The New Revenue Recognition Standard is here, now what?

By Pete Graham, Director, Finance Solutions and Mobility, SAP

In May 2014, the International Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB) issued the new International Financial Reporting Standard (IFRS 15 / ASU 2014-09, ASC 606) which specifies the accounting guidance for revenue recognition. This standard is truly a joint standard of the IASB and of the FASB.   The new standard becomes effective January 1, 2017 in countries adhering to US GAAP and to IFRS.  So, this new standard will impact many companies in every industry and many countries around the world (announcement).

SAP has been actively preparing for this change for several years.  In order to support our customers to be compliant with this new standard, we have now completed a multi-year development effort providing a new standard SAP solution: SAP Revenue Accounting and Reporting 1.0. It specifically addresses requirements derived from this new accounting standard but also generic requirements related to revenue recognition across various accounting principles.  This new solution is now in Ramp-Up.  SAP is rolling out the new solution internally and some scenarios are already being handled in a production environment.  SAP ERP Financials customers with current maintenance agreements will have access to the solution at no charge.

SAP Revenue Accounting and Reporting 1.0 was built from the ground up to handle the new revenue recognition regulation. A cross-functional team comprised of product development and corporate accounting met frequently while the standard was being written to analyze the standard and assess how best to design a new solution to cover the new requirements.  SAP also ran a co-innovation project with over 30 customers to gather input and requirements on the new regulation from our customers’ perspective.  The end result is a solution that automates the revenue recognition and accounting process and simplifies the tasks of revenue accountants in following the new accounting guidelines which are structured in the five following steps:

  1. Identify the revenue contract(s) (combine contracts)
  2. Identify the performance obligations in the contract
  3. Determine the transaction price
  4. Allocate the transaction price to the performance obligations of the contract
  5. Recognize the revenue when / as the performance obligations are satisfied.

SAP Revenue Accounting and Reporting manages revenue recognition from a Finance point of view. It decouples operational transactions from accounting. Thus, various operational transactions can be accounted together no matter where the operational data is processed. It literally translates operational transactions into accounting. The main requirement tackled by the new solution is the management and processing of so-called Multiple Element Arrangements. It is now possible to automatically determine these Multiple Element Arrangements from an accounting perspective based on a flexible rules framework. Additionally, accountants have the ability to change the way of how revenues are allocated and recognized manually based on given customer arrangements. SAP Revenue Accounting and Reporting is able to deal with multiple accounting principles and their specifics in revenue recognition and presentation. It also provides analytics for revenue accounting to address legal disclosures and management reporting.

SAP Revenue Accounting and Reporting can also handle multiple accounting standards offering additional flexibility to customers.  And because SAP’s corporate accounting group provided direct feedback to the product development team, the solution was built holistically considering the requirements of revenue accountants even going into the details of transitioning to the new standard.

So what is your call to action?   Brush up on the new standard.  Schedule a meeting with your auditor to discuss the new regulation. Develop a plan to assess your revenue contracts with customers.  Put a project team together. Start evaluating transition options. Listen to the Game Changers Radio show call on September 23, 2014 at 12 PM Noon EST to learn more about the revenue recognition topic. And if you want more information in the future then please check out this link.

 
Pete Graham Bio

 

Three Steps to Transform into a “New” Finance Organization

Coffee-break with GameChangers

If you’re not innovating, you’re falling behind. This is true for any industry, but especially finance. The question is how to successfully manage change. It’s easy to get lost in many moving parts and lose sight of the original goal. What steps can you take to adopt innovative practices and remain as efficient as possible? Panelists Rob Kugel, research director at Ventana; Renee Ford, a managing director in Accenture’s SAP practice; and Birgit Starmanns, a senior director in marketing for finance solutions at SAP discuss the prospects of financial innovation – and how to get there – in a recent SAP Game Changers radiocast.

Step 1: Ditch spreadsheets where appropriate

Kugel dives into travel and expense reporting as a prime example of an area made unbearably tedious by Excel spreadsheets. The task is time-consuming for the traveler and just as laborious for the business. He says now is the time to find solutions.

“Software has the ability to be our personal assistant to speed and improve the effectiveness of enterprise processes.” Kugel’s research shows that companies relying heavily on spreadsheets take two days longer on average to close books than companies that use them infrequently. Why?

