How Does ASC 606 Increase the Importance of Revenue Automation?

February 2, 2017

Editor’s note: Today’s post is the latest from our guest columnist, Amanda G. Carrillo, Zuora’s Pre-Sales Accounting Manager. An experienced technical accounting professional, Amanda will share her valued opinion on a number of topics in this space. Here, she discusses how the new revenue recognition guidance has significantly boosted the importance of an automated solution.

What is it about the new guidance that makes automation more important now than ever?
It’s no secret this new revenue standard could create challenges around day-to-day processes. Especially for finance teams which have adopted manual workarounds. One of the key reasons for the increased significance of automation these days is the availability of multiple methods for corporations to adopt the new revenue standard.

As an example, a company which selects the full retrospective adoption method will have to recast approximately two years worth of data. Having an automated way to apply the new rules of ASC 606 can greatly facilitate the burdensome process of loading historical data necessary in order to disclose the new required reporting values.

Alternately, in the case of an entity using the modified retrospective method of adoption, applying both current and new GAAP rules for an entire year becomes a much easier chore for financial teams given the ability to streamline data flow and revenue recognition rules systematically.

Here’s another potential roadblock companies choosing not to automate must consider with the new standard: contract modifications. As just one example, consider the upcoming challenges contract modifications could create with regard to identifying performance obligations, especially for an entity currently performing allocations manually or without an existing way to update contract changes at the source.

Honestly, there have been many reasons to automate for years now, but when you stop to think about the challenges ASC 606 could create with revenue recognition methodologies and new reporting requirements, it becomes extremely hard to properly scale using manual workarounds. Even if individual corporations deem the impact of the new guidance to be ‘immaterial,’ there could remain disclosure reporting requirements and language updates which may result in new presentation of the same data.