1. Revenue Recognition Deep Dive
Staying ahead of the risks

2. Meeting with you today Summary
Summer Taylor
Audit Managing Director
Summer is a managing director in the Consumer Products, Retail & Distribution Practice where she provides auditing, financial reporting, accounting and consulting services to publicly traded and privately held companies. She has 19+ years of direct experience assisting clients navigate the complexities in U.S. GAAP, SEC reporting and IPO's, public debt offerings, and private equity transactions. Summer is also IFRS accredited.
Summer also leads our Accounting & Reporting Advisory services in Orange County, which helps companies implement accounting & reporting standards. In addition, she is a Master Facilitator for Deloitte's award winning Learning Group where she assists professionals learning to present and facilitate, helping them gain confidence and executive presence. As an award winning CalCPA Education Foundation instructor, Summer offers a wide range of programs, workshops, and classes designed to help CPA's achieve the highest level of quality by helping participants understand and apply complex accounting and auditing guidance in a practical and fun way.

3. Overview of ASC 606 Revenue Recognition Requirements

4. New Revenue Recognition Requirements
High-level overview
Accounting Standards Update (ASU) , Revenue from Contracts with Customers was issued in May 2014 by the FASB.
Replaces almost all current revenue guidance (including industry specific guidance)
Introduces a five step model for recognizing revenue
Greatly enhances the related disclosure requirements
Requires entities to use significant judgment
The new requirements are effective for:
Annual reporting periods beginning after December 15, 2017 (public entities), including interim reporting periods therein
Annual reporting periods beginning after December 15, 2018 and interim periods within annual reporting periods beginning after December 15, 2019 (nonpublic entities)
Certain options to adopt the standard earlier are available.
Due to transition and adoption considerations and challenges, evaluating the impacts of the new requirements and planning for implementation should be currently underway.

5. Five-step model for recognizing revenue

6. New Revenue Standard The five-step model
Core principle: Recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled in exchange for those goods or services
Identify the contract with a customer
(Step 1)
Identify the performance obligations in the contract
(Step 2)
Determine the transaction price
(Step 3)
Allocate the transaction price to performance obligations
(Step 4)
Recognize revenue when (or as) the entity satisfies a performance obligation
(Step 5)
This revenue recognition model is based on a control approach, which differs from the risks and rewards approach applied under current U.S. GAAP

7. Five-step model for recognizing revenue
New Revenue Standard
Five-step model for recognizing revenue
1. Identify the contract with the customer
2. Identify the performance obligations
3. Determine the transaction price
4. Allocate the transaction price
5. Recognize revenue when (or as) performance obligations are satisfied
A contract is an agreement between two or more parties that creates enforceable rights and obligations.
Some contracts may be combined
Some contracts may be modified
A contract can be written, oral, or implied by an entity’s customary business practices.
For a contract to exist under ASU the following five criteria must be met:
The parties to the contract have approved the contract
The entity can identify each party’s rights
The entity can identify the payment terms
The contract has commercial substance
It is probable the entity will collect the amount to which it expects to be entitled.
Portfolio approach considerations – Although ASC 606 should generally be applied on an individual-contract basis, an entity is permitted to apply a “portfolio approach” if it is reasonably expected that the financial statements will not be materially different compared to applying the revenue standard on an individual-contract basis.

8. Five-step model for recognizing revenue
New Revenue Standard
Five-step model for recognizing revenue
1. Identify the contract with the customer
2. Identify the performance obligations
3. Determine the transaction price
4. Allocate the transaction price
5. Recognize revenue when (or as) performance obligations are satisfied
Combining Contracts
An entity shall combine two or more contracts entered into at or near the same time with the same customer (or related parties of the customer) and account for the contracts as a single contract if :
a. The contracts are negotiated as a package with a single commercial objective.
b. The amount of consideration to be paid in one contract depends on the price or performance of the other contract.
c. The goods or services promised in the contracts (or some goods or services promised in each of the contracts) are a single performance obligation

