Confidential to aquarius consulting group Automating Revenue Deferrals and Revenue Recognition in...

Confidential to aquarius consulting groupwww.aquariuscg.com

Automating Revenue Deferrals and Revenue Recognition in Oracle

Presentation for NorCal OAUG Training Day

Date: January 19th, 2009

Track: Financials

Presented By:

Mark Aubin | Associate Partner

Ram Iyer | Senior Associate

@ aquarius consulting group llc.


2Slide #

agenda

introduction

revenue recognition | current practices

managing revenue recognition and deferrals in oracle financials

order to revenue accounting cycle | challenges the solution for Oracle case study

• SOP97-2 – residual method based revenue recognition on oracle

Q & A


3Slide #

about us

Founded in 2006 by experienced professional consulting executives and entrepreneurs

Boutique consulting firm with a global client base

Practice Areas: Billing and Revenue Recognition (BRM) Oracle Sales to Cash Consulting Solutions Program and Project Management

Industry expertise: Hi-Tech Manufacturing | product & services Online Media and Publishing Interactive Entertainment

Referencable industry leading global clients

Primary Office:

Silicon Valley

Redwood Shores, CA 94065

[email protected]

www.aquariuscg.com


4Slide #

aquarius + revStream

aquarius is a niche consulting firm specializing in billing and revenue management solutions; program management and post merger/acquisition integrations. aquarius brings extensive expertise in process design and implementation of sales to revenue solutions for online media and software/services industry. aquarius revStream solution is the only Oracle based solution to manage complex billing and revenue recognition business models.

revStream is a comprehensive custom solution developed by aquarius to address the complex billing and revenue recognition requirements for Hi-Tech product/services; online media and entertainment software industry. It essentially a billing and revenue automation engine and workbench that bridges the gap that exists in today’s major ERP systems


revenue recognition

current practices


6Slide #

fact

“Revenue recognition is the #1 reason for public high-tech companies to restate earnings – resulting in SEC

investigation, drop in market value & plunging investor confidence” – IDC, 2006


7Slide #

current practices | spreadsheets still rule!

92% of the public companies use spreadsheets for critical revenue recognition and reporting purposes – IDC 2006

Majority of ERP/financial IT infrastructure cannot automate all of your revenue recognition and reporting needs

57% of public companies finalize revenue numbers after month close vs 43% at close

Revenue recognition restatements wipe out on average 10% of a company’s market value according to a new study by Audit Analytics. The study measured market reaction from 50 days before until 50 days after the announcement

Source: revenuerecognition.com and IDC


8Slide #

what’s driving the need

SOP97-2 or EITF00-21 or EITF08-01 (June 15, 2010)

IFRS and/or US GAAP Reporting

Cumbersome Data File Management (all Revenue Calculations and Deferrals on Excel, Access, or Data Warehouses)

Internal Controls and Audit

High Audit Costs

Re-statements


managing revenue recognition and deferrals in oracle financials

Contract-to-Revenue Process: Key Challenges

The solution for Oracle

Case Study: SOP97-2 residual method revenue recognition


10Slide #

contract to revenue | challenges

Opportunity to Quote

Contracts Order to FulfillBill

to CollectRecognize

RevenueFinancial

Reporting

Account Mgmt, Sales & Contracts/Pricing Operations, Delivery and Billing/Revenue Mgmt

Period Close, Forecast and Financial Reporting

2 3 4

Financial Close

Complex and Evolving Revenue

Accounting SOP 97-2 or EITF 08-

01 or ??

Complex Multi-element deals Bundled deals; tiered pricing,

complex discounts

Receivables = Revenue

Billing not separate from revenue

Manual = Excel Spreadsheets

Offline data manipulation &

reporting

1


11Slide #

revenue accounting process | multiple touch points

Opportunity to Quote

Contracts Order to FulfillBill

to CollectRecognize

RevenueFinancial

Reporting

Account Mgmt, Sales & Contracts/Pricing Operations, Delivery and Billing/Revenue Mgmt

Period Close, Forecast and Financial Reporting

Financial Close

contract-to-revenue accounting cycle


12Slide #

critical revenue automation areas

Independent billing and revenue scheduling and processing Apply different revenue treatments and carve-outs based on Fair

Value/VSOE on elements within an order based on several different revenue recognition rules ex: residual method (SOP97-2) or revenue arrangements with multi-element deliverables (EITF00-21); contract accounting method (SOP81-1) recognition based on “relative selling price method” (EITF 08-01)

Perform “complete arrangement analysis” in a multi-element deliverable

Revenue scheduling based on business events (estimated and actual) and build revenue schedules to provide accurate and timely revenue forecasts.

