Advanced Revenue Magic*!: How NetSuite's Advanced Revenue Management Conjures Up Compliance

With the advent of the new accounting standard ASC 606/IFRS 15, companies are quickly transitioning to NetSuite's corresponding accounting software. In response, NetSuite has developed the Advanced Revenue Management Module (ARM) to provide customers with the flexibility to manage their revenue practices through accurate revenue reporting.

But what is ASC 606/IFRS 15? Well put simply, ASC 606 (Accounting Standards Codification 606) and IFRS 15 (International Financial Reporting Standard 15) are revenue recognition standards developed by the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) respectively.

These standards provide guidance on how to recognize revenue from contracts with customers and are aimed at improving comparability and consistency in financial reporting across different entities and industries. They provide a five-step model for determining when and how much revenue to recognize over time, taking into account factors such as delivery of goods or services, transfer of control, and customer payment terms. Companies are required to apply the standards retrospectively to all contracts with customers that are not completed as of the adoption date. ASC 606 and IFRS 15 were issued in 2014 and became effective for public companies in 2018 and 2017 respectively.

The ARM module offers a range of functionalities, including automated foreign currency adjustments, a dynamic fair value pricing engine, audit tracking on key fields, contract cost amortization, support for the percentage of completion method in projects, a rule and event-based NetSuite revenue recognition (rev rec) module, and automated revenue forecasting. It separates billing and the NetSuite revenue recognition module into two distinct processes, which then reconcile at month-end. This allows customers to bill their clients based on agreed amounts while simultaneously recognizing revenue based on fair value allocations, if applicable.

For those customers currently using the previous revenue engine from NetSuite, Revenue Commitments, it is recommended that they continue to do so provided their accounting firm only recommends the residual method for revenue allocation. If a fair value allocation approach is recommended, then ARM must be utilized to process the revenue allocations. It is important to note that Revenue Commitments is a rigid revenue management engine and does not allow for dynamic adjustments. In contrast, ARM provides more flexibility and may be a preferred solution for those looking to upgrade from Revenue Commitments. However, if a migration to ARM is necessary, a migration effort will be required to regenerate/migrate open transactions from Revenue Commitments.

For NetSuite customers currently using ARM, but whose configurations are not compliant with ASC 606/IFRS 15, they must enlist the assistance of their accounting firm to establish the applicable revenue allocation method. The firm will provide numerical examples and formulas for fair value calculation, which will play a crucial role in configuring ARM to be compliant with the new standard. Keep in mind that while all new transactions will follow the new configuration once ARM is configured under ASC 606/IFRS 15, previous open transactions will not automatically adopt the new configuration. To ensure all open revenue arrangements have the latest ARM configuration, a data migration effort will be needed.

From a financial management reporting standpoint, it is necessary to report financials under both the previous standard and ASC 606/IFRS 15. To support this requirement in NetSuite, the Multi-Book module is necessary. This module allows up to five separate accounting books to be managed within NetSuite, providing the ability to compare financial management reports between the previous and new standards. It is important to note that the Multi-Book module is separate from ARM and must be purchased separately.

In conclusion, the implementation of the new ASC 606/IFRS 15 accounting standard requires careful consideration and planning for companies utilizing NetSuite's accounting software. The ARM module provides customers with a flexible solution for managing their revenue practices and may be a preferred solution for those looking to upgrade from Revenue Commitments. For those already using ARM, it is necessary to enlist the assistance of their accounting firm and potentially undertake a data migration effort to ensure compliance with the new standard. Finally, the Multi-Book module is necessary for comparative financial management reporting between the previous and new accounting standards.

At Salora ERP, we are a 100% NetSuite consultancy committed to providing clients with the support they need during and after their NetSuite ERP implementations. Our team of skilled professionals has the knowledge and expertise to help with optimizations, system re-evaluations, new module additions, and re-implementations.