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Is Your Company Prepared for the Upcoming Revenue Recognition Changes?
Copyright © 2016, Oracle and/or its affiliates. All rights reserved. |
Safe Harbor Statement
The following is intended to outline our general product direction. It is intended for information purposes only, and may not be incorporated into any contract. It is not a commitment to deliver any material, code, or functionality, and should not be relied upon in making purchasing decisions. The development, release, and timing of any features or functionality described for Oracle’s products remains at the sole discretion of Oracle.
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Program Agenda
Business problem
Solution
Contract and Service Billing and Project Costing Enhancements
Invoicing Enhancements
Capabilities – Current and Planned
Summary
1
2
3
6
5
4
3
Copyright © 2016, Oracle and/or its affiliates. All rights reserved. |
Program Agenda
Business problem
Solution
Invoicing Enhancements
Contract and Service Billing and Project Costing Enhancements
Capabilities – Current and Planned
Summary
1
2
3
6
5
4
4
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Business Problem
• Current processing of invoices recognizes the revenue at the time the invoice is posted
• Business processes and industry standards require the recognition of revenue separate from the invoice process
• New Revenue Recognition Standard to be in effect in 2018 has requirement to only recognize revenue when the performance obligation is complete – Convergence of IFRS and US GAAP revenue recognition standards
– Created via a collaboration between the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB)
– Replaces all existing revenue recognition standards
– All Industries and Countries • Exceptions are the Insurance and Lease Vendor industries
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Why did this change occur?
The Financial Accounting Standards Board and the International Accounting Standards Board initiated a joint project to clarify the principles to recognize revenue and develop a common revenue standard for U.S. GAAP and IFRS that would: – Remove inconsistencies in revenue requirements.
– Provide a more robust framework for revenue.
– Standardize practices across entities, industries, and jurisdictions.
– Provide more useful information through improved disclosures.
– Simplify the preparation of financial statements.
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Revenue Recognition Accounting Standard – High Level
The core principle as stated from IFRS is to
“Recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled
to exchange for those goods or services.” Here are the basic steps outlined related to this new standard:
1. Identify the contract(s) with the customer. 2. Identify the separate performance obligations. 3. Determine the transaction price. 4. Allocate the transaction price. 5. Recognize revenue when a performance obligation is satisfied.
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Over the Counter Sales Use Case
• Goods or services are received
• Payment made at the point of sale
• Transactions finalized in ERP system
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Over the Counter Sales Use Case
Customer purchases widgets at a retail store
Customer takes possession of the widgets and pays for them at the store
July 3
Performance Obligation Satisfied
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Over the Counter Sales Use Case
Customer purchases widgets at a retail store
Customer takes possession of the widgets and pays for them at the store
Invoice created for transaction
July 3
Performance Obligation Satisfied
10
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Over the Counter Sales Use Case
Customer purchases widgets at a retail store
Customer takes possession of the widgets and pays for them at the store
Invoice created for transaction
Revenue and COGS amounts booked
July 3
Performance Obligation Satisfied
Revenue and COGS
Recognized
11
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Over the Counter Sales Use Case
Customer purchases widgets at a retail store
Customer takes possession of the widgets and pays for them at the store
Invoice created for transaction
Revenue and COGS amounts booked
Payment created for transaction
July 3
Performance Obligation Satisfied
Revenue and COGS
Recognized
12
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Over the Counter Sales Use Case
Customer purchases widgets at a retail store
Customer takes possession of the widgets and pays for them at the store
Invoice created for transaction
Revenue and COGS amounts booked
Payment created for transaction
July 3
No Changes Required to Current Business Process or
Accounting Entries
Performance Obligation Satisfied
Revenue and COGS
Recognized
13
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Shipping of Goods to Customer Use Case
• Sales Order for goods that will be shipped a long distance to the customer
• Customer is invoiced at the time of shipment
• Customer takes advantage of the discounts available and pays prior to receiving the shipment
