Adoption of EITF – Revenue Arrangements with Multiple Deliverables When an invoice/order has an undelivered item (item that will not. The Clock is Ticking to Adopt the Latest EITF Revenue Recognition Rules. We’re firmly over the halfway mark for – and if you’re in. This question was asked by an attendee at a recent Proformative Rev Rec webinar: Would EITF cover arrangements with customers that included both.
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At NetSuite, we run our business on NetSuite—which means our business systems must already be closely aligned to enable us to quickly take advantage of these new rules.
For example, the average sales price for services may be derived from hourly billing rates that may vary based on geography or type of resource. Apple, for example, has been at the forefront in pushing for these changes. With the introduction of these new rules, having the right business systems in place makes all the difference in speed of adoption and ongoing management. Maybe you’ve already adopted the new rules or are in the process – and are juggling spreadsheets to try and handle the new rules right 080-1.
Apple early adopted in the first quarter of fiscal and the impact to their results was substantial. This resulted in a substantial impact i.
It leaves us in a strong position to eigf that our financial and operational systems aren’t a roadblock to adopting this preferred revenue recognition method, and that we can focus on booking the revenue, rather than spending time and resources managing the underlying systems. Weight available information and make a best estimate.
My own company NetSuite, has evaluated these new accounting rules and has eiitf we will be early adopting in When fair value wasn’t available, the result was often deferral of the revenue until all items had been delivered, or recognition of the revenue over the term of a contract—even if some of the elements, such as services, might have been fully delivered early on.
Under the old rules, Apple had to eutf all iPhone revenue over a two-year period. The new guidance in EITF introduces a third tier of evidence that you are required to follow to separate out different elements of a contract.
Broadly speaking, the impact of EITF is that companies that had been required to recognize multiple elements under a single unit of accounting must break those 08-011 into multiple units, and recognize them at different rates—meaning they can recognize revenue more quickly on some elements than they could before. Key best practices for ensuring that your business is in good shape to adopt this new favorable revenue recognition rule include: These rules have a cross-departmental business process impact, and they require close scrutiny of controls and the implementation of new processes.
In the past, companies could try to allocate the value of each item and recognize them separately, but if they couldn’t meet strict valuation requirements, they would have to account for the whole sale as a single unit of accounting and recognize eitg of the revenue together. Business Exchange Browse the Business Exchange to find information, resources and peer reviews to help you select the right solution for your business.
Adopt ongoing visibility into summary and detailed recognized revenue as the rules take effect. In a nutshell, these new rules mean that you’re going to have to allocate each sales order down to the line item level using Estimated Sales Prices as the allocation driver, and then spread it over the revenue recognition schedule.
Deals with arrangements that include both hardware and software elements. We have made it a priority to ensure that the NetSuite system can already support these recent changes to revenue recognition rules i.
The new rules come into effect for fiscal years beginning on or after June 15,ejtf early adoption is possible. Once you have established a standalone selling price for each item, you then have to allocate the total contract price to each line item based on its “relative selling price. Eitv best practices for ensuring that your business is in good shape to adopt this new favorable revenue recognition rule include:. It’s critical to take a comprehensive look at the various types of revenue—such as time-based, percentage of completion for servicesevent-based, etc.
The software sale would be governed by SOP NetSuite also offers its revenue recognition functionality as a standalone cloud based application specifically designed just to handle revenue recognition for companies that might just need this incremental functionality to their existing ERP systems. Given that companies can now recognize services delivery on a different schedule than subscription revenues, it becomes critical to ensure that the PSA system is tightly integrated with the financials.
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Getting Your Finance Processes in Shape for FASB’s New Revenue Recognition Rules
Innovation in the Finance Function: It’s worth noting that the introduction of these rules means the elimination of the residual method and if you don’t know what that is, consider yourself fortunate. Sign In Sign Up. But these new rules require more than spreadsheets on steroids, or black belt spreadsheet jockeys. There could also be an impact by SOP And what are these Estimated Selling Prices you ask? For them, revenue recognition is already an error-prone process.
I think that the answer to this question is the arrangement appears to fall under software revenue recognition SOP and not EITF because it has software and does not have a tangible product element. I think I would look first to SOP and whether the services would be considered a “software related item”. However, underlying financial and operational systems and processes must be evaluated and changed to ensure they meet the new rules. It’s going to mean managing a lot of ESP’s, looking them up for the allocation, and continually monitoring them to make sure they are right.
A single repository of sales, finance and services data is extremely valuable when calculating ESPs. Ideally, real-time dashboard visibility should enable you to continually monitor recognized revenue; examine breakouts of recognized revenue across the various elements; provide detailed visibility down to the transaction level; help ensure that you’re confident in reporting your financials; enable you to keep ongoing tabs on the accuracy of the ESPs; and ensure that eeitf able to 008-01 diagnose any unforeseen issues that arise.
Talking Technology, May In a nutshell, these new rules mean that you’re going to have to allocate each sales order down to the line item level using Estimated Sales Prices as the allocation driver, and then spread it over the revenue recognition schedule.
EITF , FASB Revenue Recognition Adoption Best Practices
So it’s important to take a look at your existing accounting systems and processes, and understand if there is going to be a etif impact in terms of additional time-consuming processes or increased risk of ongoing of manual errors.
Non-integrated PSA systems or spreadsheets can easily result in confusion around what part of the project has been delivered and its impact on revenue recognition. Under EITFcompanies had to provide objective and reliable evidence of the fair value of each eitff sold under a single contract in order to separate them.