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Automating Revenue Deferrals and Revenue Recognition in Oracle

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Presentation on theme: "Automating Revenue Deferrals and Revenue Recognition in Oracle"— Presentation transcript:

1 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 group

2 Confidential to aquarius consulting group
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 group

3 Confidential to aquarius consulting group
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 Confidential to aquarius consulting group

4 Confidential to aquarius consulting group
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 group

5 Confidential to aquarius consulting group
revenue recognition current practices Confidential to aquarius consulting group

6 Confidential to aquarius consulting group
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 group

7 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 group

8 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 group

9 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 group

10 contract to revenue | challenges
Account Mgmt, Sales & Contracts/Pricing Operations, Delivery and Billing/Revenue Mgmt Period Close, Forecast and Financial Reporting Opportunity to Quote Contracts Order to Fulfill Bill to Collect Recognize Revenue Financial Close Financial Reporting 1 2 3 4 Complex and Evolving Revenue Accounting SOP 97-2 or EITF 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 Notes: Complex and Evolving Revenue Accounting & Compliance Revenue accounting is becoming far more complex and auditors are now examining financial records in finer detail Rapidly changing business landscape and product offerings Customer relationships defined by multi-element agreements involving bundled line items, tiered pricing, complex discounts, multiple billing methods, and long-term support and maintenance agreements can generate extremely complex accounting challenges Complex Billing Schedules & Revenue Recognition The timing of billing & revenue schedules for each element in a sale can have significant accounting implications. The compliance requirements with respect to the treatment of transactions in foreign currency can further compound the complexity Manual data manipulation using spreadsheets Current financial systems are NOT robust and flexible to manage the complex billing and revenue processes with a high degree of automation to be operationally efficient Functionality Gap in Oracle ERP Oracle ERP (including R12) does not handle complex revenue processes well because it designed for a world in which revenue simple Confidential to aquarius consulting group

11 revenue accounting process | multiple touch points
Account Mgmt, Sales & Contracts/Pricing Operations, Delivery and Billing/Revenue Mgmt Period Close, Forecast and Financial Reporting Opportunity to Quote Contracts Order to Fulfill Bill to Collect Recognize Revenue Financial Close Financial Reporting contract-to-revenue accounting cycle Confidential to aquarius consulting group

12 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 group

13 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 group

14 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 group

15 revStream | separates billing from revenue in Oracle ERP
Opportunity to Contract Order to Fulfill Invoice, Rev Rec. to GL Create Opportunity Customer & Deal Info 2 Create Order a revStream: Billing Manager Billing Schedule b c d Invoices (AR) Configure Price Quote 3 Book Order Load Invoices Review & Approve Transfer to AR Debit: Receivables Credit: Unearned Revenue 1 4 Fulfillment Quote Approval Create /Accept Contract revStream: Revenue Manager 6 7 8 5 GL GL Load Revenue Review & Approve Transfer to GL Create installed base Debit: Unearned Revenue Credit: Revenue Oracle Other CRM Other Systems revStream (aquarius solution) Confidential to aquarius consulting group 15 15

16 Case Study: SOP97-2 residual method revenue recognition
Confidential to aquarius consulting group

17 Confidential to aquarius consulting group
primary contacts Rajiv Chopra Managing Partner Phone: | Fax: | Mark Aubin Associate Partner Phone: | Fax: | Confidential to aquarius consulting group 17 17


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