9. ? Example 1: Assessing collectability of contracts Case facts
Entity A enters into 1000 homogenous contracts with different customers for fixed consideration of $1,000 each.
Before entering into a contract with a customer, Entity A performs procedures designed to determine whether it is probable that the customer will pay the amount owed under the contract (e.g., a credit check) and only enters into the contract if the entity concludes that it is probable that the customer will pay.
During the previous three years, Entity A has collected 98% of the amounts it has billed to customers.
Based on an analysis of industry and historical collection data, Entity A has concluded that the collection rate from the past three years is the probable outcome for future contracts.
Entity A intends to enforce its rights to the consideration to which it is entitled (i.e., it will not offer any concessions to its customers).
Accordingly, the only variability in the contract is due to customer credit risk. ?
Questions
How much should Entity A recognize as revenue upon satisfying its performance obligation?
View A: Entity A would recognize revenue for 100% of the expected amount ($1,000,000) and an impairment loss of 2% ($20,000) which would be recorded as bad debt expense.

10. Example 1 answer: Assessing collectability of contracts
How much should Entity A recognize as revenue upon satisfying its performance obligation?
Entity A would recognize revenue for 100% of the expected amount ($1,000,000) and an impairment loss of 2% ($20,000) which would be recorded as bad debt expense.
All 1,000 contracts meet the definition of a contract with a customer.
Entity A would recognize revenue for 100% of the expected amount ($1,000,000) and, in accordance with ASC 310, an impairment loss of 2% ($20,000) which would be recorded as bad debt expense.
Entity A would not account for the impairment as contra revenue or present the impairment adjacent to revenue on the income statement.
At the January 26, 2015 Transition Resource Group (TRG) Meeting, the TRG members generally agreed that when collectability is probable for a portfolio of contracts, the expected amount should be recognized as revenue and the uncollectible amount should be recognized as an impairment loss in accordance with ASC 310.

11. Five-step model for recognizing revenue
New Revenue Standard
Five-step model for recognizing revenue
1. Identify the contract with the customer
2. Identify the performance obligations
3. Determine the transaction price
4. Allocate the transaction price
5. Recognize revenue when (or as) performance obligations are satisfied
A performance obligation is the promise to transfer to the customer a good or service (or bundle of goods or services) that is distinct.
Distinct goods and services should be accounted for as separate units of account.
Entities need to determine if a good or service (or bundle of goods or services) is “capable of being distinct” and “distinct in the context of the contract.”
A series of substantially the same goods or services for which control transfers overtime and they have the same pattern of transfer is accounted for as a single performance obligation.

12. ? Example 2: Material right (Options for additional goods or services)
Case facts
Entity X enters into a contract with its customer for $100 to provide an item. Upon signing of the contract, X also provides its customer an option for additional future items (i.e., “buy 10 get 1 free”, discount coupons, virtual dollars, ability to buy the item again at a favorable price, or accumulating points).
Entity X generally does not provide any incentives through marketing activities (i.e., no coupons or vouchers provided to the general public).
Customers are under no obligation to exercise the option. And the entity has not committed to any pricing levels for the future items.
Historical data indicates that customers frequently exercise their options. ?
Questions
Does the option create a material right (that gives rise to a performance obligation)?
How should entity X account for it based on your answer to question 1?

13. Example 2 answer: Material right (Options for additional goods or services)
Does the incentive create a material right (give rise to a performance obligation)?
How should entity X account for it based on your answer to question 1?
Yes, the option creates a material right and therefore is a performance obligation
The option is incremental to normal market offering because
A customer would not receive it without entering into the original contract.
The option is incremental because the entity generally does not provide any incentives to the general public.
The entity’s historical experience suggests that there is a significant incentive for customers to exercise the option (i.e., the option has a more than nominal value).
As a result, entity X should allocate a portion of the $100 transition price to the option and defer recognition of revenue until the future items are transferred or when the option expires*.
*Examples 49 & 51 of the new standard provide illustrations on how to calculate the standalone selling price and recognition for an option that provides the customer with a material right.

14. Five-step model for recognizing revenue
New Revenue Standard
Five-step model for recognizing revenue
1. Identify the contract with the customer
2. Identify the performance obligations
3. Determine the transaction price
4. Allocate the transaction price
5. Recognize revenue when (or as) performance obligations are satisfied
Transaction price is the amount the entity expects to be entitled to in exchange for transferring promised goods or services to the customer.
The transaction price may include fixed amounts, variable amounts, or both.
To determine the transaction price, entities shall consider the effects of the following:
Variable consideration
The constraint on estimates of variable consideration
Significant financing components
Noncash consideration
Consideration payable to the customer.

