Revenue is a fundamental yardstick of a company's performance, and one of the most important metrics for investors in the capital markets. So it’s no surprise that the accounting standard boards have devoted significant resources to this topic, with a key goal of ensuring that companies use a consistent method of recognizing revenue.
Due to the myriad of revenue-generating transactions, and the divergent ways organizations recognize revenue today, the IFRS and FASB have been working for 12 years on a common set of accounting standards that apply to all industries in virtually all countries. Through their joint efforts on May 28, 2014 the FASB and IFRS released the IFRS 15 / ASU 2014-9 (Revenue from Contracts with Customers) converged accounting standard.
This standard applies to revenue in all public companies, but heavily impacts organizations in any industry that might have complex sales contracts with multiple distinct deliverables (obligations). For example, an auto dealer who bundles free service with the sale of a car can only recognize the service revenue once the owner of the car brings it in for work. Similarly, high-tech companies that bundle software licenses, consulting, and support services on a sales contract will recognize bundled service revenue once the services are delivered. Now all companies need to review their revenue for hidden bundling and implicit obligations.
Numerous time-consuming and judgmental activities must be performed to properly recognize revenue for complex sales contracts. To illustrate, after the contract is identified, organizations must identify and examine the distinct deliverables, determine the estimated selling price (ESP) for each deliverable, then allocate the total contract price to each deliverable based on the ESPs.
In terms of accounting, organizations must determine whether the goods or services have been delivered or performed to the customer’s satisfaction, then either book revenue in the current period or record a liability for the obligation if revenue will be recognized in a future accounting period.
"Oracle works very closely with our customers, the Big 4 accounting firms, and the accounting standard boards to deliver an adaptive, comprehensive, new generation revenue recognition solution,” said Rondy Ng, Senior Vice President, Applications Development. “With the recently announced IFRS 15 / ASU 2014-9, Oracle is ready to support customer adoption of the new standard with our Revenue Management Cloud,” said Rondy.
Oracle Revenue Management Cloud, an integral part of Oracle Financials Cloud, helps organizations comply with accounting standards, provides them with confidence that reported revenue is materially accurate, and simplifies the accounting process for revenue recognition.
Stay tuned to this blog for regular updates on Oracle Revenue Management Cloud. We also invite you to review our new oracle.com ERP pages @ oracle.com/erp. We will be updating these pages very soon with more information about Oracle Revenue Management Cloud.