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Shipping of Goods to Customer Use Case
Agreement made between supplier and
customer for the sale of widgets
July
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Shipping of Goods to Customer Use Case
Agreement made between supplier and
customer for the sale of widgets
Sales Order Created
July August
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Shipping of Goods to Customer Use Case
Agreement made between supplier and
customer for the sale of widgets
Sales Order Created
Widgets Shipped to Customer
July August
17
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Shipping of Goods to Customer Use Case
Agreement made between supplier and
customer for the sale of widgets
Sales Order Created
Widgets Shipped to Customer
Invoice created
July August
18
Current Process -Revenue and COGS
Recognized
New Standard Performance Liability for
Revenue and COGS
Copyright © 2016, Oracle and/or its affiliates. All rights reserved. |
Shipping of Goods to Customer Use Case
Agreement made between supplier and
customer for the sale of widgets
Sales Order Created
Widgets Shipped to Customer
Invoice created
Customer pays the invoice
July August
Current Process - Revenue and COGS
Recognized
New Standard Performance Liability for
Revenue and COGS
19
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Shipping of Goods to Customer Use Case
Agreement made between supplier and
customer for the sale of widgets
Sales Order Created
Widgets Shipped to Customer
Invoice created
Customer pays the invoice
Supplier receives payment
July August
20
Current Process - Revenue and COGS
Recognized
New Standard Performance Liability for
Revenue and COGS
Copyright © 2016, Oracle and/or its affiliates. All rights reserved. |
Shipping of Goods to Customer Use Case
Agreement made between supplier and
customer for the sale of widgets
Sales Order Created
Widgets Shipped to Customer
Invoice created
Customer pays the invoice
Supplier receives payment
Customer receives widgets and notifies supplier they have
accepted them
July August September Performance
Obligation Satisfied
21
Current Process -Revenue and COGS
Recognized
New Standard Performance Liability for
Revenue and COGS
Copyright © 2016, Oracle and/or its affiliates. All rights reserved. |
Shipping of Goods to Customer Use Case
Agreement made between supplier and
customer for the sale of widgets
Sales Order Created
Widgets Shipped to Customer
Invoice created
Customer pays the invoice
Supplier receives payment
Customer receives widgets and notifies supplier they have
accepted them
Performance Liability is cleared and the Revenue and COGS amounts are
booked
July August September
New Standard Revenue and
COGS Recognized
22
Current Process - Revenue and COGS
Recognized
New Standard Performance Liability for
Revenue and COGS
Performance Obligation Satisfied
Copyright © 2016, Oracle and/or its affiliates. All rights reserved. |
What should I do next?
• If you haven't already started, begin to discuss the new Revenue Recognition standards with your auditors or other trusted advisors in order to analyze how these changes will impact your company.
• As well, continue to review the periodicals that many of the audit companies are publishing, in order to stay current with this information.
• Begin to analyze your company's revenue related transactions, as well as their impending exposure to these new standards.
• As you begin to better understand how your transactions need to be handled going forward, continue to educate yourself with how the JDE software enhancements will enable this change.
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Program Agenda
Business problem
Solution
Contract and Service Billing and Project Costing Enhancements
Invoicing Enhancements
Capabilities – Current and Planned
Summary
1
2
3
6
5
4
24
Copyright © 2016, Oracle and/or its affiliates. All rights reserved. |
JD Edwards Revenue Recognition Solution
• Software changes are required!
• Updates available and planned
– EnterpriseOne 9.1, 9.2
–World A93.1 and A94
• Key challenges for revenue managers
– Identify customer contracts
– Identify the separate performance obligations
– Determine the transaction price
– Allocate the transaction price
– Recognize revenue when a performance obligation is satisfied (Our focus)
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Copyright © 2016, Oracle and/or its affiliates. All rights reserved. |
Program Agenda
Business problem
Solution
Contract and Service Billing and Project Costing Enhancements
Invoicing Enhancements
Capabilities – Current and Planned
Summary
1
2
3
6
5
4
26
Copyright © 2016, Oracle and/or its affiliates. All rights reserved. |
Contract Billing
Contract created with terms and conditions for invoicing and
revenue
• Identify customer contracts
• Identify the separate performance obligations
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Contract Billing
Contract created with terms and conditions for invoicing and
revenue
Costs charged to jobs
Recurring Process
• Determine the transaction price
• Determine the transaction price