15. Five-step model for recognizing revenue
New Revenue Standard
Five-step model for recognizing revenue
1. Identify the contract with the customer
2. Identify the performance obligations
3. Determine the transaction price
4. Allocate the transaction price
5. Recognize revenue when (or as) performance obligations are satisfied
The transaction price (from step 3) is allocated to each performance obligation identified (from step 2).
Depending on the specific circumstances, one of the following approaches would be used to allocate the transaction price to the performance obligations:
The stand-alone selling price.
The best evidence of the stand-alone selling price is an observable price for selling the same good or service separately to another customer.
If a good or service is not sold separately, an entity must estimate the stand- alone selling price by using an approach that maximizes the use of observable inputs. Acceptable estimation methods include, (1) the adjusted market assessment approach, (2) the expected cost plus margin approach, and (3) the residual approach (when the stand-alone selling price is not directly observable and is either highly variable or uncertain).
Allocation of a discount or variability to a specific performance obligation (or a bundle of specific performance obligations) if certain criteria are met.
A discount may be allocated to one or more, but not all, of the performance obligations in a contract if all of the following criteria are met:
The entity regularly sells each distinct good or service (or each bundle) in the contract on a standalone basis.
The discount attributable to that bundle of goods or services is the discount in the contract.
The entity also regularly sells on a standalone basis a bundle of some of those distinct goods or services at a discount to the standalone selling prices of the goods or services in that bundle.
Variable consideration may be allocated to one or more, but not all, of the performance obligations in a contract if the following criteria are met:
Allocating the variable amount of consideration is consistent with the ASU’s allocation principle when considering all of the performance obligations and payment terms in the contract.
The terms of a variable payment relate specifically to the entity’s efforts to satisfy a performance obligation.

16. Standalone Selling Price Combined Standalone Selling Price
Example 3: Allocating a discount
Case facts
Entity W sells three items A, B, and C, respectively. The standalone selling prices of A, B, and C are as shown to the right: 
Product
Standalone Selling Price
Item A
$30
Item B
$70
Item C
$50
Consider the following scenarios:
SCENARIO 1
On January 1, 20X1, the entity enters into a contract with a customer to provide the customer with one of each item for consideration of $135 (a $15 discount) based on the schedule to the right: 
Date
Deliverable
03/31/X1
Item A
06/30/X1
Item B
09/30/X1
Item C
The following bundles are also regularly sold at the following combined prices: 
Bundle
Price
Combined Standalone Selling Price
Discount in Bundle
A + B
$85
$30 + $70 = $100
$15
A + C
$65
$30 + $50 = $80
B + C
$105
$70 + $50 = $120 ?
Question
For Scenario 1, how would the entity allocate the discount in the contract?

17. Example 3 answer: Allocating a discount
For Scenario 1, how would the entity allocate the discount in the contract?
The entity does NOT have sufficient evidence to demonstrate that the discount in the contract relates to any specific performance obligation (i.e., the evidence does not support that the discount is not just a volume-based discount attributable to a customer buying a bundle of items).
Accordingly, the discount of $15 should be allocated pro-rata to each of the performance obligations based on their individual stand-alone selling prices.
The entity would recognize revenue as follows:
When A is transferred, recognize revenue of $27 (30 – 3)
When B is transferred, recognize revenue of $63 (70 – 7)
When C is transferred, recognize revenue of $45 (50 – 5)
Total revenue recognized on contract = $135
Item
SSP
% of Total SSP
Total Discount to Allocate
Discount Allocated
Item A
$30
20.0%
$15 $3
Item B
$70
46.7% $7
Item C
$50
33.3% $5
$150

18. Standalone Selling Price Combined Standalone Selling Price
Example 3: Allocating a discount
Case facts
SCENARIO 2
On January 1, 20X1, the entity enters into a contract with a customer to provide the customer with one of each item for consideration of $135 (a $15 discount) based on the schedule to the right: 
Date
Deliverable
03/31/X1
Item A
06/30/X1
Item B
09/30/X1
Item C
As a reminder, the standalone selling prices of A, B, and C are as shown to the right: 
Product
Standalone Selling Price
Item A
$30
Item B
$70
Item C
$50
The following bundles are also regularly sold at the following combined prices: 
Bundle
Price
Combined Standalone Selling Price
Discount in Bundle
A + B
$85
$30 + $70 = $100
$15
A + C
$65
$30 + $50 = $80
B + C
$120
$70 + $50 = $120 $0 ?
Question
For Scenario 2, how would the entity allocate the discount in the contract?

