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OpenWorld 2018 Evolving with ASC 606 / IFRS 15 Revenue Recognition Standard

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Presentation on theme: "OpenWorld 2018 Evolving with ASC 606 / IFRS 15 Revenue Recognition Standard"— Presentation transcript:

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2 OpenWorld 2018 Evolving with ASC 606 / IFRS 15 Revenue Recognition Standard
Seamus Moran, Tapomoy Dey, & Lakshmana Ravula Oracle Development October 22, 2018

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4 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.

5 Oracle’s Investments for EBS Customers Leverage EBS Strengths Combined with Broader Oracle Cloud Portfolio SCM Cloud ERP Cloud CX Cloud HCM Cloud Investments for EBS Customers 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 UPTAKE EBS ENHANCEMENTS Functional Innovation Modern User Experience and Mobility Operational Efficiency REPLATFORM EBS ON ORACLE CLOUD INFRASTRUCTURE Compute Networking Storage Load Balancing Database Cloud Service Exadata Cloud Service

6 Program Agenda 1 Evolving Practice Integrating With EBS Integrating with Project Accounting 2 3

7 Program Agenda 1 Evolving Practice Integrating With EBS Integrating with Project Accounting 2 3

8 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

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

10 Revenue Management ASC 606 and IFRS 15 Compliance Automation
ERP CLOUD Cloud Service order, billing, & fulfillment data Cloud Service General Ledger Revenue Management ASC 606 and IFRS 15 Compliance Automation The Standard’s Five Steps to Revenue Third party and On Premise (EBS) Sales Cycle Data EBS General Ledger

11 The Famous Four Chevrons and Box: Steps 1-5 to Comply
US GAAP’s ASC and IASB’s IFRS 15 RR IPE RMCS FUNCTIONALITY Recognize Revenue When a Performance Obligation is Satisfied Import Source Data Identify the Separate Performance Obligations Identify the Contract(s) With Customer Determine the Transaction Price Allocate The Transaction Price Accrue the Performance Obligation Import PD->PO->Contract Rules Allocation Accounting “IPE” = Initial Performance Event, system event for “either party performing”

12 Transaction Price = Expected Consideration =
Getting started - Identify data needed to: Review Contracts and Allocate Prices at Inception ASC 606 and IFRS 15 repeat the phrase “Review the Transaction at Inception and” several times 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 95% * 40 = 38 (17) (2) 3. Transaction Price 95 Transaction Price = Expected Consideration = 0 Stand Alone Price Contract Discount, SSP-Trx: = 100 (5) 95/100=95% relativity; a 5% discount ASC 606 & IFRS 15’s 1st 4 steps Identify the Accounting Contract Identify the Promises to the Customers Determine the Transaction Price Allocate the Transaction Price to the Promises based on Separate Sale prices

13 Transaction Price = Expected Consideration =
Identify that Data in your ASC 605 or IAS 18 EBS Deployment The practical side of adopting the standard What data do you need to identify & link contracts? Where is it? Where should we read your customer facing pricing from? Orders? Price Lists? 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. Review the Transaction at Inception And… 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 95% * 40 = 38 (17) (2) 3. Transaction Price 95 Transaction Price = Expected Consideration = 0 Stand Alone Price Contract Discount, SSP-Trx 95-100= 100 (5) 95/100=95% relativity; a 5% discount What data do you need to identify POs? Where is it? How will you identify distinct? What is your Unit of Account? Do you trust the total you are giving us? Have you a process in place to complete estimates before loading? 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. We’ll match your bills to your assets to follow this. What cross reference to use? Identify the Accounting Contract 5. Determine whether the Promise is Point Identify the Promises to the Customers in Time or Over Time Determine the Transaction Price Allocate the Transaction Price to the Promises

14 We are very close to the wire
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 Today ASC 606 / IFRS 15 Adoption Day Deferred Revenue stops on cutover Go ASC 606 / IFRS 15 Corporate “GAAP” Ledger Topside Adjustments Topside Adjustments 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