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Contract Billing
Contract created with terms and conditions for invoicing and
revenue
Costs charged to jobs
Costs from jobs added to contracts
Recurring Process
• Allocate the transaction price
New! Summarize Unit Price
and Lump Sum amounts by subledger
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Copyright © 2016, Oracle and/or its affiliates. All rights reserved. |
Contract Billing
Contract created with terms and conditions for invoicing and
revenue
Costs charged to jobs
Costs from jobs added to contracts
Adjustments made to contract and invoice
Recurring Process
New! Adjustments to Stored Material
by subledger
30
Copyright © 2016, Oracle and/or its affiliates. All rights reserved. |
Contract Billing
Contract created with terms and conditions for invoicing and
revenue
Costs charged to jobs
Costs from jobs added to contracts
Adjustments made to contract and invoice
Invoicing / Revenue
Recognition
Recurring Process
New! Detailed revenue
recognition posting report
• Performance obligations met
• Revenue recognized
31
Copyright © 2016, Oracle and/or its affiliates. All rights reserved. |
Contract Billing
Contract created with terms and conditions for invoicing and
revenue
Costs charged to jobs
Costs from jobs added to contracts
Adjustments made to contract and invoice
Invoicing / Revenue
Recognition
Customer pays the invoice
Payment received
Recurring Process
32
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• Ability to summarize Unit Price and Lump Sum contract billing transactions by subledger
• Ability to make adjustments for Stored Material for Lump Sum invoices • Reporting changes
• Ability to pass G/L Date from R48131 to R48132 • Detailed revenue recognition posting report
Contract and Service Billing Key Features
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• Identify multiple performance obligations within a single project/job • Run Profit Recognition process by performance obligation • Make adjustments by performance obligation
Job Cost Key Features
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Project Costing
Job 1 – Executive Building Phase I - Excavation
Tower 1 excavation Tower 2 excavation
Phase II - Foundation Tower 1 foundation Tower 2 foundation
Phase III - Framing Tower 1 framing Tower 2 framing
% Complete Revenue Cost
RPO 1: Tower 1 % Complete Revenue Cost
RPO 2: Tower 2 % Complete Revenue Cost
Multiple performance obligations in a single job Revenue Performance Obligations (RPO): Tower 1 & Tower 2
One performance obligation for each job Performance Obligation: Executive Building
Job 1 – Executive Building Phase I - Excavation
Tower 1 excavation – RPO 1 Tower 2 excavation – RPO 2
Phase II - Foundation Tower 1 foundation – RPO 1 Tower 2 foundation – RPO 2
Phase III - Framing Tower 1 framing – RPO 1 Tower 2 framing – RPO 2
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Copyright © 2016, Oracle and/or its affiliates. All rights reserved. |
Program Agenda
Business problem
Solution
Contract and Service Billing and Project Costing Enhancements
Invoicing Enhancements
Capabilities – Current and Planned
Summary
1
2
3
6
5
4
36
Copyright © 2016, Oracle and/or its affiliates. All rights reserved. |
Sale of Goods – Planned Shipment
Agreement made between supplier and customer for the sale
of widgets
• Identify customer contracts
37
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Sale of Goods – Planned Shipment
Agreement made between supplier and customer for the sale
of widgets
July August
Sales Order Created
• Identify the separate performance obligations
• Determine the transaction price
• Allocate the transaction price
38 38
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Sale of Goods – Planned Shipment
Sales Order Created
Widgets Shipped to Customer
July August
39
Agreement made between supplier and customer for the sale
of widgets
39
Copyright © 2016, Oracle and/or its affiliates. All rights reserved. |
Sale of Goods – Planned Shipment
Sales Order Created
Widgets Shipped to Customer
Invoice created
July August
New! Performance Liability for
Revenue and COGS
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Agreement made between supplier and customer for the sale
of widgets
40
Copyright © 2016, Oracle and/or its affiliates. All rights reserved. |
Sale of Goods – Planned Shipment
Sales Order Created
Widgets Shipped to Customer
Invoice created
July August
New! Performance Liability for
Revenue and COGS
Performance liability accounting •Configuration to include or exclude invoices •Automated evaluation at all invoice entry points •Recognition of revenue or performance liability
41
Agreement made between supplier and customer for the sale
of widgets
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Copyright © 2016, Oracle and/or its affiliates. All rights reserved. |
Sale of Goods – Planned Shipment
Sales Order Created
Widgets Shipped to Customer
Invoice created
July August
Revenue Performance
Liability COGS Performance
Liability Cost of Goods Sold
$ 200.00 $ 175.00
New! Performance Liability for
Revenue and COGS
Accounting:
