revenue Recognition, covering the methods we employ that can enable your company’s ASC 606-Compliant reporting. Finally, we’ll make a mid-term change to a Subscription Contract in our Asset Manager and show the changes in the billing and revenue recognition schedules.
- Here’s a method for modeling ASC 606 compliance within a typical Apttus implementation. 1. The agreement in CLM and/or the configured Q/P in CPQ provides the details of the contract 2. Revenue Recognition Rules, applied to the product catalog, define how Performance Obligations are recognize at a point in time or over the life of a contract 3. Selling and Payment terms, considering rebates and other variables are the basis for determining the transaction price 4. Revenue Allocation Rules apply the contracted transaction price of the products and services sold based on the component’s relative fair market values 5. Revenue Schedules maintain the details of forecasted and recognized revenue as well as the balance of any contract asset or liability. Using APIs, Apttus send journal entries into your ERP of choice. Now let’s apply Revenue Allocation and Revenue Recognition Rules to our presentation example.
- These are the Products and services selected for our example. SaaS Subscriptions: Portal Infrastructure is USAGE-Based Billing and Revenue Recognition Contacts Edition is Pay As You Go (NO deferred revenue tracking) Sales CRM Enterprise is (Contracted Subscription, Billed Annually in Advance with two Options) Tier1 Information System Corporate (Additional Price) Standard Success Plan (Price included in bundle, allocated revenue recognized over contract.) Physical Goods DL Default Server 160 (One-Time Charge) DL Support (Customer Support Subscription) Professional Services Basic Launch Pack is Flat Fee, One-time Charge Business Analyst, Milestone Billing Project Manager, Milestone Billing