19. Example 3 answer: Allocating a discount
For Scenario 2, how would the entity allocate the discount in the contract?
In this scenario, the evidence supports that there is a discount of $15 when the entity sells a bundle of two items that includes A and a discount of $0 for all other bundles that contain products other than A.
Accordingly, it is reasonable to conclude that the discount of $15 should be allocated entirely to item A in accordance with ASC
The entity would recognize revenue as follows:
When A is transferred, recognize revenue of $15 [$30 (SSP of A) – $15 (full discount)]
When B is transferred, recognize revenue of $70
When C is transferred, recognize revenue of $50
Total revenue recognized on contract = $135

20. Five-step model for recognizing revenue
New Revenue Standard
Five-step model for recognizing revenue
1. Identify the contract with the customer
2. Identify the performance obligations
3. Determine the transaction price
4. Allocate the transaction price
5. Recognize revenue when (or as) performance obligations are satisfied
Evaluate if control of a good or service transfers over time, if not then control transfers at a point in time.
If an entity determines that it satisfies a performance obligation over time, it measures progress toward completion using either an input or output method.
An entity would satisfying a performance obligation over time if any of the following are met:
* An entity has a right to payment only if, at all times throughout the duration of the contract, the entity is entitled to an amount that at least compensates for performance completed to date. This compensation should approximate the selling price of the goods/services (i.e. costs incurred plus a reasonable profit margin).
The customer receives and consumes the benefit as the entity performs. (e.g., cleaning service)
Recognition of revenue will either occur over time or as a point in time. Companies will need to apply judgment based upon the facts and circumstances of the arrangement to recognize revenue commensurate with the transfer of control of the goods or services. This is a shift from the risks-and-rewards model. While companies will need to exercise judgment, a performance obligation satisfied at a point in time is generally a product or good, and a performance obligation satisfied over time is generally a service.
An entity transfers control over time, or said differently, satisfies a performance obligation and recognizes revenue over time when either 1) the customer simultaneously receives and consumes the benefits provided by the entity’s performance obligation as the entity performs, 2) the entity’s performance creates or enhances an asset (i.e., work in process) that the customer controls as the asset is created or enhanced, or 3) the entity’s performance does not create an asset with an alternative use to the entity, and the entity has an enforceable right to payment for performance completed to date. One highlight to consider with respect to our clients under the New Standard is that where recognition over time may have typically led to deferral and subsequent systematic recognition of revenue under the existing standard, companies may need to consider whether or not a potential earlier point of recognition is warranted in the event the inventory does not have an alternative use (i.e., can’t be sold to a different customer based upon specific customization) and there is an enforceable right to payment.
Performance creates or enhances a customer controlled asset. (e.g., home addition)
Performance does not create an asset with an alternative use and the entity has an enforceable right to payment for performance completed to date. OR OR

21. Five-step model for recognizing revenue
New Revenue Standard
Five-step model for recognizing revenue
1. Identify the contract with the customer
2. Identify the performance obligations
3. Determine the transaction price
4. Allocate the transaction price
5. Recognize revenue when (or as) performance obligations are satisfied
For performance obligations satisfied at a point in time, indicators that control transfers include, but are not limited to, the following:
The entity has a present right to payment.
The customer has legal title.
The entity has transferred physical possession.
The customer has the significant risks and rewards of ownership.
The customer has accepted the asset.
Recognition of revenue will either occur over time or as a point in time. Companies will need to apply judgment based upon the facts and circumstances of the arrangement to recognize revenue commensurate with the transfer of control of the goods or services. This is a shift from the risks-and-rewards model. While companies will need to exercise judgment, a performance obligation satisfied at a point in time is generally a product or good, and a performance obligation satisfied over time is generally a service.
An entity transfers control over time, or said differently, satisfies a performance obligation and recognizes revenue over time when either 1) the customer simultaneously receives and consumes the benefits provided by the entity’s performance obligation as the entity performs, 2) the entity’s performance creates or enhances an asset (i.e., work in process) that the customer controls as the asset is created or enhanced, or 3) the entity’s performance does not create an asset with an alternative use to the entity, and the entity has an enforceable right to payment for performance completed to date. One highlight to consider with respect to our clients under the New Standard is that where recognition over time may have typically led to deferral and subsequent systematic recognition of revenue under the existing standard, companies may need to consider whether or not a potential earlier point of recognition is warranted in the event the inventory does not have an alternative use (i.e., can’t be sold to a different customer based upon specific customization) and there is an enforceable right to payment.