Performance liability accounting •Configuration to include or exclude invoices •Automated evaluation at all invoice entry points •Recognition of revenue or performance liability
42
Agreement made between supplier and customer for the sale
of widgets
42
Copyright © 2016, Oracle and/or its affiliates. All rights reserved. |
Sale of Goods – Planned Shipment
Agreement made between supplier and customer for the sale
of widgets
Sales Order Created
Invoice created
July August
Customer Pays invoice
Receive Payment
43
Widgets Shipped to Customer
43
Copyright © 2016, Oracle and/or its affiliates. All rights reserved. |
Sale of Goods – Planned Shipment
Agreement made between supplier and customer for the sale
of widgets
Sales Order Created
Invoice created
July August September
Customer Pays invoice
Receive Payment
Customer receives
shipment
44
Widgets Shipped to Customer
Performance Obligation Satisfied
44
Copyright © 2016, Oracle and/or its affiliates. All rights reserved. |
Sale of Goods – Planned Shipment
Agreement made between supplier and customer for the sale
of widgets
Sales Order Created
Invoice created
July August September New Standard! Revenue and
COGS Recognized
Customer Pays invoice
Receive Payment
Customer receives
shipment Revenue
Recognized
Performance Obligation Satisfied
45
Widgets Shipped to Customer
45
Copyright © 2016, Oracle and/or its affiliates. All rights reserved. |
Sale of Goods – Planned Shipment
Agreement made between supplier and customer for the sale
of widgets
Sales Order Created
Invoice created
July August September
Revenue Performance
Liability COGS Performance
Liability Cost of Goods Sold
$200.00 $175.00
$200.00 $200.00 $175.00 $175.00
Accounting:
New Standard! Revenue and
COGS Recognized
Customer Pays invoice
Receive Payment
Customer receives
shipment Revenue
Recognized
Performance Obligation Satisfied
46
Widgets Shipped to Customer
46
Copyright © 2016, Oracle and/or its affiliates. All rights reserved. |
Program Agenda
Business problem
Solution
Contract and Service Billing and Project Costing Enhancements
Invoicing Enhancements
Capabilities – Current and Planned
Summary
1
2
3
6
5
4
47
Copyright © 2016, Oracle and/or its affiliates. All rights reserved. |
Current
• Configuration to include or exclude invoices
• Evaluation of configuration at all invoice entry points
• Recognize all revenue amounts • Recognize all, less, or more of COGS
amounts • Remove an invoice from the process • Batch and interactive process to add
invoice to process
Future
• Recognition of less, more, of none of the revenue amounts
• Reversal of a previous recognition • Integrity processes • Reconciliation of Revenue Recognition
Data • Audit Processes
Invoicing Process Enhancements Capability Availability
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Current
• Ability to summarize Unit Price and Lump Sum contract billing transactions by subledger
• Ability to make adjustments for Stored Material for Lump Sum invoices
• Reporting changes – Ability to pass G/L Date from R48131 to R48132 – Detailed revenue recognition posting report
• Identify multiple performance obligations within a single project/job – Profit Recognition process by performance obligation – Adjustments by performance obligation
Future
• Transition to new standard: Allow Profit Rec to run at a different level for jobs
• Calculate Project Final amounts (HA/HU Ledgers) and run Profit Rec by subledger
• Change requests for T&M and Fee billing lines • Track contract amounts related to change orders • Performance Liability Account amounts visible in
Contract Status Inquiry application
Contract and Service Billing/Project Costing Enhancements Capability Availability
49
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Program Agenda
Business problem
Solution
Contract and Service Billing and Project Costing Enhancements
Invoicing Enhancements
Capabilities – Current and Planned
Summary
1
2
3
6
5
4
50
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Summary
• These enhancements allow our customers to: –Comply with Revenue Recognition Accounting Standards and Business
Processes
–Minimize the impact on current business processes
–Minimize the impact on current users
–Utilize additional flexibility for our Contract and Service Billing and Project Costing modules
–Set up the new processes based upon their business processes and needs
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Additional Information
• Frequently Asked Questions - link
• JD Edwards Implementation Guides for 9.1 - link
• Financial Accounting Standards Board (FASB) - link
• International Accounting Standards Board (IASB) - link
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JD Edwards Resource Library
Resources at your fingertips: • Oracle.com • Product Catalog • Technical Catalog • My Oracle Support • Oracle University • Documentation libraries • White papers • Social media • Announcements • Licensing
All you need to remember is:
LearnJDE.com
Access resources that support:
• New enhancements • New initiatives • New install/upgrade processes • Applications by product area • Tools and Tech areas • EnterpriseOne and World
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