Art & Science of Revenue Automation: Understand the timelines - Part 1
Timelines to ASC 606 adoption are short, which is creating significant urgency and a desire to implement revenue automation at a rapid pace and in short time frames. These accelerated timelines are very understandable, but we caution our clients to evaluate their plans and ensure goals are realistic and attainable. Given the complexity involved in revenue automation, rarely have we seen rushed timelines yield the desired outcomes. More often the opposite is true - rushing causes errors, that result in delays or failed implementations.
As you plan your implementation make sure you understand the factors that drive effort and implementation duration. Additionally, there are several decisions companies make related to revenue automation and implementation of ASC 606 that impact implementation timeframes.
In previous weeks, we have already covered 2 drivers that impact timelines and need to be planned for: uncertainty stemming from the new standard; and effort necessary to get required data. Let's explore a few other key drivers and decisions.
Defining Future ASC 606 Revenue Policy
Unlike many other systems, revenue automation is entirely dependent on having a fully documented and vetted revenue recognition policy accompanied by clearly defined accounting positions for your revenue use- cases.
Therefore, completing at least Phases 1 and 2 of the adoption approach (outlined in the first post of this series) is critical before you can fully engage in the revenue automation initiative. We already explored the fact that conditions surrounding ASC 606 are still evolving, accordingly some change may occur even after you have fully defined your policy. However, the greater the degree of certainty around your accounting policy and positions, the lower the risk of project delays or incorrect outcomes.
Accordingly, make sure your automation plan accounts for the timing of when your company will complete the process of developing the revenue policy. Understanding the degrees of uncertainty, will help you determine how much risk "cushion" you need to include in your timelines.
Selecting Transition Approach
Will you take the "full retrospective" or "modified retrospective" transition approach? There are varying reasons why companies chose one over the other. We have also observed that as timelines to adoption get shorter, companies have less choice, as the amount of effort required for the "full retrospective " approach in some cases may no longer be a feasible option.
The transition approach also impacts revenue automation, especially if your company is hoping to use the revenue automation tool to support the transition. Generally speaking, the full retrospective approach will create significantly more work for both ASC 606 adoption and revenue automation.
Automating ASC 605 and ASC 606
Some companies desire having revenue automation for both ASC 605 (current GAAP) and ASC 606, especially those who have a longer run-way until adoption. Although there is great value in revenue automation, we do caution clients going down this path.
- Given how long it could take to implement revenue automation, will you derive appropriate return on investment when automating ASC 605?
- What additional risk are you introducing to the implementation of ASC 606, when performing two complex implementations in parallel?
In our next post, we will discuss the considerations when migrating historic and open transactions.
Interested in reading the full Art & Science of Revenue Automation white paper? Download here: Art & Science of Revenue Automation
Jason Pikoos
Partner, Financial Operations Practice Leader
Connor Group