Revenue Revolution - PwC

RevenuerevolutionWhat audit committees need to knowabout the new revenue standardAccounting Advisory Services

ChangingyourperspectiveIf you earn revenue and apply IFRS or USGAAP, your company is about to face a majorchange as the accounting requirements forrevenue change effective 2018.The new standard will impact your revenuecycle, key performance indicators, systemsand processes. For some, it may be morepervasive than the recent transition to IFRS.The time to act is now.5questions audit committeesshould be asking What’s management’s transition strategy, timeline and budget? What are the key issues specific to our industry and company? How will the change impact our business, beyond the financialstatements (e.g. processes, systems, compensation plans, keyperformance indicators (KPIs), tax, controls, debt covenants, etc.)? How and when are we communicating changes to stakeholders? How are our competitors addressing transition?2Revenue Revolution—What audit committees need to know about the new revenue standard

The new model—a 50,000 foot viewThe new standard presents a single, principles-basedfive-step model that applies to all industries.The extent of change in applying the new standard will vary significantlydepending on a company’s industry and the complexity of its revenuegenerating transactions. In general, applying the new five-step modelwill require more judgment. Entities will also have to consider changesto information technology systems, processes and internal controls as aresult of the new decision points and increased disclosure requirements,among other aspects of the model.Five-step model12Identify etransaction priceTransitionThe standard is effective in 2018 for public companies withtwo alternatives for transition.2017 reportingin 20182018 reportingCumulativeadjustment toopening retainedearningsRetrospectiveModified RetrospectiveContractsrestated andreported inaccordance withnew standardContracts reported inaccordance with existingguidanceContractsreported inaccordance withnew standardNew and existing contractsreported in accordance withnew standard, incrementaldisclosure ion price Change is comingWhile the extent will vary depending onindustry and complexity of contracts, allentities with revenue will be affected by thenew standard.Areas impacted may include: the number of deliverables in a contractto which revenue must be allocated the method of allocation to thosedeliverables timing of recognition of revenue other recognition and measurement areas,such as the accounting for collectability,contingent revenue and accounting forcontract costs (e.g. sales commissions) disclosuresPwC3

What’son yourmind?The implications aren’t limited to accountingprocedures and entries – the new standard mayalso change the way you do business.Revenue as a KPIContract termsFor most businesses, revenue reportingis essential. The new standard presents afundamental change that could have farreaching consequences and require carefulcommunication with analysts and others.Changes in how contract terms affectreported revenue, such as contingent fees andprepayments or extended payment terms,could influence how companies and theircustomers choose to negotiate.Bundling products and servicesSystems and processesBusiness is becoming more complicated asconsumers demand more innovative productsand services bundles. Accounting for bundledcontracts is about to become more complicatedtoo and the new standard presents anopportunity to analyze your revenue cycle andunderstand the strengths and weaknesses ofyour current model, including how productsand services are bundled.4Revenue Revolution—What audit committees need to know about the new revenue standardData needs for ongoing reporting means manycompanies will need to change systems to capturedifferent information and develop new processesfor estimates that aren’t required today.

Three-step approach tosuccessful transition123AssessConvertEmbedContacts Establish governance, project and change management approachInventory revenue arrangementsReview current accounting policies and practicesIdentify relevant differences under the new standard Determine transition methodMap accounting policy differences to systems and processesConsider dual-reporting implications and interim solutionsEstablish roadmap and communication plan Educate and communicate within the organizationImplement process and systems changesCollect and convert data, perform calculationsDraft disclosures (both transition and ongoing)For more information about the revenue standard and howwe can help you, please speak with your local engagementpartner or one of our accounting advisory contacts below.Alok JainPartnerTel: 1 (876) 932 8324Email: alok.jain@jm.pwc.comTricia-Ann Smith DaSilvaSenior ManagerTel: 1 (876) 932 8365Email: tricia-ann.n.smith@jm.pwc.com 2016 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity.Please see www.pwc.com/structure for further details

2 Revenue Revolution —What audit committees need to know about the new revenue standard If you earn revenue and apply IFRS or US GAAP, your company is about to face a major change as the accounting requirements for revenue change effective 2018. The new standard will impact your revenue cycle, key performance indicators, systems and processes.