CP-42: Revenue Recognition Standard ASC606 Addressing The . - Microsoft
CP-42:Revenue RecognitionStandard ASC606Addressing theStandard in CostpointAndy Unwin, Deltek
Course DescriptionDescription: Still trying to initialize yourASC606 Revenue? Come and hear anoverview of the Revenue Standard, ASCTopic 606. You won't want to miss thissession. We'll also talk about: A newRevenue Evaluation and Disclosuresscreen to help you track your progress withevaluating your contract revenue. Newrevenue formulas that have been added toCostpoint 7.1.1. How to use your Projectstructure and EAC to comply with ASC606CONFIDENTIAL Deltek, Inc. All Rights Reserved.2
ObjectivesBy the conclusion of this session, you willbe able to :» Identify the options for complying withthe new Revenue RecognitionStandard.» Identify the pros and cons of two distinctmethodologies.» Identify the role of EAC computationsand ASC606.CONFIDENTIAL Deltek, Inc. All Rights Reserved.3
Agenda» Part 1: Introduction» Part 2: Where Do I Begin» Part 3: The Alternate Database.» Part 4: Project Structure and thePerformance Obligation Level.» Part 5: Using EAC as an Effective Tool.» Appendix: Supplemental InfoCONFIDENTIAL Deltek, Inc. All Rights Reserved.4
Part 1» IntroductionCONFIDENTIAL Deltek, Inc. All Rights Reserved.5
BACKGROUND INFO» ASC606 has a core principle:The recognition of revenue must depict the transfer of promised goods orservices to customers in an amount that reflects the consideration to whichthe entity expects to be entitled in exchange for those goods and services.» The five-step model for assessing the application of this principle includes:1: Identify the contract.2: Identify the performance obligation.3: Determine the transaction price.4: Allocate the transaction price.5: Recognize the revenue.Attribution: KPMG: Revenue Recognition Fundamentals, 2019 2019 Deltek, Inc. All Rights Reserved
BACKGROUND INFOA&D Aerospace and Defense IndustriesAttribution:Attribution: “The Coverged Revenue Recognition Model Has Landed”, 09/2/2014, Deloitte 2019 Deltek, Inc. All Rights Reserved
Attribution: “The Coverged Revenue Recognition Model Has Landed”, 09/2/2014, Deloitte8CONFIDENTIAL Deltek, Inc. All Rights Reserved.
BACKGROUND INFOAttribution:A&D Aerospace and Defense IndustriesDeltek, Inc. AllRights Reserved DeloitteAttribution: “The Coverged Revenue Recognition Model Has 2019Landed”,09/2/2014,
Part 2» Where Do I Begin?CONFIDENTIAL Deltek, Inc. All Rights Reserved.10
AS606: Considerations» Not all companies are impacted by ASC606 in the same manner.» The level of goods and services provided, plus the contract type willinfluence the your response as a company.» For specific industries, there is quite a few write-ups on how to addressthe new standard.» In Costpoint, traditional revenue recognition methodologies such asCPFF may not best meet the standard’s intent on both Fixed Price andCost Plus contracts.» Always consult with your professional auditors for final advice.CONFIDENTIAL Deltek, Inc. All Rights Reserved.11
Performance Obligation Level» As a result of this standard, the recognition of revenue may necessitateestablishing the revenue formula at a higher level of the Project [therebycombining contracts together].» The revenue level may different than the billing level.» The use of EAC (Estimate at Completion) formula may be more common.» Use of formulas associated with Funded Value may become morecommonplace that with Contract Value.CONFIDENTIAL Deltek, Inc. All Rights Reserved.12
Part 3The Alternate DatabaseCONFIDENTIAL Deltek, Inc. All Rights Reserved.13
The Alternate DatabaseIn this scenario, changes are NOT made to therevenue recognition formula. Rather an alternateprofile is created for use in a distinct database andthe results are compared externally through theuse of reporting tool such as CER/Cognos. 2019 Deltek, Inc. All Rights Reserved
The Alternate Database: Configuration» Configuration of the Database in preparation for the deployment of the“the Alternate Database”.The “Alternate Profile” may include different ceilings and BARN codes 2019 Deltek, Inc. All Rights Reserved
The Alternate Database: Configuration» A different formula may be utilized. Historical data can also be changed. 2019 Deltek, Inc. All Rights Reserved
