SAP Enhances Revenue Accounting Platform for New Standards

SAP SE has enhanced its revenue accounting platform to help CFOs and chief accounting officers master the new IFRS 15/ASC 606 standards. These new accounting standards apply to all entities — public, private and not-for-profit — that have contracts with customers and will supersede virtually all current revenue accounting requirements.

The SAP Revenue Accounting and Reporting application automates and simplifies revenue accounting and supports companies as they comply with both current and impending accounting standards. This is the first in a series of International Financial Reporting Standard (IFRS) solutions from SAP designed to help finance executives comply with IFRS 15, IFRS 16 and IFRS 9.

“CFOs are facing a perfect storm of accounting regulation, with three major IFRS standards converging in rapid succession. Time to implement these new processes is running out,” said Thack Brown, general manager and global head of Line of Business Finance, SAP. “It takes approximately 18 months for the average Fortune 1000 company to make a change of this magnitude, and we just passed that point in the countdown to the mandatory effective date of the new standards. Corporate finance departments should act now to ensure that they are prepared for the transition and have the right tools to automate and simplify the process.”

Passed in 2014 and also known as ASC 606 in the United States, the new IFRS 15 revenue recognition standard eliminates the transaction and industry-specific revenue recognition guidance under current U.S. GAAP and replaces it with a principle-based approach for determining revenue recognition. The change can affect companies’ reported revenue, how and when they report financial performance, and overall financial decision making. The rule generally takes effect in 2018 for public and 2019 for private companies, and requires multiple quarters of testing and preparation.

New features in the SAP Revenue Accounting and Reporting 1.2 release include cost recognition, capitalized costs integration with project systems and results analysis from SAP, improved contract combination and modification capabilities, and integration with service and billing scenarios in the SAP Customer Relationship Management application, plus advanced features for transition to the new IFRS 15/ASC 606 accounting standards.

Early Adopters “Get a Ledger Up” on Impending Changes

With a mission to focus energy on saving lives, Varian Medical Systems sought an effective revenue accounting solution to help report revenues under both current and future U.S. GAAP.

“While the current U.S. GAAP standard is very specific and things are pretty black and white, the new standard brings with it a gray area and more variability,” said Prasad Kothuri, senior manager, VIT Enterprise Applications at Varian Medical Systems. “Based on our initial testing and implementation, SAP Revenue Accounting and Reporting has the potential to be an effective tool to guide our corporate finance team through the transition.”

According to Brian Sommer, founder of TechVentive, “New revenue recognition rules are substantially more than a change in accounting practices. Many companies will soon discover they need lots of time to evaluate how the new rules will change their financial results in each division they operate. They might find that they need to change commission structures and whether they’ll permit customers to append or amend contracts midterm. Contracting practices and documentation may need to change, too. The list just goes on and on, but the January 2018 deadline is fixed. These new rules aren’t simply an accounting or technology issue — they should be a top-level executive and operating committee issue, too.”

Time to implement the new process is running out. To find out how much time you have, visit the IFRS 15 DoomsDay clock here.