22. Other considerations

23. Contract costs Costs to obtain a contract
Capitalize costs of obtaining a contract if they are incremental and expected to be recovered (e.g., sales commissions)
1 year practical expedient
Costs to fulfill a contract
Recognize assets in accordance with other Topics (inventory, PP&E, software, etc.), otherwise capitalize costs that:
relate directly to the contract (or specific anticipated contract);
generate/enhance a resource that will be used to satisfy obligations in the future; and
are expected to be recovered
Costs that relate to satisfied performance obligations (or partially satisfied performance obligations) must be expensed when incurred
Amortization
Capitalized costs are amortized on a systematic basis consistent with the transfer of the related goods or services
Impairment
Recognize immediately if costs not deemed recoverable
The practical expedient in ASC to expense contract acquisition costs that would be amortized over a period of less than one year needs to be applied consistently to contracts with similar characteristics and in similar circumstances in accordance with ASC
But the practical expedient can’t be selected on a contract by contract basis
Contract costs may include direct labor, direct materials, costs allocated that directly relate to contract activities, like contract management, chargeable costs under the contract, commissions earner on the contract 23

24. ? Example 4: Costs to obtain a contract Case facts Questions
Entity G enters into a two year contract with a customer.
Upon the initial signing of the contract, Entity G pays a salesperson a $200 commission for obtaining the new customer contract. An additional commission of $120 is paid each time the customer renews the contract for an additional two years.
The $120 renewal commission is not commensurate with the $200 initial commission (i.e., a portion of the $200 initial commission relates to future anticipated contract renewals)
Based on its historical experience, 98% of customers renew their contract for at least two more years, or four years total (i.e., the contract renewal is a specific anticipated contract).
The average customer life is 4 years. ?
Questions
What amount(s) should Entity G capitalize upon initial signing of the contract and upon contract renewal?

25. Example 4 answer: Costs to obtain a contract
Question: What amount(s) should Entity G capitalize upon initial signing of the contract and upon contract renewal?
Entity G should capitalize the $200 paid for the new customer contract at contract inception as the commission represents an incremental cost of obtaining a contract that would not have been incurred unless the contract was obtained and the obligating event occurred (i.e. the contract was obtained which requires the commission to be paid to the salesperson).
The Entity should not recognize any portion of the $120 at contract inception as it does not yet meet the definition of a liability and also does not meet the requirements to be capitalized as an incremental cost of obtaining a contract. Instead, Entity G should capitalize the $120 when the contract is subsequently renewed.  

26. Initial Application Year
UPDATE Practical expedient for contract modifications (FASB & IASB)
Transition methods
Full retrospective approach
Restate prior periods in compliance with ASC 250
Optional practical expedients
Modified retrospective approach
Apply revenue standard to contracts not completed as of effective date and record cumulative catch-up
Required disclosures:
Amount of each F/S line item affected in current period
Explanation of significant changes
cumulative catch-up
January 1, 2019
Initial Application Year
2019 Year
2018 Prior Year 1
2017 Prior Year 2
New contracts
New ASU
Existing contracts
New ASU + cumulative catch-up
Legacy GAAP
Completed contracts

27. Modified retrospective
Transition methods
Key observations and challenges for each approach
Full retrospective
Modified retrospective
Dual reporting requirements
Two years
One year
Comparability
Present historical periods as applicable
Cumulative catch-up adjustment will be January 1, 2018
No comparison for new standard
Cumulative catch-up adjustment will be January 1, 2019
System considerations
Retrospective will require information be prepared and validated prior to January Such procedures “trial runs” will provide opportunity to fix potential unforeseen/unplanned challenges
More time to develop a one-time transition plan with more runway to fix data and system challenges ahead of “go-live”
Trial runs likely will still be required but may not be as in-depth as with retrospective
Transition relief requirements
Provides relief for contracts with single fiscal calendar-year terms
Provides relief for the “remaining performance obligations” disclosure requirement for contract longer than 1 year (e.g., multiyear maintenance)
Provides relief for contract modifications
Disclose the amount by which each financial statement line item is affected by the new guidance for 2018 as compared to the prior/legacy guidance
Provides an explanation of the significant changes between applying the new guidance and prior/legacy guidance