The Alternate Database: Configuration» Configuration of the Database in preparation for the deployment.The subtasks can store the new configuration that is only invoked when thedatabase is flagged as “ALTERNATE”. 2019 Deltek, Inc. All Rights Reserved
The Alternate Database: ConfigurationThe Alternate Profile is created in your Production environment. 2019 Deltek, Inc. All Rights Reserved
Where Do I Begin » Carefully consider the options for the “Alternate Profile”.» Define the new configuration parameters including revenue formula,BARN codes, funded value, and PAG.» Create a copy of the database environment.» Flag it as “Alternate Revenue Calculations”.» Activate the “Alternate Profile”.» Run the normal revenue processing steps.» Compare results with production environment.CONFIDENTIAL Deltek, Inc. All Rights Reserved.19
Pros and Cons of this approach » Requires more Project setup.» Necessitates the existence of another database.» The alternate database will require ongoing refreshes.» An external reporting tool such as CER is necessary to compare revenuecomputation results.» A whole another database may appear excessive when all we really needanother PROJ SUM table.» This approach requires technical support; not well received.CONFIDENTIAL Deltek, Inc. All Rights Reserved.20
Part 4» Project Structural ChangesThe Performance Obligation LevelCONFIDENTIAL Deltek, Inc. All Rights Reserved.21
What You Need To Know » This option requires a re-examination of the existing Project Structure.» Can the existing structure support a “Performance Obligation” level?» Can an existing Project Level be repurposed?» Is it practical to change the level associated with the Revenue formula?» Can the revenue formula be changed?» Would I recalculate the revenue in past years to see the impact of thechange in the revenue recognition methodology.CONFIDENTIAL Deltek, Inc. All Rights Reserved.22
Configuration Item # 3: The “PYREV” FunctionCode.» Configuration: Modification of the Project Account Group (R&B PAG) 2019 Deltek, Inc. All Rights Reserved
Validation of Project SetupPrior to modifying any revenuecomputations Examine all elements ofProject Setup. Exercise caution: Setup atthe inappropriate Projectlevel is a common error. Validate proper usage of“BARN” codes on ceilingscreens.CONFIDENTIAL Deltek, Inc. All Rights Reserved.24
What Are Others Doing?» External computation with a General Ledger entry only.» Re-examination of Project Structure with changes for future Projects.» Adoption of different revenue recognition formula and potentiallymodifying the level where the formula resides.CONFIDENTIAL Deltek, Inc. All Rights Reserved.25
Part 5» Making Use of the EAC formulaCONFIDENTIAL Deltek, Inc. All Rights Reserved.26
Why Use EACAttribution: “The Coverged Revenue Recognition Model Has Landed”, 09/2/2014, DeloitteCONFIDENTIAL Deltek, Inc. All Rights Reserved.27
Why Use EAC Using the [Estimate At Completion] EAC formula, may better correlate with theactual measurement of performance. An external tool such as Cobra or Primavera may be utilized to derive theproper EAC. Program Control personnel may be the best qualified to provide anobjective assessment. Revenue recognition is then equated to performance as opposed to simply theincurrence of cost.Attribution: “The Coverged Revenue Recognition Model Has Landed”, 09/2/2014, DeloitteCONFIDENTIAL Deltek, Inc. All Rights Reserved.28
How to Update EACManually Update the EAC by way of:Manage Revenue Info, orManage Revenue FormulasCONFIDENTIAL Deltek, Inc. All Rights Reserved.29
An EAC is creating combining Actual and Budget.» . 2019 Deltek, Inc. All Rights Reserved
How to Update EAC» . 2019 Deltek, Inc. All Rights Reserved
How To Update EAC» The “Revenue Integration” application takes the EAC andpushes the number back into the Project ManageRevenue Info application screen. 2019 Deltek, Inc. All Rights Reserved
Other Options » Any other approaches may occur completely outside of Costpoint.» Leveraging Costpoint, Planning, and the EAC formula may present thebest option for addressing ASC606.33CONFIDENTIAL Deltek, Inc. All Rights Reserved.