  • Lack of flexibility means spreadsheets don’t lend themselves to data visualization
  • Time-consuming and error-prone processes lead to mistakes that can affect decades of data
  • On-demand reporting now exists to quickly and accurately pull necessary information

Starmanns agrees, pointing out that by spending so much time consolidating Excel sheets, you’re missing the solid technology foundation that enables advanced analysis.

Step 2: Automate – for better or worse

Ford presents the automation conundrum with a quote from Bill Gates: “The first rule of any technology used in a business is that automation applied to an efficient operation will magnify the efficiency. The second rule is that automation applied to an inefficient operation will magnify the inefficiency.”

She advocates adopting automation with an open mind as “organizations can use technology to highlight bottlenecks and in some cases where they are really conscious of it, it can propel them forward.” In her opinion, automation should advance finance to a point where the finance function is contributing to the overall organization.

Step 3: Consider your people above all else

Starmanns asserts that “A huge part of implementing any new technology is really that change management piece, and it’s all about communicate, communicate, communicate. Some folks will be more comfortable and can hit the ground running and others… they are almost afraid.”

Ford echoes this sentiment, cautioning that technology is just one piece of the puzzle – it means nothing without capable minds to operate it. It’s important to make sure your workers are ready for the change that’s happening – and prepared to take on the change. You should decide where they need to be with technology proficiency and then get them up to speed.

As tech-savvy millennials start taking on more prominent roles in finance, the panelists think software adoption should become more rapid and intuitive, paving the way for prolific innovation.

Is your finance organization equipped to take these steps? Listen to the full radiocast to learn more.

Three Ways to Advance Your Finance Operations

Coffee-break with GameChangers

Can a Finance department become more effective – even strategic to the business – through the applied use of innovative technologies? While many field experts say “yes,” Finance lags other corporate functions in technology adoption. Panelists on a recent SAP Game-Changers radiocast agree and suggest three promising technology-inspired alternatives to business-as-usual:

  1. In-memory computing for up-to-the-minute financial and operational data
  2. Cloud technology for quick implementations
  3. Analytics and enterprise mobility innovations for combined company and market information

So why have Finance departments made so little progress? Have they not found the right software or are tight budgets the issue? Panelists Bill Sinnitt, senior director of research for Financial Executives Research Foundation; John Steele, principal in Deloitte Consulting’s technology service area and leader in the SAP finance transformation practice; and SAP’s Birgit Starmanns, senior director in marketing for finance solutions, discuss these alternatives.

Leveraging in-memory computing and the SAP HANA platform

The SAP HANA platform, Steele notes, has democratized information, changing how information is gathered and what types are gathered. “I’ve never been more excited to be a practitioner in the whole finance and technology arena,” he says. “Over the last two years [companies have] moved their transaction processing …over into in memory. This is one of the most fundamental shifts that I have ever seen and it pulls together your analytical and transactional information into one common platform.” He then underscores the significant benefits of this shift:

  • Instant visibility into the organization
  • Greater focus on data quality
  • More time to focus on business processes through integrated planning

Getting comfortable in the cloud

SAP’s Birgit Starmanns explains that Finance has an obvious interest in the cloud, but many organizations are hesitant to put all their data there. For now, larger companies are cautiously migrating to the cloud with hybrid scenarios.

Smaller companies, on the other hand, are open to making a complete move to the cloud because, as Starmanns explains, “Lots of times they are using Microsoft Office applications to manage their business, so they are more ready because they don’t really have that historical larger footprint of an ERP system.”

Capitalizing on enterprise mobility and analytics

“You can never have enough analytics from business intelligence,” Sinnitt rationalizes.

With mobile devices playing an integral role in daily life, enterprise mobility has become a must for financial execs. The panelists examine some of mobile’s largest contributions:

  • Smoother and enriched order-to-cash processes
  • Enhanced forecasting and planning by putting the right information in the right hands
  • Greater insight from social data

All panelists agree that future CFOs will act as the catalysts for innovation. They predict that the next wave of advances will come in the form of visualization technology. Do you agree with this prediction? Listen to the full radiocast for more insights.

The Expanding Role of the CFO

From Steve Player, North America Program Director for the Beyond Budgeting Round Table (BBRT)

In my continuing interviews of chief financial officers, I am amazed at the breadth of their job responsibilities. In his excellent 2006 book Reinventing the CFO, my late colleague Jeremy Hope described seven keys roles that CFOs were playing. If he were writing an update today, he would likely find twice as many roles.

