4 Ways Revenue Automation Minimizes Audit and Compliance Risk
Every since the first human traded a cow for his neighbor’s wheat, the holy grail for business has been revenue.
But at no time in history has there been a more rapid shift in how companies track, calculate, and report on revenue than with the explosion of the Subscription Economy.
Layer on constantly changing accounting rules—ASC 606 / IFRS 15, we’re looking at you—as well as increased volume and other headache-inducing complexities, and it’s clear that a heavy focus on automating your revenue recognition isn’t just a nice-to-have any more.
In fact, taking your eye off the revrec ball doesn’t just put you at risk for audits and compliance problems, it can negatively impact the growth engine at the heart of your business.
Complete, Consistent, and Accurate Revenue Recognition
Completeness, consistency, and accuracy are three imperatives of revenue recognition in the Subscription Economy.
Subscriptions changes—upgrades, downgrades, etc.—are the norm in the Subscription Economy, and they strike fear in the heart of even the most savvy finance team. Manual processes just can’t keep up with contracts amendments on the fly—both prospectively and retrospectively—and that means you’re more likely to have gaping holes in your records, the kind that compliance folks don’t look kindly on.
Being out of compliance with ever-changing standards can result in a range of substantial impacts on your business, including:
– Highly visible audits and possible restatements
– Significant penalties
– Inaccurate valuations, credit ratings, and borrowing costs
The good news? With the right revenue automation solution, you don’t have to sacrifice growth to keep up with compliance.
When you replace your old-school spreadsheets with a scalable, automated, and auditable revenue automation solution, you’ll have all the help you need to stay in compliance, minimize your risk, and give your company the growth path it deserves.
Here are the 4 ways a strong revenue automation solution can help you grow your business while you stay ship-shape on compliance.
“By 2022, 70% of mid-to-large enterprise businesses will be using an automated revenue management solution to support complex billing and revenue recognition compliance.”Robert P. Anderson & John E. Van Decker, New Revenue Recognition Rules Will Impact Finance, Business and Technology, January, 2018
#1: Comply with the new ASC 606 / IFRS 15 rules
These recent revenue standards are arguably one of the biggest changes in accounting in the last 100 years (seriously). And they are based on one overarching principle: companies must recognize revenue when goods and services are transferred to the customer.
The goal of ASC 606 was to simplify and standardize revenue recognition practices, but the requirements for reporting revenue—a critical metric for evaluating a company’s financial performance—vary across different industries, jurisdictions, and markets. Non-compliance is a huge risk, and earnings restatements can lead to firings, fines, and even jail time.
That’s why these days, an automation solution for ASC 606 is a requirement, not an option. The more proactive you are in this process—getting in front of the data and 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.
It’s true that ASC 606 implementation can be challenging, but an ASC 606-compliant revenue automation solution can go a long way to minimizing compliance headaches.
#2: Put SOX compliance on autopilot
SOX is industry shorthand for the Sarbanes-Oxley Act of 2002, legislation passed by the U.S. Congress to protect shareholders and the general public from accounting errors and fraudulent practices.
Having a revenue automation system that’s SOX-compliant helps you scale as quickly as you need while taking on the burden of internal controls of SOX standards, giving you peace of mind that your system records and reporting will always be compliant.
#3: Reduce manual effort, human errors, and close times
You know this, but it bears repeating: subscription businesses have a much higher volume of transactions per order. That means a single order leads to multiple invoices and payments. This creates complexity during the accounting close process and leaves a lot of room for mistakes.
Revenue automation systems let you use your finance experts to develop strategic initiatives that drive direct value to the business instead of chaining them to a computer to do the soul-sucking work of processing and reconciling your revenue.
#4: Be ready for evolving accounting standards, no matter how quickly they emerge or change
If you’ve already mastered ASC 606 compliance and think you’re on easy street, don’t get too comfortable. As the Subscription Economy grows, so too will the regulations and guidelines that keep it in check.
With a sophisticated revenue automation platform in place, you will have confidence that your systems will be ready for anything that comes your way.
Benefits of the right revenue automation solution
Revenue recognition is difficult enough on its own, but under ASC 606 / IFRS 15 you can no longer coast with your current accounting practices. A good revenue automation solution that handles all of the complexities of compliance will allow you to focus on more value-add activities like deeper reporting and analysis so your business can become proactive, not reactive. Sounds good, right?
That’s why, according to a report by Robert P. Anderson and John E. Van Decker titled New Revenue Recognition Rules Will Impact Finance, Business and Technology, “By 2022, 70% of mid-to-large enterprise businesses will be using an automated revenue management solution to support complex billing and revenue recognition compliance.”
But automating your revenue recognition process gives you more than just peace of mind. A side benefit is that going through the process of choosing and implementing a new revenue automation solution 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.