Revenue Recognition Automation

www.pwc.com

Rony Zucker IT Consulting , PwC Israel

PwC Israel

Agenda

• Background and Automation Drivers

• Trends

• Challenges

• Goals

• Automation Solutions

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Background and Drivers

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Changing business models

• Cloud and SaaS offerings

• More solutions/ bundles, essential/ embedded software

• More complex business models

• Global customers and global market

• Digital transformation

Drivers of revenue recognition complexity

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Drivers of revenue recognition complexity

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Changing regulations

• SOP 97-2, EITF 08-01, EITF 09-03

• New Revenue Recognition Standard

• Increased regulatory scrutiny

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Drivers of revenue recognition complexity

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Focus on effectiveness

• Shared services

• Reduction in operational and compliance cost

• Drive to automation

• Shorter close and reporting cycle

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Revenue Automation Trends

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Revenue automation trends and the new revenue standard

• Revenue automation grew out of EITF 08-1 implementationchallenges

• To date boutique software have been dominating

• SAP and Oracle are playing catch up

• Automation is mainly focused on Multiple Element Accounting

• Dual reporting capabilities available

• Automation challenges unique to the new standard (Time value,variable consideration etc.) is currently not covered

• Both boutique software and larger ERP are in the process ofdeveloping Revenue Standard focused tools

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Revenue automation trends in the market

Revenue automation tools in the market

• 3rd party tools

- RevPro

- RevStream

- Revenue Edge

• ERP Modules (coming soon)

- SAP

- Oracle

- Netsuite

• ERP customizations and home grown solutions

• Automation implemented using Excel, Access, SQL, etc. combined withmanual processes

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Revenue automation based on company size

• Companies up to $300 M – use ERP and Manual (Excel), few use 3rdparty tools

• Companies from $300 M to $10B – use ERP, 3rd party tools and Manual(Excel), few use custom solutions

• Companies over $10B – use ERP, Custom solutions and Manual (Excel), fewuse 3rd party tools

Company size ERP 3rd party

tools Custom

solutions Manual (Excel)

Up to $300 M

$300 M – $10 B

$10 B and up

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Revenue Automation Challenges

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Revenue complexity matrix

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EA

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Hig

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Standard Unique

Traditional HW

Consumer HW/SW

Social media tailored

advertising

Enterprise HW/SW

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Revenue automation trends in the market

Challenges

• Limited standard out-of-the-box functionality available in ERPs

• Maintenance of complex Access and/or Excel models, customizationsof ERPs or manual process

• Complexity and number of systems hosting data relevant for revenuerecognition

• It takes time for functionality to catch up with new requirements (i.e.New Revenue Recognition Standard)

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What can be automated

Automated

• Straight forward single element revenue recognition

• Ratable revenue recognition for service/ maintenance

• Revenue rec. on an automatic pattern (e.g. daily convention)

• Elements breakout with bundled SKUs

• Relative Selling Price calculation and allocation

• VSOE/BESP establishment

• Simple deal/contract defferal (FOB, part. shipment, el. delivery)

• Linking deals/contracts into multiple elements arrangement (MEA)

• Complex deal/contract deferrals

• Deal/contract review

Manual

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Revenue Automation Goals

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Revenue automation implementation success factors

Success factors

• Separation of revenue recognition from billing

• Upfront cost benefit assessment of what should be automated vs.manually processed through deferrals

• Accuracy, completeness and availability of data at the right levelof details

• Formal process around introduction of product offeringsand promotions

• Upfront review of contracts and promotions, and communicationto Finance

• Forward looking to allow for flexibility of revenue automationsolution to meet requirements of new regulation

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Leading Practices – Revenue Management systems and processes

Leading Practice Description

Standard functionality Leverage core out-of-the-box concepts, structures and functionality as they are intended to be used. Solution against those structures re-evaluating what we do and how we do it to achieve a better fit. Customize only as a last resort

Global Process Owners Ownership by process across business units enables standardization to support growth while allowing flexibility to operate the business

Eliminate Complexity Seek to eliminate complexity rather than re-engineer it or move it elsewhere

Minimize Complexity Seek to eliminate touch points to reduce cycle times and points of failure

Solve Upstream Seek out issues up stream and fix them at the source

Future Proof Seek to build flexible solutions so we can more easily meet changing business needs in the future

Source of Truth The source of truth for all data objects is identified. Downstream changes are best avoided but where made must be fed back to the source of truth in a manner that preserves data integrity

Error handling Interfaces must provide end user-orientated error reporting and include error-correction capabilities

Minimize Non-IT boundary disruption

Where needed we will translate standard objects and messages to native formats to minimize boundary system work

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Revenue Automation Solutions

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Revenue management system environment

Sources for Elements Break-out, Arrangements and Revenue Triggers are critical for successful automation of revenue recognition

Items Master Orders Entitlements

GL

Billing

Revenue Management Tool

SKU and Elements Details

Order Information Selling Price Shipping/ fulfillment

Entitlements Information

Recognized Revenue Deferred Revenue Revenue Adjustments

Order Information Selling Price Billing

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Revenue automation challenges What can go wrong?

Vendor selection

• 3rd party tools are relatively immature and under staffed

• Insufficient use cases considered or business requirements incompletewhen vetting vendors

Automation scoping

• Attempting to automate revenue recognition 100%

• Unable to identify all revenue recognition scenarios upfront when definingsystem requirements

• Failure to consider fringe cases – non standard revenue scenarios

Implementation and maintenance

• Rules are too rigid to accommodate change in business model, offerings,and/or regulations

• Varying data sources for the same data element creates added complexity

• Revenue team is not involved in NPI to ensure 3rd party tool is updated tomanage revenue recognition for new products

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Revenue automation system implementation risks

• Proper stakeholders are not identified and/or properly involved in theproject

• Business requirements are not clearly defined or incomplete

• Design documentation becomes outdated/incomplete making monitoringimplementation progress and future maintenance difficult

• Project is not properly managed to prevent scope creep and/or overruns

• Inadequate testing prior to go-live as a result of factors above or inadequatetest data to reflect production scenarios

• Proper oversight is not provided during the project

• Data is not converted completely and accurately to the revenue system

Generally strict observance to a System Development Life Cycle methodology and controls will mitigate the risks above.

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Revenue automation general IT risks

Access control • Access to the Revenue Management system should not be granted

until approved by the application owner • Administrative access should be restricted to a limited number of users

Segregation of Duties • Users that can approve changes in the system should not have access

to make the updates themselves Change control

• Changes should be tested in a non-production environment beforepromoted to production

• Changes to the revenue recognition rules should not be made withoutreview and approval by the revenue manager

Operational controls • Application jobs should be monitored for errors and errors should be

resolved timely following change control if appropriate. Integration to financial systems

• Data integrity

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Summery

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Summery

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Summery

• Facilitate multiple element arrangement accounting

• Shorten close cycle, efficiencies in close

• Improve forecasting abilities

• Employ better reporting capabilities based on relevant regulation

• More accurate revenue recognition capabilities (monthly vs. daily)

• Automation of common revenue recognition scenarios

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Thank You!

Rony Zucker IT Consulting , PwC Israel rony.zucker@il.pwc.com +972 3 7954905