How to Turn ASC 606 into a Transformation Opportunity

by Steve Judge, VP, Finance Transformation, CDK Global, LLC with Angela Ngo, Product Marketing Director, Zuora

You can look at ASC 606 in one of two ways:

  1. This is a giant bear, and I just need to get through it to be compliant
  2. An opportunity for finance leaders to emerge and change the game

In a 2017 EY survey, 94% of CFOs and CIOs anticipated that implementing revenue recognition changes would deliver a value return that exceeds the investment they will make in the long term.

With more than $2 billion in revenues, CDK Global (Nasdaq: CDK) is a leading global provider of integrated information technology and digital marketing solutions to the automotive retail and adjacent industries. Focused on enabling end-to-end automotive commerce, CDK Global provides solutions to dealers in more than 100 countries around the world, serving approximately 30,000 retail locations and most automotive manufacturers. CDK solutions automate and integrate all parts of the dealership and buying process from targeted digital advertising and marketing campaigns to the sale, financing, insuring, parts supply, repair, and maintenance of vehicles. Our company took advantage of this transformation opportunity.

I currently serve as CDK’s VP of Finance Transformation and came into this role after serving the company for over 20 years with my most recent role as Assistant Controller, leading the process and technology transformation to implement ASC 606. With the support of an incredibly talented team, executive sponsorship, strong partnership with our solution vendor, Zuora (via Zuora RevPro), and cross-functional stakeholder alignment, we were able to deliver the ASC 606 revenue recognition implementation program on time and within budget.

Here are the three most significant lessons I learned in our ASC 606 implementation that may help you and your company:

  1. Having an automation solution for ASC 606 is a requirement, not an option. This is not spreadsheet work an army of revenue specialists can manage. As a multi-billion dollar business with growth over the years coming from new product offerings and new business acquisitions, having an application was the only way we could support the business and set it up for future growth and scale.
  2. Data is critical for revenue accounting automation. The more proactive you are in this process–getting in front of the data, understanding the junctures of data capture in your end to end order-to-cash processes–the more likely you will set the business up for success.
  3. An ASC 606 implementation can be challenging. Some looked at this as a compliance burden. For me, it was an opportunity to dive into our Order to Cash processes, work closely with my business partners across departments in an unprecedented way, and lead a project that had exposure at the most senior levels of the business.

I’ll take you through each of these lessons one by one.

 

Lesson 1

Revenue recognition, and especially the new requirements in ASC 606, can be incredibly complicated. While networking with peer companies we learned that some of them were planning to use excel or other partial solutions to meet the compliance deadline, which made me so thankful that our company leadership supported the implementation of an automated solution. With our systematic solution in place, we know that accurate revenue recognition has been applied to all of our transactions, leveraging standard rules applied to all performance obligations on our contracts. When a contract modification occurs, a systematic approach is employed to capture and process changes to the revenue recognition on the contract. This includes considering how to pause the existing contract and intelligently adjust the revenue going forward–whether that means no reallocation, allocations with prospective treatment, or allocations with retrospective treatment. This automated functionality gives us confidence that our revenue accounting process can support the business in pursuing new kinds of monetization models and give our customers flexible contract arrangements which improves our customer experience and enables us to deliver competitive solutions to our clients.

Lesson 2

It’s absolutely paramount that you have a hard look at all of the data that comes from your quote to cash processes into your revenue recognition solution. Under 606, revenue automation solutions consume existing data in new ways. Ensuring you have the data in a consistent format is critical to a successful implementation. Ask yourself questions like:

  • What data does the revenue automation system require?
  • How will the automation tool handle this transaction?
  • Do I need to augment my existing data to support new processing requirements?
  • Do I need to change any processes to meet the new data processing requirements?

Then go and solve for each gap one by one. Collaborate with your IT, Operations, and Sales teams to make sustainable changes to business processes and IT systems to enable data consistency and quality. Ultimately this approach avoids the pitfalls of manual intervention or temporary system changes that are not scalable for the future. This transformation gave the business an opportunity to rethink and reimagine what the business wants to do, as opposed to forcing the business to do what the systems can do.

Lesson 3

A successful ASC 606 implementation required cross-functional collaboration with multiple teams and departments. The source of revenue data comes first from Sales. When they execute a contract with the customer, this information flows into demands for the implementation team, billing operations, and cash collections. IT ensures all the systems and processes are set up to support these teams, to capture this information so it can be passed to you the revenue accounting solution. This transformation requires all departments to work together.

As the ASC 606 program driver, I had the opportunity to engage in significant cross-functional collaboration within CDK and work closely with our software vendors. I leveraged my existing knowledge of our company’s systems and internal controls along with our financial processes (RTR, FP&A, Revenue Accounting, OTC), to deliver the project as efficiently as possible.

Ultimately, this incredibly rewarding experience earned me a new challenge and my latest role with the company — VP of Finance transformation in which I get the delicious challenge of modernizing our financial systems and processes. Having delivered the revenue recognition automation implementation on time for ASC 606 adoption, I have the context, relationships, and experience to help the company in a brand new way.

ASC 606 can be a painful and purely compliance project. But, it doesn’t have to be. It can be a great opportunity to unlock talent on your teams, collaborate with your peers and leaders, and help your company embrace 21st-century technologies to support business growth and agility.

 

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