Match COGS and expense deferrals to revenue deferrals Configure complex revenue recognition and billing rules ex: define

substantive rates and rule mapping for term or carve-outs Adjustments to original terms are frequent, requiring creating rebuilds

and revenue trueup/catchups Create distributions and post approved transactions to GL.


13Slide #

revenue recognition for Oracle ERP

In summary, our clients were seeking to automate revenue deferral and recognition with a solution that was scalable to growth, flexible for new business models and products, allowed compliance to evolving regulatory requirements, and delivered a low cost of ownership.

Introducing revStream Revenue and Billing Manager.

The ONLY revenue management solution for Oracle eBusiness Suite. Built entirely on the Oracle eBusiness Suite technology stack, it’s a sub-ledger module that fits within the Oracle eBusiness Suite portfolio.


14Slide #

major features and functionality

Business Process Driven Arrangement Analysis and Revenue Recognition Automated identification of transactions for revenue deferral Complete arrangement analysis Automatic application of revenue treatment and amortization rules Automatic application of multi-element carveouts and reclasses Transaction approvals and revenue holds

VSOE and Terms Maintenance Configurable Fair Value and VSOE matrices by multiple dimensions such as tier, customer type, service level,

region, etc. Complies with SOP 97-2, EITF00-21, EITF 08-1, EITF 09-3 requirements. Supports reapplication of VSOE to historical transactions for restatements.

Event based Revenue Recognition Automated acquisition and application of transaction events such as Execution, Shipment, Delivery, Installation,

and Customer Acceptance Forecasting based on estimated events. Allows manual event adjustments with automatic reapplication of revenue treatments.

Dynamic AutoAccounting Engine Org specific AutoAccounting to derive GL Code Combinations from numerous sources or defaults. Supports creating GL Distributions for US GAAP and IFRS reporting across multiple Sets of Books.

It is a part of the eBusiness Suite; a new subledger. revStream components use standard Oracle eBusiness Suite architecture: Oracle Forms, PL/SQL, Concurrent

Programs, Lookup Codes, Value Sets, etc. Uses Multi-Org structure and functionality. Uses common security components such as Responsibilities, Menus, Functions, Profile Options, and Request

Groups. Full native integration to oracle modules – no interfaces


15Slide # 15

BillingSchedule

BillingSchedule

15

revStream | separates billing from revenue in Oracle ERP

Opportunity to Contract Order to Fulfill

Create Opportunity

Create Opportunity

Configure PriceQuote

Configure PriceQuote Book OrderBook Order

Quote Approval

Quote Approval

1

Invoice, Rev Rec. to GL

GLGL

Invoices (AR)

Invoices (AR)

FulfillmentFulfillment

Create installed

base

Create installed

base

Customer& Deal InfoCustomer

& Deal Info Create Order

Create Order

Debit: ReceivablesCredit: Unearned RevenueDebit: ReceivablesCredit: Unearned Revenue

Load Revenue

Load Revenue

Review & Approve

Review & Approve

Transfer to GL

Transfer to GL

revStream: Revenue ManagerrevStream: Revenue Manager

OracleOracle

Other Systems

Other Systems

Other CRMOther CRM

revStreamrevStream (aquarius solution)(aquarius solution)

2

3

4

6 7 8

Debit: Unearned RevenueCredit: RevenueDebit: Unearned RevenueCredit: Revenue

Load Invoices

Load Invoices

Review & Approve

Review & Approve

Transfer to AR

Transfer to AR

revStream: Billing ManagerrevStream: Billing Manager

b c d

a

Create /Accept

Contract

Create /Accept

Contract

5

GLGL


Case Study: SOP97-2 residual method revenue recognition


17Slide # 17

primary contacts

Mark AubinAssociate Partner Phone: 310.766.8072 | Fax: 650.362.1967 | [email protected]

Rajiv ChopraManaging Partner Phone: 415.509.8213 | Fax: 650.362.1967 | [email protected]

Confidential to aquarius consulting group Automating Revenue Deferrals and Revenue Recognition in...

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