15 Program Agenda 1 Evolving Practice Integrating With EBS Integrating with Project Accounting 2 3

16 Extend with SaaS - HYBRID
Practical Paths to Oracle Cloud for EBS Customers Any Combination of these Paths – Journey to the Cloud 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…. So where are companies today Many have started with the basics, migrating apps to the cloud Next, we’re finding some companies begin to look to the cloud to augment their environments with SaaS solutions. Finally, a select few are looking to develop entire new business models, looking for digital transformation, adopting the SaaS for their core business. 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

17 Oracle Cloud Service Technology Imports The Selected Data
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 Integration Services Setup Services Bulk Inbound/Outbound Services Transactional Services PaaS PaaS Integration Services Pre-built Pre-packaged Native ERP Cloud Pre-built Integrations Integrated Quote-to-Cash with CPQ Cloud Service and Financials Cloud Service Planning and Budgeting Cloud Service with Financials Cloud Service Pre-packaged Integrations Accounting Hub Reporting Service with EBS Revenue Management Cloud Service with EBS 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 Integration Platform

18 Import Sales Related Data – Overview of ETL (Extract, Transform, Load)
UCM: Universal Content Manager Source Applications Revenue Management Cloud Transform Code hooks Seeded Extract Views Data Files (Source headers, lines & sublines) EBS Load Extract Revenue Basis Data program Interface Tables RM base tables  Create Revenue Management Data Export File program Load Interface File for Import Job (automatically triggered) Revenue Management Daily Job Set Extract control file 3rd Party Application Custom extract program Register the new source Document Type 18

19 Pre-built integrations with EBS
Revenue Management Cloud UCM SLA Sales Cycle Data Performance Obligation Valuations You & SI work together to identify data to pull, and business event drivers Feedback Other Sources Data Oracle E-Business Suite Subledgers SLA Oracle E-Business Suite General Ledger Non-Oracle Systems Receivables Order Management And Others Non-Oracle Systems Non-Oracle Spreadsheet Custom Oracle Financials Accounting Hub

20 Pre-built integrations with EBS

21 Pre-built integrations with EBS

22 Subledger & Ledgers Working with EBS Revenue Management Pre-Cutover
Cutover and Subsequently ERP CLOUD EBS General Ledger Revenue Management ASC 606 and IFRS 15 Compliance Automation The Standard’s Five Steps to Revenue Core GL SLA (Second) Secondary ASC 606 & IFRS 15 Optional Secondary Whether National Or Corporate Primary Corporate Or National Other EBS Sub-ledgers – Receivables, Payables, Fixed Assets, Inventory, Costing, and so on, via SLA

23 Subledger & Ledgers Working with EBS Revenue Management Pre-Cutover
Cutover and Subsequently ERP CLOUD EBS General Ledger Revenue Management (Second) Secondary ASC 606 & IFRS 15 ASC 606 and IFRS 15 Compliance Automation The Standard’s Five Steps to Revenue Core GL SLA Optional Secondary Whether National Or Corporate Primary Corporate Or National Other EBS Sub-ledgers – Receivables, Payables, Fixed Assets, Inventory, Costing, and so on, via SLA

24 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.

25 Program Agenda 1 Evolving Practice Integrating With EBS Integrating with Project Accounting 2 3

26 Performance Obligations in Projects
Capture and provide visibility to committed contractual Performance Obligations to drive accountability and delivery 1. Define Performance Obligations Capture Contractual performance obligations that can support various types of contracts including, Fixed Price Time and Material Cost Plus Unit rate Should be able to maintain and version performance obligations 2.Derive Progress Capture progress at the lowest level where delivery of work can be confirmed by measuring & reporting completed work quantities or by capturing the Time and Cost or by capturing Percent Completion Summarize the progress at Performance Obligation level to assess the overall completion and gain customer agreement. Progress should reconcile directly on the performance obligations 3. Recognize Revenue Revenue should be based on the approved progress against the performance obligation Rates (Transaction price) from the Performance obligation should be applied to approved progress quantities to generate revenue For Bundled contracts the revenue for individual obligations should be recognized considering the overall contract discount . Derive accurate progress against the Performance obligation to obtain approval from customer Recognize revenue on the satisfied performance obligation and comply with accounting standards

