OAUG Collaborate 2019 Evolving with ASC 606 / IFRS 15

Copyright © 2019, Oracle and/or its affiliates. All rights reserved. |

Evolving with ASC 606/ IFRS 15 Revenue Recognition Standard Session ID: 11281

Helle Hennings Senior Product Strategy Director Timothy Hricko Senior Director, Product Management Oracle Applications Development April 8, 2019


Safe Harbor Statement

The following is intended to outline our general product direction. It is intended for information purposes only, and may not be incorporated into any contract. It is not a commitment to deliver any material, code, or functionality, and should not be relied upon in making purchasing decisions. The development, release, timing, and pricing of any features or functionality described for Oracle’s products may change and remains at the sole discretion of Oracle Corporation.

3


UPTAKE EBS ENHANCEMENTS

Modern User Experience and Mobility

Functional Innovation

Oracle’s Investments for EBS Customers Leverage EBS Strengths Combined with Broader Oracle Cloud Portfolio

Operational Efficiency

CX Cloud

HCM Cloud

SCM Cloud

ERP Cloud

Inve

stme

nts fo

r EBS C

usto

me

rs

EXTEND EBS WITH ORACLE SaaS APPS – HYBRID COEXISTENCE • Supply Chain Planning Cloud • In-Memory Cost Mgt • AI for Manufacturing • Transportation Mgt

• Planning & Budgeting • Revenue Mgt • Project Portfolio Mgt

• Sales • CPQ • Service

• HCM-EBS ERP • Core HCM-EBS Payroll • Recruiting-EBS HCM

Load Balancing

Database Cloud Service

Compute Networking Exadata

Cloud Service Storage

REPLATFORM EBS ON ORACLE CLOUD INFRASTRUCTURE

4


Program Agenda

Evolving Practice

Integrating With EBS

Integrating with Project Accounting

1

2

3

5


Program Agenda

Evolving Practice



1

2

3

6


At the end of the day, your sales are the same • I’m just trying to figure my deferred revenue at fair value

• Now I need a revenue engine to book my invoices

• The SSP observation tool should work on components

• We keep our revenue nice and smooth for the shareholders

7


At the end of the day, your sales are the same but just everything about the process is different

ꙋ I’m just trying to figure my deferred revenue at fair value

You are trying you figure your debt to customers for goods & services, offset by your future right to bill them, and you value that debt at expected consideration allocated on the basis of your “separate & similar sale” selling prices.

ꙋ Now I need a revenue engine to book my invoices

You need to review at inception, accrue the obligation when either party acts, and can’t record an invoice as a receivable until time is the only obstacle to collection. Invoices wash against contract assets.

ꙋ The observation tool should work on components

VSOE is gone. You either (a) observe SSPs or sell at SSPs, or you (b) estimate “Separate & Similar Sale” Standalone Selling Prices. Components are not separate sales; and SSPs are supported by separate sales.

ꙋ We keep our revenue nice and smooth for the shareholders

Today, under ASC 606 & IFRS 15, we recognize revenue on transfer to customers – volatile or not

8


ASC 606 and IFRS 15 Compliance Automation The Standard’s Five Steps to Revenue

Third party and On Premise (EBS) Sales Cycle Data

Cloud Service order, billing, & fulfillment data

Revenue Management

Cloud Service General Ledger

EBS General Ledger

9


The Famous Four Chevrons and Box: Steps 1-5 to Comply

10

US GAAP’s ASC 606 and IASB’s IFRS 15

RMCS FUNCTIONALITY

Import Source Data

Identify the Separate

Performance Obligations

Identify the Contract(s)

With Customer

Determine the

Transaction Price

Accrue the Performance

Obligation

Recognize Revenue When a

Performance Obligation is

Satisfied

Import PD->PO->Contract Rules Allocation Accounting

RR IPE

Allocate The

Transaction Price

“IPE” = Initial Performance Event, system event for “either party performing”


Getting started - Identify data needed to: Review Contracts and Allocate Prices at Inception

11

1. Contract ID # x Transaction Net Billing Sale Price

Apparent Discount/ Premium

Standalone Or ESP

Basis for Alloc.

4. Allocation Revenue & POb Value

Discount Allocation

Nets to Zero

True Discount

2. Perf. Obligation #1 40 (20) 60 95% * 60 = 57 17 (3)

Perf. Obligation #2 55 15 40 95% * 40 = 38 (17) (2)

3. Transaction Price 95 Transaction Price = Expected Consideration = 95 0

Stand Alone Price Contract Discount, SSP-Trx: 95-100=

100 (5) 95/100=95% relativity; a 5% discount (5)

ASC 606 and IFRS 15 repeat the phrase “Review the Transaction at Inception and” several times

1. Identify the Accounting Contract 2. Identify the Promises to the Customers 3. Determine the Transaction Price 4. Allocate the Transaction Price to the Promises based on Separate Sale prices

ASC 606 & IFRS 15’s 1st 4 steps


Identify that Data in your ASC 605 or IAS 18 EBS Deployment The practical side of adopting the standard

12

1. Contract ID # x Transaction Net Billing Sale Price

Apparent Discount

Standalone Or ESP

Basis for Alloc.

