By Shekar Hariharan, Director of Product Marketing, Jitterbit
ASC 606/ IFRS 15 significantly changes how companies will perform revenue recognition. Together, the International Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB) introduced an initiative in order to align revenue recognition standards from generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS) – these standards are practiced both nationally and globally. Due to the emergence of some loopholes, strict International standards were implemented for all contracts with customers using national standards. While these new regulations have been in effect for publicly traded companies since December of 2017, private companies must comply by December 15th, 2018. ASC 606/ IFRS 15 affects all public companies and the non-compliance penalties are stiff.
Three key reasons why your business needs to comply with ASC 606 / IFRS 15 Revenue Recognition Standard
Modern organizations need to have a 360-degree view of their business. By integrating on-premise, SaaS or cloud applications, companies can automate business processes quickly and easily. Connecting applications within your organization is critical in order to have a functional and compliant quote-to-cash process. Having a solution that can integrate all your integral business systems will dramatically reduce workload, improve accuracy, provide faster closings, and keep your business compliant with this new revenue recognition standard.
Here are three key reasons why companies need to adhere to ASC 606 compliance standard:
- ASC 606 creates a major shift in how your business handles its accounting—particularly if you have a SaaS revenue recognition subscription based business that derives revenue from contracts with customers.
- Companies seeking additional funding, planning an acquisition, or hoping to go public are all impacted by this new standard, since it has the potential to reshape your revenues and valuation.
- Companies that have a subscription-based business are likely enter into complex contracts and agreements with customers. This new standard requires companies to capture and report on all of this information, which your accounting system may not currently track. As a result, you’d need to identify and remedy critical data gaps. To maintain efficiency, and not increase risk, technology is the only answer to this new standard.
“Since ASC 606 requires significantly more extensive disclosures, technology entities may need to modify their systems and processes to gather information about contracts with customers that is not otherwise readily available.” – Deloitte
How Jitterbit can help you gain compliance with ASC 606 / IFRS 15
Jitterbit makes it simple for companies to achieve compliance and maintain efficiency by automating a variety of business processes. With Jitterbit’s API Integration platform, you can automate important tasks such as moving data from various systems to your ERP backend and accurately calculate commision for sales representatives. Jitterbit also provides businesses with the ability to synchronize and audit information such as contacts, leads, and accounts, ensuring consistent revenue recognition across the organization.
Contact us to learn how Jitterbit’s Harmony API Integration can help your company gain ASC 606 compliance.
How Forgerock, a Digital Identity and Access Management Company, Leverages an iPaaS Solution to Improve their Business Workflows
ASC 606 affects company’s revenue recognition and financial processes from top to bottom. Unlike previous rule changes, where adding new intelligence to the accounting system was enough, this rule is about contracts and deliverables with customers—information that often originates outside of the accounting system. Businesses unable to handle complex contracts within their ERP/accounting system—or by tightly integrating with their CRM—will quickly get overwhelmed with the manual processes spreadsheets require, overall leading to inefficient decision making processes.
Because Forgerock has between 10-12 payroll entities, becoming compliant with ASC 606 proved to be difficult.. All of these entities have a capitalization of commissions and a consolidated functional currency, and due to the complexities of their entities, they would need to be divided up between product, SKU’s and terms, and flow through the middleware to be managed properly. There were many moving parts in the design, requiring workflows which included API calls splitting SKU’s into two, then applying a complex residual Standalone Selling Price (SSP), as well as cost accounting.
Data sometimes can be a bit unstructured, making it inconsistent across companies. It could get messy very quickly for companies that process a large volume of transactions. Recognizing revenue has many different factors coming into play throughout the lifecycle of the sale. Subscription-based businesses must take special care with ASC 606. This new standard has broad ramifications based on how you structure your agreements with customers—the terms, bundling, discounting, and more.
Forgerock needed to have a better understanding of how important the accuracy in revenue recognition is for them, not only in order to track the overall health of their business, but also to enable them to recognize opportunities for future growth. They also realized they had a tight timeline to get the 606 implementation completed, given that the strict deadline is quickly approaching. Forgerock knew they needed a middleware solution that was flexible enough to ensure revenue could be recognized consistently across their business, while complying to the new revenue recognition standard (ASC 606).
“You need a platform that can handle the reprocess mechanism. It’s not just about getting it done but also how you scale. If something fails you need a platform that will help queue, auto-processes, and quickly notify an administrator to take immediate action. With Jitterbit everything is automated and creating APIs is a much more simplified way process.” said Anil Madithati.
With Jitterbit, ForgeRock is creating a custom API for Intacct; they have a lot of business logic that needs to be implemented around the API. With our API Integration solution, it is extremely simple to extract data from one system to another — now that data is readily packaged, updated automatically, and moved rapidly to wherever it needs to live.
Click here to learn more about how Forgerock implemented the new revenue recognition standard using Jitterbit.