28. ICFR Considerations

29. Annual Disclosures – Overview

30. Interim Disclosures

31. Tax implications of ASC 606

32. Tax Impact of New Revenue Recognition Standard
Opportunity to generate cash tax savings to offset the accelerated cash outlays to taxing authorities and fund project implementation costs.
Deferring revenue and/or accelerating expenses in advance of the adoption of the new standards can generate tax savings, which, in turn, provides additional cash on hand.
Identifying the most advantageous tax method for certain items impacted by the new standards (e.g., unearned revenue and contract costs) during adoption can reduce the overall unfavorable tax impact
Enactment of tax reform could convert the timing benefits to permanent benefits and thereby increase the power of tax planning.
new
Deloitte’s Audit, Advisory, Consulting and Tax functions have created an all encompassing collaborative approach to helping companies adopt the new revenue recognition standards, which includes, among other things, efficiently identifying tax savings opportunities as well as areas of compliance.

33. Revenue Implementation

34. New Revenue Recognition Requirements
Accounting
Disclosures & reporting
Data & systems
Controls
New Revenue Recognition Requirements
Implementation Considerations
Significant changes or enhancements may be needed as follows:
Accounting
Entities should not assume there will be no change in how revenue is accounted for and should expect at least some changes upon adoption of the standard. As a result, entities should:
Evaluate how their contracts with customers will be accounted for under the new standard
Identify areas that will require judgment or interpretation and research relevant requirements
Compile inventory of and evaluate the accounting for contracts with customers
Consider tax implications.
Controls, including risk assessment
With the adoption of the new standard, new risks may emerge. As a result, risks related to the adoption of the new standard should be assessed throughout the adoption process.
Based on the revised risk assessment, entities should:
Design controls to address risks of material misstatement arising from the adoption of the new revenue standard
Revise existing or implement additional controls to address the risks of material misstatement related to the revenue assertions.
Data & systems
Entities may need to gather and track new information and document new judgments. As a result, entities should:
Determine data gathering and retention needs and develop a strategy accordingly
Identify systems architecture options.
Disclosures & reporting
Existing and new disclosure requirements need to be considered. Entities should:
Determine necessary disclosures (including those related to the impact of implementation) and design and implement processes for effectively including them in the financial statements.

35. New Revenue Recognition Requirements
Plan for implementation
Understand, educate, plan
Assess
Implementation
Reassess and evaluate sustainability
Understand, educate, plan
Understand the standard and related impacts
Read and understand the standard
Review existing whitepapers, narratives, and process flows to understand current accounting policies and processes
Educate
Inform audit committee and other leaders within the organization regarding new standard
Hold initial training session with key stakeholders and team leads
Provide an overview of the standard and outline key impacts on business and functional groups
Plan
Identify appropriate leaders to monitor and oversee adoption efforts (e.g., establish a steering committee and appropriate governance) and coordinate among departments
Identify key project personnel to own adoption process within functions
Develop project plan and reporting protocols for project visibility and risk management
Establish implementation milestones and timelines
Assess
Accounting
Evaluate existing contracts using the new 5 step model for revenue recognition
Develop accounting calculation logic and determine necessary journal entries
Document considerations describing the appropriate accounting and how conclusions were reached
Assess tax implications
Discuss contract assessments with external auditor
Controls
Assess risk throughout the process
Evaluate impacts on internal controls, including controls over accounting, data quality, and reporting
Disclosures & reporting
Draft disclosure information for reporting that contemplates 1) implementation impacts under SAB Topic 11.M and 2) requirements under the new standard and SEC reporting as necessary
Identify specific tax reporting requirements across all regions and jurisdictions
Data & systems
Identify data gaps and data needed to be tracked and retained
Evaluate whether modifications to technology are needed

