confidential to aquarius consulting group automating revenue deferrals and revenue recognition in...
TRANSCRIPT
Confidential to aquarius consulting groupwww.aquariuscg.com
Automating Revenue Deferrals and Revenue Recognition in Oracle
Presentation for NorCal OAUG Training Day
Date: January 19th, 2009
Track: Financials
Presented By:
Mark Aubin | Associate Partner
Ram Iyer | Senior Associate
@ aquarius consulting group llc.
Confidential to aquarius consulting groupwww.aquariuscg.com
2Slide #
agenda
introduction
revenue recognition | current practices
managing revenue recognition and deferrals in oracle financials
order to revenue accounting cycle | challenges the solution for Oracle case study
• SOP97-2 – residual method based revenue recognition on oracle
Q & A
Confidential to aquarius consulting groupwww.aquariuscg.com
3Slide #
about us
Founded in 2006 by experienced professional consulting executives and entrepreneurs
Boutique consulting firm with a global client base
Practice Areas: Billing and Revenue Recognition (BRM) Oracle Sales to Cash Consulting Solutions Program and Project Management
Industry expertise: Hi-Tech Manufacturing | product & services Online Media and Publishing Interactive Entertainment
Referencable industry leading global clients
Primary Office:
Silicon Valley
Redwood Shores, CA 94065
www.aquariuscg.com
Confidential to aquarius consulting groupwww.aquariuscg.com
4Slide #
aquarius + revStream
aquarius is a niche consulting firm specializing in billing and revenue management solutions; program management and post merger/acquisition integrations. aquarius brings extensive expertise in process design and implementation of sales to revenue solutions for online media and software/services industry. aquarius revStream solution is the only Oracle based solution to manage complex billing and revenue recognition business models.
revStream is a comprehensive custom solution developed by aquarius to address the complex billing and revenue recognition requirements for Hi-Tech product/services; online media and entertainment software industry. It essentially a billing and revenue automation engine and workbench that bridges the gap that exists in today’s major ERP systems
Confidential to aquarius consulting groupwww.aquariuscg.com
revenue recognition
current practices
Confidential to aquarius consulting groupwww.aquariuscg.com
6Slide #
fact
“Revenue recognition is the #1 reason for public high-tech companies to restate earnings – resulting in SEC
investigation, drop in market value & plunging investor confidence” – IDC, 2006
Confidential to aquarius consulting groupwww.aquariuscg.com
7Slide #
current practices | spreadsheets still rule!
92% of the public companies use spreadsheets for critical revenue recognition and reporting purposes – IDC 2006
Majority of ERP/financial IT infrastructure cannot automate all of your revenue recognition and reporting needs
57% of public companies finalize revenue numbers after month close vs 43% at close
Revenue recognition restatements wipe out on average 10% of a company’s market value according to a new study by Audit Analytics. The study measured market reaction from 50 days before until 50 days after the announcement
Source: revenuerecognition.com and IDC
Confidential to aquarius consulting groupwww.aquariuscg.com
8Slide #
what’s driving the need
SOP97-2 or EITF00-21 or EITF08-01 (June 15, 2010)
IFRS and/or US GAAP Reporting
Cumbersome Data File Management (all Revenue Calculations and Deferrals on Excel, Access, or Data Warehouses)
Internal Controls and Audit
High Audit Costs
Re-statements
Confidential to aquarius consulting groupwww.aquariuscg.com
managing revenue recognition and deferrals in oracle financials
Contract-to-Revenue Process: Key Challenges
The solution for Oracle
Case Study: SOP97-2 residual method revenue recognition
Confidential to aquarius consulting groupwww.aquariuscg.com
10Slide #
contract to revenue | challenges
Opportunity to Quote
Contracts Order to FulfillBill
to CollectRecognize
RevenueFinancial
Reporting
Account Mgmt, Sales & Contracts/Pricing Operations, Delivery and Billing/Revenue Mgmt
Period Close, Forecast and Financial Reporting
2 3 4
Financial Close
Complex and Evolving Revenue
Accounting SOP 97-2 or EITF 08-
01 or ??
Complex Multi-element deals Bundled deals; tiered pricing,
complex discounts
Receivables = Revenue
Billing not separate from revenue
Manual = Excel Spreadsheets
Offline data manipulation &
reporting
1
Confidential to aquarius consulting groupwww.aquariuscg.com
11Slide #
revenue accounting process | multiple touch points
Opportunity to Quote
Contracts Order to FulfillBill
to CollectRecognize
RevenueFinancial
Reporting
Account Mgmt, Sales & Contracts/Pricing Operations, Delivery and Billing/Revenue Mgmt
Period Close, Forecast and Financial Reporting
Financial Close
contract-to-revenue accounting cycle
Confidential to aquarius consulting groupwww.aquariuscg.com
12Slide #
critical revenue automation areas
Independent billing and revenue scheduling and processing Apply different revenue treatments and carve-outs based on Fair
Value/VSOE on elements within an order based on several different revenue recognition rules ex: residual method (SOP97-2) or revenue arrangements with multi-element deliverables (EITF00-21); contract accounting method (SOP81-1) recognition based on “relative selling price method” (EITF 08-01)
Perform “complete arrangement analysis” in a multi-element deliverable
Revenue scheduling based on business events (estimated and actual) and build revenue schedules to provide accurate and timely revenue forecasts.