CFOs face a key challenge in selecting and focusing on a few strategic and tactical roles that provide true advantage for their firm. Examples of these roles include analysts and advisor such as providing customer profitability analysis, regulator of risk in effectively managing their firm’s risk, and warrior against waste in reducing non-value added costs. As the basics of accounting and cash flow are mastered, your team is freed to apply finance skills to areas of greater impact.

One of the most discussed technologies transforming the finance function is in-memory computing. With expected market growth of 43 percent per year, it’s fueling both business mobile applications and predictive computing.[i] The following three examples illustrate how in memory computing is being used to harness big data:

Businessman analyzing pie chart on digital tablet

CFOs are becoming deluxe dashboard designers – Many traditional finance organizations assist the operating units by providing key performance indicators (KPIs). While this role started out as all about the numbers, organizations have learned they need a balanced set of measures that are both physical and financial. This greatly expands potential KPIs but requires sharp design skills to avoid being overwhelmed by data volumes.

In-memory computing is helping Lenovo, the world’s second largest PC vendor meet this challenge using SAP HANA.[ii] This resulted in significantly faster processing as time to process 1.8 million contract records dropped to a few seconds. KPIs no longer exist only in the data warehouse— they can be changed on the fly and made available in multiple formats and geographies immediately. Lenovo also deployed self-serve reporting to the business – reducing the time to produce reports based on tens of thousands of rows to about 10 minutes, compared to 3 hours before.

CFOs are becoming collaborative customer advocates – Using HANA, Lenovo has shifted its KPIs to take a more customer focused approach. The old approach focused on internal measures. The new approach provides greater order visibility. It measures what customers are interested in such as requested receipt date rather than promised date. Using KPIs that better capture the voice of the customer provides a more effective collaborative improvement approach. Analysis can is also enhanced by overlaying customer profitability information (which will be discussed in a future blog).

CFOs are becoming innovative information integrators – In-memory computing is helping CFOs find more innovative ways to integrate information. For example:

  • Risk management is being improved by quickly analyzing large sets of social data. One insurance company uses a blend of structured and unstructured data to assess the validity of a claim. Are the witnesses to the claim also claimants in other cases? How well do the parties know each other? Are they connected on social networks? An integrated view of these connections can be the key to truly understanding fraud risk even as fraud tactics change frequently.
  • Supply chain coordination runs smoother when information is shared across the entire chain rather than just within a single organization. Sensors are providing far more data inputs to the supply chain. In-memory processing is required to handle these rapidly expanding data points.
  • Sales forecasting information is greatly enhanced by overlaying both multiple viewpoints of projected outcomes. These integrated views provide both consensus and outliers perspectives. Other external measures are also being compared to identify correlations to improve future projections.
  • Expense management can be expanded to an enterprise-wide basis regardless of enterprise size. With in-memory computing even as organization as large as Hewlett-Packard can improve the value provided by their financial analysts and enhanced decisions making (see here for a deeper look at their recent implementation of SAP HANA).
  • Integration of business planning is also enhanced by in-memory computing as it enables multiple types of data to be integrated (see also my earlier blog on the topic of business planning). Physical data can be combined with financial data to build predictive logic diagrams. Statistics can be applied to better understand cause-and-effect relationships. The ability to quickly and easily combine this information enables planning managers to more deeply understand where the organization is headed and what activities can shape the ultimate results.

This blog just begins to scratch the surface of what is coming. More uses are being added daily. CFOs with a solid understanding of in-memory computing will ensure their finance function can act with greater awareness, insight and agility.

Next week, I shall look at how these tools are enabling finance to become much more predictive and how that can improve your business.

 

[i] For more detail see the “Global In-Memory Computing Market 2014-2018” published by Research and Markets in Nov. 2013 at http://www.researchandmarkets.com/research/6cs4nz/global_inmemory

[ii] For more on Lenovo’s implementation of HANA see http://events.sap.com/sapphirenow/en/session/2441

and: http://www.sap.com/pc/tech/in-memory-computing-hana/customer-reviews.html

 

 

 

 

 

 

 

 

 

Performance, value and superior service…delivered in about 10 minutes!

I’m all for making things simpler. Why use one hundred words to say something you could do in just ten? That’s one reason I like this recorded presentation, which running at just under ten minutes is just enough time to give me the information that I need, without making it a laborious process. So, if you have ten minutes for a short break from your daily activity, then why not have a look at this new whiteboard describing how SAP solutions for LoB Finance can help organizations achieve financial excellence.