4. Allocation Revenue & PO Value

Discount Allocation

Nets to Zero

True Discount

2. Perf. Obligation #1 40 (20) 60 95% * 60 = 57 17 (3)

Perf. Obligation #2 55 15 40 95% * 40 = 38 (17) (2)

3. Transaction Price 95 Transaction Price = Expected Consideration = 95 0

Stand Alone Price Contract Discount, SSP-Trx

95-100=

100 (5) 95/100=95% relativity; a 5% discount (5)

Review the Transaction at Inception And…

1. Identify the Accounting Contract 5. Determine whether the Promise is Point 2. Identify the Promises to the Customers in Time or Over Time 3. Determine the Transaction Price 4. Allocate the Transaction Price to the Promises

What data do you need to identify POs? Where

is it? How will you identify distinct? What is

your Unit of Account?

Where should we read your customer facing pricing from? Orders? Price Lists?

Do you trust the total you are giving us? Have

you a process in place to complete estimates

before loading?

Where will your SSP or ESPS come from?

How will your match them to your PObs?

Do you know the business events that will represent either party acting, and will send

us to book the accrued obligation? You might not be able to rely on invoicing.

We’ll match your bills to your assets

to follow this. What cross

reference to use?

Do you know the business events that will represent transfer to customer, and

will send us to recognize revenue? The 4 tests of GAAP are replaced with 7.

What data do you need to identify &

link contracts? Where is it?


Topside Adjustments Topside Adjustments

Activate RMCS

606 / 15 GRC

RMCS

Adoption Ledger

Performance Obligation Accounting Subledger

System Cut Over Day

Revised 2018 Plan: Cut System over after Adoption Day

We are very close to the wire

13

Corporate “GAAP” Ledger Deferred Revenue stops on cutover Go ASC 606 / IFRS 15

Today ASC 606 / IFRS 15 Adoption Day

Start Go Live #1 for Historical Data

Go Live #2 for Current Trxs

Go Live #3 for ASC 606 or IFRS 15 External Reporting

Go Live #4 in your current sub-ledgers

Initiate RMS Iterative Modeling

Calculate the 606/15 value of your recent Deferred Revenue-ish

transactions

Process Current Transactions using 606/15

Rules

Adopt The Standard – Stop reporting Deferred Revenue,

Start 606/15

Support your external reporting with Subledger

data


Program Agenda

Evolving Practice



1

2

3

14


Replatform on OCI • Start with DEV/TEST • Add or migrate your DR on Cloud • Place your “Reporting” Env. on Cloud • Shift your PROD to Cloud when ready

Migrate to SaaS • Migrate by pillar • Migrate by product line or business unit • Migrate by country/region • Avoid complex integration scenarios

Extend with SaaS - HYBRID • Supply Chain Planning Cloud • In-Memory Cost Mgt (IMCM) • Planning & Budgeting, Revenue Mgt • Adaptive Intelligent Apps • OTM, GTM and more….

Practical Paths to Oracle Cloud for EBS Customers Any Combination of these Paths – Journey to the Cloud

15

Copyright © 2019, Oracle and/or its affiliates. All rights reserved. | 16

Oracle Cloud Service Technology Imports The Selected Data

PaaS

PaaS

Pre-built

Pre-packaged

Native

ERP Cloud

Native Integration Flows • Single common architecture for Employees,

Users, Security, Geography, Customers, etc.

• Requisition to Receipts Supplier Invoice to Payment ; Expense Reports to Reimbursement

• Period Close to Financial Reports; Budget to Approval

• Credit Review to Approval

Configure Quote to Order

Customer Invoice to Receipt

Pre-packaged Integrations • Accounting Hub Reporting Service with EBS

• Revenue Management Cloud Service with EBS

Integration Services

Integration Platform

Integration Services • Setup Services

• Bulk Inbound/Outbound Services

• Transactional Services

Pre-built Integrations • Integrated Quote-to-Cash with CPQ Cloud

Service and Financials Cloud Service

• Planning and Budgeting Cloud Service

with Financials Cloud Service

Integration Platform • Orchestrate Inbound/Outbound Bulk

Data Flows across On-Premise, PaaS, and

ERP Cloud

• Orchestrate Setup/Transactional Services

across On-Premise, PaaS, and ERP Cloud


Code hooks Seeded

Extract Views

Import Sales Related Data – Overview of ETL (Extract, Transform, Load)

EBS

3rd Party Application

Source Applications UCM:

Universal Content Manager

Revenue Management Cloud

Interface Tables

RM base tables

Custom extract program

Data Files (Source

headers, lines & sublines) Revenue Management Daily

Job Set Extract

Transform

Load Extract Revenue Basis Data program

Register the new source Document Type

Create Revenue Management Data Export File program

control file

Load Interface File for Import Job (automatically triggered)