27 Impacts to Balance Sheet and Income Statement
Impact on accounting is one of the major change that is occurring from this regulation 1) When the performance obligation starts , both assets and liabilities  arising out of it  are to be captured  2) As and when the committed obligations are fulfilled, the revenue is recognized, and the liability is reduced 3) When invoicing is done , the assets gets reduced to that tune and it becomes Receivables. Asset and liability created for amount of goods and services promised Liability reduced and revenue recognized when performance obligations satisfied Assets reduced when invoiced or payment is received for the goods and services provided Contract Fulfillment Receipt

28 Define Performance Obligation (Projects)
Attributes to Performance Obligations Performance Obligation Number Description Quantity UOM Transaction Price Standalone Selling Price Currency While defining Performance obligations, These are the attributes that are to be captured at each performance Obligation line level. Some of them are the additional attributes that are to be captured while integrating with RMCS. Performance Obligation Customer Name Agreement Number Expenditure Category Expenditure Type Revenue Category Cost Rates and Mark up Percentage Top Task Number

29 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 As discussed earlier, The progress has to be captured at the least level where the delivery of work can be confirmed. Such progress from the revenue distribution lines will be summarized at individual performance obligation line level. For time & material or Cost plus projects, where typically work is defined as revenue method, Expenditure Type and Expenditure Category from Revenue Distribution lines are mapped to the Performance Obligation lines. For fixed bid projects, where revenue method will be cost or event, Top Task from Revenue Distribution lines are mapped to the individual Performance Obligation lines For unit rate based contracts, SOV lines are mapped to the performance obligation lines. 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

30 Progress of Performance Obligation
Oracle Confidential – Internal/Restricted/Highly Restricted Progress of Performance Obligation For RMCS integrated projects, Progress is reported only through Satisfaction events these satisfaction events are created in Projects to report Progress Progress should be in terms of Either Percentage or Quantity Quantity is for Quantity based Pobg And percentage is for currency based PObg

31 Recognize Revenue on Satisfied Performance Obligation
Revenue should be based on the approved progress against the performance obligation Rates (Transaction price) from the Performance obligation should be applied to approved progress quantities to generate revenue Contract Asset and Liability balances to be reflected as per ASC 606 and IFRS 15 For Bundled contracts the revenue for individual obligations should be recognized considering the overall contract discount Revenue is derived based on approved progress coming from Projects through Satisfaction events against performance obligations Against such approved progress the transaction price will be applied to generate revenue Then the entries to the tune of revenue recognized will be posted on Contract Asset & liability accounts to reflect the current position after revenue In case of Bundled contracts, the overall contract discount is considered while the revenue is recognized against each performance obligation line.

32 Integration to Cloud Revenue Management
In RMCS, a contract will be created with a combination of Project & Agreement Under this contract, the individual performance obligation lines are created with the same combination of Project & Agreement Progress against each performance obligation line will be passed to RMCS in terms of Satisfaction events. Whatever revenue that is calculated in projects will not be interfaced to RMCS. 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

33 Revenue Management ASC 606 and IFRS 15 Compliance Automation
ERP CLOUD Cloud Service order, billing, & fulfillment data Cloud Service General Ledger Revenue Management ASC 606 and IFRS 15 Compliance Automation The Standard’s Five Steps to Revenue Third party and On Premise (EBS) Sales Cycle Data EBS General Ledger

34 Questions? Revenue Management Thank you for joining us today!
ERP CLOUD Thank you for joining us today! Cloud Service order, billing, & fulfillment data Cloud Service General Ledger Revenue Management ASC 606 and IFRS 15 Compliance Automation The Standard’s Five Steps to Revenue Third party and On Premise (EBS) Sales Cycle Data EBS General Ledger

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