Match COGS and expense deferrals to revenue deferrals Configure complex revenue recognition and billing rules ex: define
substantive rates and rule mapping for term or carve-outs Adjustments to original terms are frequent, requiring creating rebuilds
and revenue trueup/catchups Create distributions and post approved transactions to GL.
Confidential to aquarius consulting groupwww.aquariuscg.com
13Slide #
revenue recognition for Oracle ERP
In summary, our clients were seeking to automate revenue deferral and recognition with a solution that was scalable to growth, flexible for new business models and products, allowed compliance to evolving regulatory requirements, and delivered a low cost of ownership.
Introducing revStream Revenue and Billing Manager.
The ONLY revenue management solution for Oracle eBusiness Suite. Built entirely on the Oracle eBusiness Suite technology stack, it’s a sub-ledger module that fits within the Oracle eBusiness Suite portfolio.
Confidential to aquarius consulting groupwww.aquariuscg.com
14Slide #
major features and functionality
Business Process Driven Arrangement Analysis and Revenue Recognition Automated identification of transactions for revenue deferral Complete arrangement analysis Automatic application of revenue treatment and amortization rules Automatic application of multi-element carveouts and reclasses Transaction approvals and revenue holds
VSOE and Terms Maintenance Configurable Fair Value and VSOE matrices by multiple dimensions such as tier, customer type, service level,
region, etc. Complies with SOP 97-2, EITF00-21, EITF 08-1, EITF 09-3 requirements. Supports reapplication of VSOE to historical transactions for restatements.
Event based Revenue Recognition Automated acquisition and application of transaction events such as Execution, Shipment, Delivery, Installation,
and Customer Acceptance Forecasting based on estimated events. Allows manual event adjustments with automatic reapplication of revenue treatments.
Dynamic AutoAccounting Engine Org specific AutoAccounting to derive GL Code Combinations from numerous sources or defaults. Supports creating GL Distributions for US GAAP and IFRS reporting across multiple Sets of Books.
It is a part of the eBusiness Suite; a new subledger. revStream components use standard Oracle eBusiness Suite architecture: Oracle Forms, PL/SQL, Concurrent
Programs, Lookup Codes, Value Sets, etc. Uses Multi-Org structure and functionality. Uses common security components such as Responsibilities, Menus, Functions, Profile Options, and Request
Groups. Full native integration to oracle modules – no interfaces
Confidential to aquarius consulting groupwww.aquariuscg.com
15Slide # 15
BillingSchedule
BillingSchedule
15
revStream | separates billing from revenue in Oracle ERP
Opportunity to Contract Order to Fulfill
Create Opportunity
Create Opportunity
Configure PriceQuote
Configure PriceQuote Book OrderBook Order
Quote Approval
Quote Approval
1
Invoice, Rev Rec. to GL
GLGL
Invoices (AR)
Invoices (AR)
FulfillmentFulfillment
Create installed
base
Create installed
base
Customer& Deal InfoCustomer
& Deal Info Create Order
Create Order
Debit: ReceivablesCredit: Unearned RevenueDebit: ReceivablesCredit: Unearned Revenue
Load Revenue
Load Revenue
Review & Approve
Review & Approve
Transfer to GL
Transfer to GL
revStream: Revenue ManagerrevStream: Revenue Manager
OracleOracle
Other Systems
Other Systems
Other CRMOther CRM
revStreamrevStream (aquarius solution)(aquarius solution)
2
3
4
6 7 8
Debit: Unearned RevenueCredit: RevenueDebit: Unearned RevenueCredit: Revenue
Load Invoices
Load Invoices
Review & Approve
Review & Approve
Transfer to AR
Transfer to AR
revStream: Billing ManagerrevStream: Billing Manager
b c d
a
Create /Accept
Contract
Create /Accept
Contract
5
GLGL
Confidential to aquarius consulting groupwww.aquariuscg.com
Case Study: SOP97-2 residual method revenue recognition
Confidential to aquarius consulting groupwww.aquariuscg.com
17Slide # 17
primary contacts
Mark AubinAssociate Partner Phone: 310.766.8072 | Fax: 650.362.1967 | [email protected]
Rajiv ChopraManaging Partner Phone: 415.509.8213 | Fax: 650.362.1967 | [email protected]