17


Pre-built integrations with EBS

Performance Obligation Valuations

Sales Cycle Data

Feedback

SLA

Oracle E-Business Suite Subledgers

Oracle E-Business Suite

General Ledger

Oracle Financials Accounting Hub

Receivables

Order Management

And Others

SLA

Other Sources

Non-Oracle Systems

Non-Oracle Systems

Non-Oracle Spreadsheet

Custom

Data

Revenue Management Cloud

UCM

You & SI work together to identify data to pull, and business event drivers

18



19



20



Cutover and Subsequently

Pre-Cutover

Subledger & Ledgers

21

Working with EBS

Revenue Management

EBS General Ledger

SLA

Other EBS Sub-ledgers – Receivables, Payables, Fixed Assets, Inventory, Costing, and so on, via SLA

(Second) Secondary ASC 606 &

IFRS 15

Core GL

Optional Secondary

Whether National

Or Corporate

Primary Whether

Corporate Or

National



Cutover and Subsequently

Pre-Cutover

Subledger & Ledgers

22

Working with EBS

Revenue Management

EBS General Ledger

SLA

Other EBS Sub-ledgers – Receivables, Payables, Fixed Assets, Inventory, Costing, and so on, via SLA

(Second) Secondary ASC 606 &

IFRS 15 Core GL

Optional Secondary

Whether National

Or Corporate

Primary Whether

Corporate Or

National


Other Considerations and Points to be Noted

• To get the data you need per your review at inception style analysis,

– You can “copy and edit” views, with code hooks OR:

– You can do a “third party integration”

– It may or may not be captured in your current footprint, optimized for the old rules

• Setup Utility to redirect EBS Receivables SLA Accounting to the RM Clearing Account in the Corporate EBS Ledger on cutover

– AR Revenue Schedules remain available for use in EBS National / Taxation “old rules” ledgers

• Output from RMCS drives EBS GL, Costing – “some assembly required”, discuss misc. integrations with OM, etc.

23


Program Agenda

Evolving Practice



1

2

3

24


Performance Obligations in Projects

Recognize revenue on the satisfied performance obligation and comply with accounting standards

Derive accurate progress against the Performance obligation to obtain approval from customer

Capture and provide visibility to committed contractual Performance Obligations to drive accountability and delivery


Impacts to Balance Sheet and Income Statement

Assets reduced when invoiced or payment is received for the goods and services provided

Receipt

Asset and liability created for amount of

goods and services promised

Contract

Liability reduced and revenue recognized when performance obligations satisfied

Fulfillment



Define Performance Obligation (Projects)

• Attributes to Performance Obligations

Performance Obligation

Description Quantity Transaction

Price

Performance Obligation Number

Customer Name

Currency Standalone

Selling Price UOM

Agreement

Number

Expenditure Category

Expenditure Type

Revenue Category

Cost Rates and Mark up Percentage

Top Task

Number


Progress of Performance Obligation

Revenue Method = Work • Typically Time and Material or Cost Plus

type projects

• Expenditure Type and Expenditure Category from Revenue Distribution mapped to the Performance Obligation

Revenue Method = Cost or Event

• Typically Fixed Bid Project

• Top Task from Revenue Distribution mapped to the Performance Obligation

Unit Rate Based / Schedule of Value

• SOV line mapped to Performance Obligation


Progress of Performance Obligation


• Revenue is based on the agreed progress against the Performance Obligation

• For bundled contracts, the value and revenue for individual Obligations are recognized considering the overall contract discount

• Rates, as adjusted for contract discount, from the Performance Obligation are applied to approved progress quantities to generate revenue

• Contract Asset and Liability balances are reflected as per ASC 606 and IFRS 15

30

Recognize Revenue on Satisfied Performance Obligation



Integration to Cloud Revenue Management

Integration to Cloud Revenue Management • Performance Obligation sent to Revenue

Management when project starts

• Progress sent on a periodic basis

• Revenue Management allocates and recognizes Revenue


Resources

• Release Readiness: Revenue Management information on most recently released features documented in New Feature Summary and What’s New Documents

• Revenue Management Cloud Data Sheet

• Revenue Management Cloud User Guide

• My Oracle Support Article: Manage Project Revenue According to IFRS 15/ASC-606, Release 12.2 (Doc ID 2432035.1)

32

https://cloud.oracle.com/opc/saas/fin/r132019/nfs/2019-financials-nfs.pdf

https://cloud.oracle.com/opc/saas/fin/r132019/wn/2019-financials-wn.pdf

https://cloud.oracle.com/opc/saas/datasheets/revenue-management-ds.pdf

https://docs.oracle.com/en/cloud/saas/financials/19a/fafrm/using-revenue-management.pdf

https://support.oracle.com/epmos/faces/DocumentDisplay?_afrLoop=201149408778608&id=2432035.1&_adf.ctrl-state=4rwq01qf3_177






EBS General Ledger

ERP CLOUD

Revenue Management

33






EBS General Ledger

ERP CLOUD

Revenue Management

Questions?

Thank you for joining us today! Session ID: 11281

34
