New regulations around how your business recognizes revenue are coming and everyone needs to be in compliance with the new standards by January of 2017. You need to understand the new regulations and your company needs to begin preparing for the shift. Here we look at an overview of the new requirements in order to help you answer the most pertinent questions: How do these changes affect you? What are the short and long term benefits? What does this all mean for your business?
In simplest form, the new regulations are about providing clearer, more detailed information about your company’s financial accounting practices. The new policies are also an important step towards more global principles of accounting and a move away from the industry or business-unit specific practices your company may be used to. In the long run these general standards will make compliance a simpler proposition but for now they are likely to involve significant changes from what you’re currently doing.
There are changes to the specific ways in which your company will now be allowed to recognize different types of revenue – and this will have a trickle-down effect on more than just your finance department. For instance, revenue recognition protocols could change fiscal quarter budget constraints and sales commission payouts. These changes also have potential to benefit you and your customers on a financial level, allowing you to recognize revenue sooner than you would have before. The important thing is for you to analyze your business processes in order to understand the full impact.
The changes to revenue recognition standards and reporting have a lot to do with more detailed financial reports. These will include being able to match costs to revenues effectively across your entire organization. Modeling the true cost of a revenue generator can be a complex task – particularly for companies that deal with subscription models, Saas products, or that long-term customer support plans. Keep in mind however that the new regulations are primarily designed to reduce fraud by making reporting simpler – not more complex. In preparation, prepare to take a deeper appraisal of your income statement to understand how to be in full compliance.
The bottom line is your SOPs will have to change and you’ll need tools to properly analyze the full impact of the proposed changes across your organization. Robust ERP software can be extremely handy in this regard because it’s able to coordinate data across functional areas and geographic offices to offer up-to-the-minute detailed analysis. To effectively model the changes’ impact you’ll need software that combines multi-book accounting with your revenue recognition sheets – this means a spreadsheet is likely no longer sufficient. And this is only the beginning of the story of how the new revenue recognition standards will affect your organization as a whole. To make these changes without losing significant productivity you’ll need to analyze how your front and back end departments integrate and are affected by revenue recognition. If you’re not in a position to understand your organization on a granular level like this, a change is likely called for and you need to get started now.
On the whole more thorough and more transparent financial reporting will be a good thing for everyone. Keeping your shareholders up-to-date and informed means keeping them happy. At the same time companies looking for funding will have an easier time conveying their key accounting data to potential investors and showcasing your financial health in a more transparent way. If you’re still confused, or want to hear more about how excellent ERP software can take your business to the next level, try a free trial!