Accounts Payable goes Lean and Green

As someone currently building a ‘green’ house with solar panels and ground source heat pump, I’m all in favour of anything that cuts down unnecessary waste of resources and energy. So turning Invoice to Pay into a paperless process makes sense  – both in terms of sustainability and apparently cost.  Companies are already automating business processes. But for many, the invoice-to-pay process remains stubbornly manual. Even in globe-straddling enterprises using rich ERP platforms like SAP, the invoices arrive, get keyed into the system and eventually are filed in cabinets and warehoused in boxes. The process is repetitive, wasteful, and error-prone. It steals resources and time that could be spent on more strategic priorities. In most cases, the people responsible for managing the process cannot get the data needed to identify blocks and bottlenecks, and have little confidence that they can receive timely, accurate information on demand. 

Dolphin Corp, an SAP Partner that helps organizations make crucial business operations like data management, data archiving, accounts payable, accounts receivable and order management run better, has just published a new paper Accounts Payable goes Lean and Greenon how to makes ‘lean and green’ Accounts Payable process possible with an SAP-certified combination of technology, best practices and expertise, including:

  •  Capture: Integrating technology such as Optical Character Recognition (OCR), Imaging and e-Invoicing to ensure reliability, accuracy and timeliness of invoice data entering the process.
  •  Processing: Dolphin’s technology platform opens a host of opportunities to track and speed the process and control the workflow in line with the way you want your business to work. Dolphin’s applications for AP work within the SAP environment, rather than being bolted on from the outside, providing tighter integration and making them faster to implement and easier to use.
  • Analytics: The imperatives of the process and continuous improvement require easily accessible and actionable intelligence on the Accounts Payable process. Dolphin delivers customizable dashboard views for user-controlled data access and in-depth reporting and analysis.

The results are impressive. When Dolphin works with customers to optimize their Accounts Payable process and implement solutions such as OCR software and e-Invoicing, customers typically:

  • Improve operational productivity in the range of 30–80%
  • Reduce cost per invoice by 40–60%.
  • Take days out of the cycle for basic processing and exception handling
  • Reduce waste
  • Eliminate human error from data entry.

In the pursuit for excellence and driving down the cost of Finance, all of these are worth having. So if you’re not there yet, I’d encourage you to take a quick read as it may be a quick win for 2011.

Aberdeen show how to become Best in Class in Accounts Payable

By Joe Pacor

You can’t afford to ignore the knitting and for most finance folk that means the underlying transactions systems. Most often we view accounts payable (A/P) purely as a tactical function that ensures that our suppliers receive payments and only ever get interested in it if a supplier puts us on stop. But according to some research E-Payables 2010: The Strategic Value of Accounts Payable Automation, carried out by analysts Aberdeen some A/P departments are becoming what they term ‘Strategic’ and looking to improve visibility by eliminating paper-based processes and automating their back-office functions to open up new areas for cost savings, cash management and improved supplier relations.  

Integrating cash management and payment processes with a company’s banking partners can help reduce operating costs and strengthen compliance. The paper mentions SAP Bank Communication Management application, part of the SAP® ERP Financials solution, which helps companies meet this challenge by enabling efficient integration of financial systems with multiple banks. SAP streamlines the payment process, controls the release of payments for cash flow optimization and provides multiple approval levels and audit trails.

 That’s just one part of the answer though. Aberdeen say that the key to establishing effective business-to-business (B2B) collaboration lies in improving how trading partners are integrated – and how they share data. So an application such as the SAP® Information Interchange application by Crossgate, that delivers prebuilt business partner profiles that connect trading partners enabling fast, efficient B2B e-commerce and e-invoicing is clearly critical. But there’s another piece as well.  Processing vendor invoices in a timely, accurate and efficient process is critical to operating a well-run business. The SAP® Invoice Management application by Open Text does just that, helping companies manage invoice processing, meet critical payment and compliance deadlines, and avoid risks related to inaccurate business information.

Certainly such automation and integration is key to being ‘Best in Class’ in terms of efficiency and productivity where they were 83% more likely than their peers to receive invoices electronically and were 82% faster at processing invoices. When everyone’s still under the cosh to drive down the cost of finance, guess it shows that you just can’t afford to ingore this stuff.

Joe Pacor has led the management and successful SAP sale’s activities of business software solutions in the Enterprise Resource Planning Financials applications for nearly 15 years. Prior to joining SAP, Joe held financial management and analysis positions at Cardinal Health, Lehman Brothers, and Hitachi Corporation.