In SummaryToday we have covered: ASC606 is an Accounting standard that ties the recognition of revenuemore closely to the delivery and acceptance of goods as opposed to thetraditional “matching” principle. The “Alternate Revenue” profile could be leveraged, but it is difficult todeploy due to multiple database upkeep. EAC is typically more in compliance with ASC606; however, this may forcea change in revenue formula and level. If you opt to change the Project – including the Revenue Formula andLevel, carefully follow checklist to make changes to revenue setup andthen reconcile. [See appendix]CONFIDENTIAL Deltek, Inc. All Rights Reserved.34
Appendix» Additional Information if you opt to restructure the Project.» This content was also covered in our Session: “Revenue Re-Do”» It is provided in case you were not able to attend this session.CONFIDENTIAL Deltek, Inc. All Rights Reserved.35
123Document the“Before” ViewChangeRevenueFormula*Reset RevenueFormula toAppropriatePSRDesignateCurrent FiscalYearDesignateCurrent FiscalYearRevenueWorksheetPROJ SUMCleared4RecalculateRevenue:Period 1 eSummaryPROJ SUMRowsPROJ ect Reports7Post Revenuein CurrentPeriod* Must be to any formula other than “Do Not Compute/NONE”CONFIDENTIAL Deltek, Inc. All Rights Reserved.36
What is “PROJ SUM” » PROJ SUM: the key table underlying the Project Ledger.» It stores data by Project, Account, and Organization for Fiscal Year,Period, and Sub-Period.» It is a compressed view of transaction data from the General Ledger.» Burden is stored at “Actual” and “Target” by Pool in the companion tableknown as PROJ BURD SUM.» PROJ SUM is the basis for the computation of revenue.» The Project Ledger is always reconciled back to the General Ledger.CONFIDENTIAL Deltek, Inc. All Rights Reserved.37
Checklist: Revenue ReconciliationStepApplication ScreenActivity1.Manage Revenue InfoExamine the existing setup.2.Post RevenueValidate that all postings are complete.3.Reporting ProcessesValidate that all report tables are updated.4.View Project Ledger ActivityLook for revenue plugs above the formula level.5.Project Status ReportExamine the Year-To-Date Revenue number.6.Project Revenue Summary ReportExamine the Year-To-Date Revenue number.7.ValidationDo numbers from steps 5&6 tie?8.Print Project Ledger Detail.Aggregate revenue numbers. Tie to steps 5&6.9.ValidationAre there revenue postings at multiple levels?10.ValidationAre there Journal Entry postings? 2019 Deltek, Inc. All Rights Reserved
Checklist: Changing the Revenue FormulaStepApplication ScreenActivityChecklist:Revenue FormulaChange1.Project Status ReportPrint out and retain PRIOR to making any changes.2.Project Revenue Summary ReportPrint out and retain PRIOR to making any changes.3.Revenue WorksheetPrint out and retain PRIOR to making any changes.4.Manage Revenue InformationSelect the new formula. Enter the Fiscal Year.[Never select “None”.]5.View Project Ledger ActivityValidate that all revenue data is cleared for the year.6.Project SettingsValidate: prior period revenue calculations are allowed.7.Accounting PeriodsJournal “SJR” Compute Revenue must be “Open”.8.Compute RevenueCompute revenue for Period 1.9.Compute RevenueCompute for each successive period till Period “n”.10.Revenue WorksheetValidate the new revenue numbers.11.Post RevenueOnly post if the numbers look reasonable. 2019 Deltek, Inc. All Rights Reserved
