Practical Application for Transitioning to the New Revenue Recognition Standards

November, 15th 2016

Agenda

Workday Confidential

► The New Revenue Recognition Rules

► Strategies For Adoption with JDA

► Ease of Transition to the New Standards

► Q & A

Today’s Speakers

Brian SommerCEO

TechVentive

Richa DubeyProduct Strategy

Workday

Tammy CunhaSr. Director

Compliance and Reporting, Revenue

JDA SoftwareWorkday Confidential

Workday Confidential

• International Accounting Standards Board (IASB) and Financial Accounting Standard Board (FASB) are creating joint standards that will be followed globally by those who currently apply US GAAP or IFRS.

• Objectives of Revenue Recognition ‘Convergence’- Move back to ‘principles based’ accounting

- Standardize financial statement presentation; improve disclosures

- Simplify the volumes of revenue recognition guidance which must be referenced today

• Eliminate some industry specific guidance

Markets Converging

• Key Convergence Projects‒ Revenue Recognition

- Accounting Standards Codification (ASU) Topic 606 – Revenue from Contracts with Customers issued May, 2014

- Transition resource groups focused on transition issues / implementation guidance

‒ Leasing - ASU issued January , 2016

- Effective in 2018 for public entities, Effective in 2019 for non public

- Consider ‘Big bang’ approach to align the transition to the revenue standard

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New Revenue Recognition StandardsCore Principles

Step 1• Identify the contract with a customer

Step 2• Identify performance obligations

Step 3• Determine transaction price

Step 4• Allocate price to performance obligations

Step 5• Recognize revenue when obligations are satisfied

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Upcoming Deadlines

Company Deadline Calendar Scenarios

Public FY 2018 December 31st year end company = January 1st, 2018 / their FY 18

June 30th year end company = July 1, 2018 so their FY 19

Private FY 2019 December 31st year end company = Jan 1, 2019, their FY 19

June 30th year end company = July 1, 2019 their FY 20

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Transition Methods - Pros and Cons

>Full Retrospective• Restate prior periods in compliance with ASC 250 (Changes

in Accounting) • Cumulative effect of the change to retained earnings at the

beginning of the earliest period presented• Public companies – 5 year table

> Pro- Comparison of revenue financial information

> Con- Contracts presented will need to be restated- Contract review is substantial - 3rd party Resources needed- If contract was modified this adds a layer of complexity- May be difficult to find original contracts for acquired

company contracts- Immediate need for systems implementation for contract

attributes- Immediate WD Solution needed for reporting

>Modified Retrospective• Apply revenue standard to contracts not completed as of

effective date and record cumulative catch up• Required disclosure• Amount of each F/S line item affected in current period• Explanation of significant changes

> Pro- Contract review is substantially less then Full- No restatement of prior years required- More time for system implementation needs

> Con- Non comparison financial information- Perform dual reporting (two sets of books) the year of

adoption- Increased amount of disclosures then Full

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Phase I: Planning Q2 FY 16

Identify Internal Resources:- Tammy Cunha, Project Lead

- Project Manager: TBD - Establish Cross Functional Team

Evaluation of 3rd party Services

Phase II: AssessmentQ3 - Q4 FY 16

Establish Steering

Committee

Preliminary Policy Updates and

Business Practice Changes Proposed

System Evaluations:Apttus CPQWorkday

Phase III: AdoptionQ1 - Q4 FY17

- Finalize Policy Changes with Auditors

- Develop Training and Sales Enablement Programs

- Proforma financials/disclosures

Systems Implementations

Transition and Implementation Plan

• Who is involved in this transition process? • Cross Functional Team: IT, FP&A, Finance, HR, Legal, Sales Ops, Deal Desk, Tax, Procurement• Steering Committee: CFO/ CFO Staff, CIO, CAO, CEO Staff, General Counsel

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Deferred Revenue Impact

Deferred Revenue Types Expected Impact of New Revenue Standards

Explanation

Linkage – Unsigned Agreements/SOW No Change Evidence of arrangement not met

VSOE Deferrals Accelerated Revenue No longer defer for lack of VSOE. Determine the range of effective discounts to establish BESP

Cash Basis Accelerated Revenue Recognize up to the amount considered probable to collect based on historical experience.

Extended Payment Terms Accelerated Revenue Recognize up to the amount considered probable to collect based on historical experience. Payments > 365 days, reduce revenue and record interest expense for NPV of extended payments.

Future Functionality Accelerate except for portion of stand alone value of future functionality

Future product would need to be delivered for performance obligation to be met.

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JDA and Workday - Value Realized

Revenue Management Enhancements• Integrated Quote to Cash = SFDC, Apttus, WD

• Full transition to the new standards

• Multi Element Arrangements (MEA) Contract

Linkage

• Deferred revenue

• Scenario Modeling / Dual reporting

• All customer info and contracts in one / Self Service

outside of Accounting

• Ease of search

• Audit functionality and history

• Only Accounting had access to customer accounting information.

• Contract entry into system had many duplication-manual.

• Revenue Recognition took 2-5 hours during non business hours.

Before Workday

With Workday• Auto population of many contract attributes-

savings of approximately 30 minutes per contract. Decreased team by 2 employees.

• Revenue Recognition takes 25 minutes during business hours.

Simplify Transition to the New Revenue Standards with Workday

Model Policy Changes

• Create revenue rules based on the new revenue standards

• Create Alternate Contracts for those contracts with potential impact

• Run “what-if” scenarios to model what the impact of the new standard is on historical data

Meet Dual Reporting and Disclosure Requirements

• Automatically generate revenue adjustment accounting entries based on Alternate Contracts

• Generate financial statements and disclosures

• Transition to the new revenue standard / policy

Assess

• Migrate historical contract data

• Review current active contracts and identify contracts with potential impact

• Define contract sets

Complete Revenue Solution

Total Revenue Management

Manage the entire contract-to-cash lifecycle

for more efficient, accurate processing and

the simplest path to transition to the new revenue recognition

standards.

ContractCreation

Approvals Billing Amendment Renewals Audit and Reporting

Revenue Recognition

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• How to prepare:‒ Don’t misunderstand the time it will take to prepare ‒ Engage with your internal stakeholders early in the process‒ How to engage with your auditors:‒ Based on new rules, you will accelerate revenue recognition

When is it going to impact

• What to look for in a solution‒ Consider a solution that is an integral part of a financial software suite (not an external bolt-on)‒ Create and maintain unlimited what-if scenarios in the same accounting book‒ Supports revenue and expense recognition‒ Include capabilities that help you transition to the new standards

Takeaways as You Prepare to Transition

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Thank You!

Q & A

Brian SommerCEO TechVentive

Richa DubeyDirector, Revenue Product Strategy, Workday

Tammy CunhaSr. Director – Compliance and Reporting Revenue at JDA Software

Download Changing Revenue Recognition

Landscape Report

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