36. New Revenue Recognition Requirements
Plan for implementation
Understand, educate, plan
Assess
Implementation
Reassess and evaluate sustainability
Implement
Accounting
Review and approve the accounting calculation logic and journal entries
Update accounting policies
Controls
Design controls to address risk of material misstatement arising from the adoption of the new standard
Update process flow diagrams
Inform and train personnel impacted by changes
Review operation of key controls, processes, and reports
Disclosures & reporting
Identify additional steps required in periodic close process and resource needs
Perform a “test-close”
Review and finalize draft disclosures
Data & systems
Execute data retention strategy
Determine key user reports and journal entries
Test modifications made to accounting systems and evaluate any error reports
Reassess and evaluate sustainability
Evaluate sustainability of revised accounting processes and modify as appropriate
Assess opportunities for further integration and efficiencies
Perform post “go-live” assessments of system implementation or upgrades
Disclosures & reporting
Review comparable company disclosures and assess opportunities for further refinement and enhancement of disclosures and reporting

37. Deloitte Tool Suite

38. Illustrative work products
Description
Illustrative deliverable examples
Accounting issue documentation
Discuss with the Deloitte audit team and Company’s personnel to understand potential accounting issues that may arise based on the types of product and service offerings in Company’s revenue streams
Accounting issue heat map
Through working sessions and analysis of Company’s key revenue streams, advise management as Company prioritizes accounting issues identified by level of expected impact
Illustrative transaction use-case scenarios
Prepare illustrative scenarios, using hypothetical data, of the potential impact to specific contracts or revenue streams under the New Revenue Standard comparing current and prospective accounting treatment
Current systems, data and process impact
Gain an understanding of current revenue/lease process flow and advise on impact to systems, data, and process architecture in order to help Company understand potential challenges of implementation
High-level implementation roadmap
Outlines suggested strategy and high-level project steps to advise Company of factors to consider when management develops and implements a long-term resolution, addressing technical accounting and operational aspects of the New Lease/Revenue Standards

39. Contracts Review Application
The Contract Review Application is a web-based application that leverages artificial intelligence to extract, visualize, and analyze certain information from contracts.
Contract Review Application capabilities
Core functionality: Enhanced workflow
Uploads and converts multiple document formats, including images, scanned documents, and faxes, into readable PDFs.
Efficiently identifies, highlights, and extracts certain terms directly from the contracts with easy-to-use workbench functionalities.
Exports workpaper-ready Microsoft Excel or Microsoft Word files and the highlighted PDF with bookmarks.
Value add: Artificial intelligence
Advanced machine learning techniques and natural language processing automatically identify and extract certain terms from contracts.
Continuously learns and trains itself based on reviewer extractions and edits made while reviewing contracts.
Empowering insights: Analytics
Analytics are automatically populated across many documents and extraction fields.
Analytics dashboard allows reviewer to provide more timely and meaningful insight to differences among contracts.
Contract comparison features compare contract documents against a base template to identify additions, deletions, and modifications.
Specific features
Supports multiple document formats, including images, scanned documents, and faxes
Uses machine learning to extract certain terms from contracts
Allows export of extracted content (along with reviewer edits and comments) directly into workpapers
Ability to compare certain contract parameters across contracts

40. Contract Database tool
The Contract Database tool is a short-term web-based solution that assists in 1) accelerating contract data gathering and 2) providing a simpler and more flexible data repository that is customizable to client circumstances.
Contract Database tool capabilities
Core Functionality: Centralized data repository
Stores certain contract information, leveraging information pertinent to revenue recognition (such as transaction price, term, and contract specifications) & leasing, in one centralized data repository to help expedite the contract review process
Tailorable to the specific requirements of your organization (e.g., regulatory filing requirements)
Readily available and implementable, given the timelines associated with the new standard
Value add: Identification of potential risk areas
Flags potential risk areas under new standard through tailored questionnaires and produces customized, aggregated reports
Capabilities: Data organization
Attaches contracts and positions relevant data in an organized fashion to be interpreted for subsequent, value-added steps
Flexible, leveraging web-based tools, so that many within the organization can provide data
Facilitate data conversion to a longer-term system solution for ongoing recording
Specific features
Web-enabled data aggregation, analytical and reporting capabilities
Project management
Multiple user environment
Effective data migration
Efficient reporting
Audit trail
Segregation of duties
Document management
Version control capability
Interface with end-state solution

41. Questions?

42. Thank you!

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