Checklist: Revenue Level ChangeStepApplication ScreenActivityChecklist:Revenue FormulaLevel1.Project Status Report.Print out and retain PRIOR to making any changes.2.Manage Revenue InformationSelect any formula other than “None”. Enter Fiscal Year.3.View Project Ledger ActivityValidate that all revenue data is cleared for the year.If there are any revenue plugs at a higher level,remedial action will be necessary!4.Manage Revenue InformationDelete the Revenue formula at the existing level.5.Manage Revenue InformationSet up the Revenue formula at the new level.6.Project SettingsValidate: prior period revenue calculations are allowed.7.Accounting PeriodsJournal “SJR” Compute Revenue must be “Open”.8.Compute RevenueStart with Period 1 through Current Period.9.Journal EntriesReverse revenue from former level: Debit Revenue andcredit Unbilled Receivables.10.Revenue WorksheetValidate Revenue.11.Post Revenue.Only post if the numbers look reasonable. 2019 Deltek, Inc. All Rights Reserved
Questions & AnswersFor further discussion or questions, schedule an appointment at”“Meet the Experts”CONFIDENTIAL Deltek, Inc. All Rights Reserved.41
2. Project Revenue Summary Report Print out and retain PRIOR to making any changes. 3. Revenue Worksheet Print out and retain PRIOR to making any changes. 4. Manage Revenue Information Select the new formula. Enter the Fiscal Year. [Never select "None".] 5. View Project Ledger Activity Validate that all revenue data is cleared for the year. 6.
revenue recognition model to the new revenue standard's control-based model is a fundamental change in how entities are required to think about revenue recognition. The new revenue standard eliminates many of the revenue recognition rules prescribed under legacy US GAAP and replaces them with a principles-based framework
Business processes and industry standards require the recognition of revenue separate from the invoice process New Revenue Recognition Standard to be in effect in 2018 has requirement to only recognize revenue when the performance obligation is complete -Convergence of IFRS and US GAAP revenue recognition standards
new revenue recognition standard and any changes in accounting for revenue recognition are documented completely and accurately. In order to complete this step, it will be necessary to obtain a full understanding of strong the /strong new revenue recognition standard as prescribed in step 1, including any amendments to ASU No. 2014-09. /p div class "b_factrow b_twofr" div class "b_vlist2col" ul li div strong File Size: /strong 699KB /div /li /ul ul li div strong Page Count: /strong 9 /div /li /ul /div /div /div
during revenue recognition. 6There were 126 (211) SEC reviews with a comment on revenue recognition in 2016 (2015). Revenue rec-ognition issues addressed in comment letters include (1) the completeness and consistency of disclosures about revenue recognition policies, (2) accounting for and disclosures related to sales returns, (3) accounting
Recognition of Revenue Recognition of revenue is the process of formally recording for incorporating an item into the financial statements of an entity as an asset, liability, revenue, expenses, or the like. Revenue can be recognised in the following ways:-1. From the sale of goods 2. From the services rendered 3.
Software Revenue Recognition A Roadmap to Applying AICPA . Statement of Position 97-2. Second Edition. . 13-6: Revenue Recognition for Hardware Deliverables in Software Arrangements 48 14-1: Forfeiture or Refund Clauses 48 14-2: Indemnifications: Effect on Revenue Recognition 49
a) New Revenue Recognition Historical Timeline Approach In 2011, the FASB and the IASB issued an Exposure Draft (ED) detailing the necessary steps to implement the new revenue recognition from contracts with customers. In 2014, both boards agreed the earliest date to adopt the new revenue recognition would be January 1, 2015.
properly highlights the criteria of revenue recognition. For example, the FASB states that in order to realize revenue the revenue must be earned. However, the statement SAB 104 states how public traded companies can recognize their income. Therefore, the FASB codification in terms of treating revenue recognition
