Nick Williams examines how the right technology can help to smooth any legislative bumps in the road with the lead up to new accounting standards
With the January 2018 deadline looming ever closer, the introduction of the new revenue recognition standard is set to be the biggest change to affect financial accounting in a decade. A number of industries will feel the impact, including travel, sport and leisure, retail, telecommunications and more. The scale of this daunting change, with its five-step methodology and quantitative and qualitative disclosure requirements, means that for corporate finance departments to ensure compliance, early preparation is key. However, a recent survey by PwC and the Financial Education Research Foundation (FERF) found that 75% of those surveyed had yet to fully ascertain how the new standard would affect their financial reporting, a somewhat worrying statistic, particularly when you consider that the average Fortune 100 company needs 18 months to prepare for such a big change.
This doesn’t mean that it’s game-over for those businesses who haven’t started preparing for the changes. A clear understanding of the changes, combined with a robust plan for adoption and the right tools in place to facilitate the transition, should result in achieving the goal of long-term compliance. Plus there are benefits to a single, more systematic approach to financial statement presentation, and enabling financial statement users to better understand a business’s revenue and cash flow when it comes to customer contracts.
In terms of having the right tools in place, technology is a key enabler. Forward-thinking software providers have developed systems and solutions to fully manage revenue recognition from a finance point of view. For example, the management and processing of multiple element arrangements, as called for under the new standard, can all be handled with the right financial management system in place. Using a flexible rules framework, the right solution can automatically determine these multiple element arrangements, as well as providing accountants with the ability to manually change how revenues are allocated and recognised.
Where the standard introduces some grey areas, predominantly in its failure to distinguish between different types of contracts with customers, technology can help. Software and principles-based accounting standards go hand-in-hand, and the robust audit trail that the best solutions leave behind is the ideal proof to auditors that, even without an exhaustive list of prescriptive rules, accounting actions have been taken consistently and appropriately across the board.
The required reporting and preparation of management accounts is another area where the right software comes into its own, reducing the workload involved and mitigating against the inevitable errors that occur with often burdensome spreadsheet-based accounting practices. The best solutions provide comprehensive analytics to fulfil legal and regulatory reporting requirements, as well as forming the basis for vigorous planning, budgeting and reviewing procedures.
That’s not to say that any financial management solution will be the right fit for every business. As soon as businesses have truly got to grips with what the changes mean for them, they should start speaking to software vendors to determine to what extent their solutions are in line with the new regulations and the specific needs of their particular business.
The forthcoming changes, while undeniably challenging for many businesses, don’t have to be a source of frustration. With the right plans and tools in place, businesses can streamline the entire revenue recognition process, realising vital efficiency savings and ensuring a smooth transition to effectively and successfully achieve the all-important holy grail of compliance.
Join us at our next masterclass to hear from Deloitte about these changes, or contact us to find out more about how Sapphire can help your business get ready for the January 2018 deadline.
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