3 Challenges You’ll Need to Overcome to Use Spreadsheets for Revenue Recognition Criteria Compliance

Usage-based billing, dual reporting, and forecasting under the new ASC 606 and IFRS 15 revenue recognition criteria are going to be highly complex to manage you’re your spreadsheets. If you have contract or subscription revenue, here are 3 challenges you’ll likely face using spreadsheets under the new guidelines:

1. Contract-driven revenue recognition and expense management information and terms should be kept in an electronic database so they can be used in revenue calculations.  Any changes to contracts terms should be made in the database.
2. Contract changes from add-ons, discounts, or upgrades require reallocation of revenue and expenses across the contract, even over accounting periods that are already closed.
3. During the transition to the new guidelines, you will need to produce dual reporting, which means having two sets of financial books. This will involve having to record revenue and expense under both sets of rules, old and new.

Attempting to accomplish all this with spreadsheets is going to be nearly impossible in reality.  Spreadsheets are insufficient to effectively record changes on contracts that have tiered pricing or when contracts are changed to add or drop users are many. And what about when you need to produce two sets of financial reports? How do you plan to easily create full visibility of the effects of the new guidelines on your business to upper management? And, can you think of a way to provide details of all calculations and recalculations in your spreadsheets to your auditors?

Macros and formulas can help you automate a lot of calculations, but a formula can be mistakenly changed and a macro can be inefficient and slow, and sometimes they fail. Let’s not forget that a lot of companies don’t use cloud storage solutions like Google Drive or DropBox. In those companies spreadsheets live in hard drives—local or shared—and those could crash. Imagine having to restore your spreadsheets from the most recent backup copy. No matter how often you or your IT save your files, you will always lose some data, and you won’t be able to find what’s incorrect easily.

An integrated accounting software solution is your recipe for success

There is a better way. An integrated solution can handle revenue from contracts and subscriptions seamlessly and automatically. Your ideal solution will include the following features:

• automatically reallocates revenue and expenses when a contract changes,
• applies both sets of rules to each transaction, and
• provides you with dual financial reporting functionality to help you transition from the old to new reporting rules when contracts span the cutover period.

Before the new standards take effect—this year for financial reports for public companies and in 2019 financial reports for private companies—make sure you have a system that is purpose-built for your needs from the ground up. It may be time to consider cloud accounting software.

Out-of-the-box, Sage Intacct, the best-in-class cloud financial management solution, offers a Contract Management module that meets the new guidelines and requirements: reallocations for changes, deferral of expenses, and dual treatment during transition.

Sage Intacct Contract Management provides sophisticated reporting and metrics to produce P&Ls by contract; track unbilled, billed, and paid revenue; and to streamline billing and revenue forecasting.  And with contract checklists and sign-off audit details, you will breeze through internal and external audits with automated audit readiness.

Originally posted:
http://success.arxistechnology.com/blog/revenue-recognition-criteria