Revenue Recognition with KeyedIn Projects
Recent changes in Accounting Standards Codification (ASC) 606 has been put in effect to ensure revenue recognition practices across both public and private companies, particularly those that follow industry-specific guidance under US GAAP. Aerospace, defense, automotive, communications, engineering, construction, entertainment, pharmaceuticals, and technology industries are required to recognize revenue as it is earned rather than as it is accrued.
KeyedIn software helps organizations simplify business processes, improve performance and drive results through an innovative combination of SaaS business solutions. KeyedIn’s project management solution is a strategy-led approach that provides organizations complete powerful project accounting capabilities plus visibility into their projects, portfolios, and resources.
- KeyedIn Projects (KIP) users can measure milestones and hours worked against each contract to meet new IFRS-GAAP guidelines for revenue recognition reporting for private companies.
- Streamline how you recognize service delivery revenue, formerly spread over the life of your contracts, to meet new guidelines.
- Save time and money using project management software to capture expenses mid-flight to report revenue for an ASC 606 audit.
Challenges with Revenue Recognition Standards
YoIFRS 15 and US GAAP now provide a new model for recognizing revenue. The ASC 606 regulation requires that at the beginning of the contract, and at each reporting period, the entity must determine the amount of consideration to be entitled based on an exchange of a product or service. These considerations can be fixed or variable.
For most organizations and their internal professional services teams, like software implementation groups, this means that revenue recognized across a 36-month contract term, for example, must now be tracked based on how much of the contract has been consumed. This is a shift from common practice of evenly allocating revenue earned or recognizing all at once.
Practically speaking, finance groups for each part of the company must track milestones and hours against each contract each month.
An example of the challenge: A software firm contracts for implementation services worth $10K USD, the teams involved from the consulting side must have a way to evaluate their time and actions each month into the engagement. They might choose to do so according to hours against milestones and against a predetermined, specific value for activities. Previously, standard practice was that the accounting department would amortize the value of the contract by dividing the $10K by 12 months for a yearly contract and come up with $833 to book against the contract per month. But as of 2018, the rules for revenue recognition have changed. ASC 606 provides accounting guidelines related to revenue recognition from customer contracts.
Yet many professional services organizations do not have project accounting software that produces the information needed to meet ASC 606 guidelines. Finance teams get stuck in the weeds for hours monthly, taking spreadsheets from each department or division. Manual mistakes run rampant and it’s painful to run calculations based on spreadsheets from each department without having the supporting data you need to feel secure that you’re working with real numbers.Other challenges include:
- A lack of visibility against actual hours and milestones achieved when reporting methods are sometimes diverse across a single company.
- No integration with CRM and backend accounting systems for contract consumption.
- Siloed time and attendance systems provide limited clarity for financial audits.
Simple Solution: Benefits Realized in a Single System
- What are my services margins in real time?
- What front-end skills are most efficient as we employ resources against the contract?
- How can we bill appropriately to capture these efficiencies?
- How can I track data-points against the billable revenue that show cashflow fluctuations?