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Timing of Revenue Recognition Recognize revenue when control of goods or services is transferred or
performance obligation is satisfied. Corresponding revenues and costs are then recognized in SAP
Financials in a revenue posting job, which is typically performed at the close of accounting period.
Invoicing
Goods Issue
Proof of Delivery
Multiple Element Agreement allocate complete transaction price on relative stand-alone selling price
[SSP] basis. Revenue Accounting allows you to allocate the transaction price among the performance
obligation in a Revenue Accounting contract. System allows other method of price allocation to address
specific business scenario.
Revenue Accounting tracks fulfillment statuses of performance obligation, and then tracks.
IFRS15 compliance poses challenge to many industry that bundle goods and services such as
telecommunications and high tech.
Telecos need to change revenue recognition when accounting for following scenarios:
multiple performance obligation
uncertain or variable consideration in determining transaction prices
collectability
establishing stand-alone selling price and allocation of transaction price
equipment installation revenues
contract and customer acquisition costs
IFRS15 will replace all industry specific standards in US GAAP i.e. SOP 97-2, EITF 0801.
1. Sale from Stock Event based revenue recognition based on Contract fulfillment at the time of
billing, goods issue, and proof of delivery.
2. Services Straight Line Method or Time Based Revenue Recognition recognize revenue spread
straight line over duration of billing plan.
3. Make to Order / Professional Services Result Analysis allows for recognition of revenue based
on percentage of completion that can be calculated based on different methods. (E.g. based on
actual cost and total planned revenue / total planned cost).
Pain Point of existing Revenue Recognition
Revenue Accounting Contract is the level for determination and allocation of the transaction price.
Performance Obligation is the level where stand-alone selling price is defined, where the price is
allocated and the fulfillment is determined. It usually corresponds to
an item of an operational contract
o if customer benefits from the separate lower level items of a sales BOM on their
own, then the BOM as whole corresponds to one POB.
o If lower level items corresponds to distinct POB then any events on higher level
items are broken down to the separate POB.
Combination of several items eg. from Sales BOM
o If lower items of the BOM are relevant for delivery or billing, then special non-
distinct POBs are also created in the Revenue Accounting contract.
o Events on the lower level items are then aggregated on the higher level POB.
Implicit obligation
o Not included as explicit item in the operational contract.
o These POBs are linked to some leading POB that corresponds to some operational
items.
o Eg: right for upgrade or maintenance without explicit charge.
Transaction Price determined from pricing condition of the items in the operational contract. It
cannot be maintained within Revenue Accounting.
Inbound Processing
Contract Management
Price Allocation
Contract Change
Revenue Posting
Reconciliation and Consistency Checks
Reporting
Migration
Transition
SAP Revenue Accounting and Reporting 1.0 Learning Map
Businesses will have to do a thorough analysis of existing business models, company accounting
practices and policies to understand the impact of IFRS15 guidelines.
The new revenue recognition standard will add additional disclosures about revenue (making it more
transparent), provide additional guidance for services and contract modifications (which are not very
clear in the current regulations), and provide detailed guidance for multiple-element arrangements.
In US, the new revenue recognition standard will replace more than two hundred specialized, industry-
specific revenue recognition requirements.
New Standard will have high impact on Telecommunications, high-tech (software), professional services,
automotive and real estate industries.
Business Challenges that may arise when implementing the new IFRS 15 guidelines:
- The new guidelines affect more than simply changing accounting and reporting methods. The new
guidelines affect product offerings and how product are sold, related taxes and commissions.
- Business needs to go through a large change management processes both on the process side and the
system side.
- Business will need to change their communication strategy with stakeholders, including suppliers,
customers and investors.
- Based on transition approach (full retrospective or modified retrospective), companies may face
challenges to generate data on both accounting standards.
- Most organizations financial system are not equipped to handle transition or dual reporting
requirements, which requires significant manual effort and time.
IFRS 15 Revenue Accounting and Reporting
Accounting Standards A roadmap to applying new Revenue Recognition standard
Other Research
Link: http://news.sap.com/sap-simplifies-new-revenue-recognition-standard-sap-revenue-accounting-
and-reporting/
International Accounting Standard and Financial Accounting Standard Board set up new revenue
accounting standards effective for US GAAP and IFRS preparer from 2018.
SAP Revenue Accounting and Reporting was developed to cover new Revenue Recognition requirement.
Revenue Accounting and Reporting manages Revenue Recognition from finance point of view. It
decouples operational transactions from accounting so that various operational transactions can be
accounted together no matter where the operational data is processed.
The main requirement tackled by the new application is the management and processing of multiple
element arrangements. With SAP Revenue Accounting and Reporting, it is possible to automatically
determine these multiple element arrangements from an accounting perspective based on a flexible
rules framework.
Accountants have ability to change how revenue are allocated and recognized manually based on given
customer arrangements.
The application can deal with multiple accounting principles and their specifics in revenue recognition
and presentation for one region or for each operational document.
It provides analytics for revenue accounting to address legal disclosures and management reporting.
IFRS15 will affect Financial Reporting, Business Processed and Internal Control of many organization.
Implementation Scenarios