Streamline revenue recognition compliance with NetSuite

The right financial management tools can help simplify the evolving complexities of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC)® Topic 606, Revenue Recognition (ASC 606).

To navigate these complexities, many companies rely on a menagerie of spreadsheets and disparate systems — a setup that could be detrimental to a company, particularly as it grows.

A cloud-based business management system like NetSuite, however, can provide ongoing compliance support, real-time revenue intelligence, and actionable data — whether a sale encompasses a single performance obligation, a series of obligations spanning a time period, or diverse obligations in a bundle.

Who must comply with revenue recognition standards?

Private companies may not need to be concerned with public reporting requirements. However, if your company is required to produce generally accepted accounting principles (GAAP) based financial statements, you will need to adopt ASC 606 and its compliance requirements if the business has:

• A bank loan
• Contracts with customers
• Vendors or other third parties requiring you to provide your financials
• Employee stock options

What are the benefits of NetSuite?

NetSuite offers several key benefits that can streamline your operations and support your business as it grows.

Compliance with evolving standards

NetSuite can help you comply with industry guidance and mandates for today and tomorrow.

NetSuite revenue management works seamlessly with multibook accounting to account for a single transaction under multiple standards.

Real-time revenue intelligence

The platform can also help you analyze actual revenue impacts as well as determine forecasts that dynamically respond to postings.

This can provide your company an updated expected revenue picture for future periods. In addition, it offers the ability to drill back into the source sales document or transaction.

Agile configuration

Another benefit of NetSuite is that it can help replace myopic financial solutions with a robust and nimble framework that supports your revenue management needs from end-to-end.

By creating fully customizable rules paired with predetermined triggers, recognition can occur on an automated, repeatable basis.

In-flight schedules can also be modified at any point to automate any upstream or downstream impacts from the change.

For a more comprehensive look at NetSuite’s benefits, read our article.

Track different revenue amounts and intervals

General sales transactions can involve a single action within a product or service, such as a tax return preparation by a CPA firm, for example, or a series of actions within a project with multiple milestones.

Whether an equal amount of revenue must be recognized at fixed intervals or different amounts must be recognized at different intervals, NetSuite revenue management can help with the process.

NetSuite revenue recognition capabilities

• Automate planning. Automatically schedule revenue to be recognized in the appropriate period, based on ASC 606. Reusable revenue rules can govern the triggers, creation, and commencement of a revenue plan associated to a sales transaction as well as the plan duration.
• Support multicurrency transactions. Verify that fluctuations in exchange rates are appropriately recorded for each period.
• Manage balance sheet accounts. Automatically adjust contract liability — also known as deferred revenue — and contract asset balances based on real-time billings and revenue data.
• View financials in real-time. Automatically post to the general ledger from revenue plans when it’s best for you.
• Forecast updates. Provide forecasting to accommodate revenue projection updates based on real-time business events, such as project plan updates or planned revenue withheld to a future period.

Meet multiple performance obligations

To meet ever-evolving customer needs, vendors often provide a bundle of multiple products or services. These obligations can be met at different times or over different periods of time.

When a contract exists for a vendor to perform multiple revenue-generating activities, the contract price for these arrangements must be allocated and measured in alignment with revenue recognition standards.

Industry guidance states how and when to separate elements within an arrangement for the performance or delivery of multiple products or services that occur over different points in time.

NetSuite provides robust and comprehensive configurable capabilities based on ASC 606 requirements, enabling systematic compliance for complexities associated with accurately managing revenue contracts.

Manage elements of revenue contracts

Here are some key NetSuite features that can help your company manage various elements of a contract under a revenue standard.

Flexible revenue contracts

This feature lets you gain an agile and accurate view of the revenue contract. Revenue arrangements are containers for revenue elements, also known as performance obligations, Revenue elements have individual attributes, such as revenue rule, revenue plan start and end dates, and revenue allocated amount.

Revenue elements can be merged across linked orders or contracts, or split into multiple arrangements, to accurately represent the revenue contract regardless of how the revenue source transactions are managed and billed.

Dynamic standalone selling price

NetSuite can help you facilitate the standalone selling price (SSP) — the price at which goods or services are sold to the customer — as either a constant or a dynamic formula.

Formulas can be based on information within other revenue elements — for example, an SSP for support based on a percentage of licenses within that contract.

Item revenue groups allow for items with identical requirements to share SSPs and eliminate duplication.

The ability to add user defined dimensions allows a single item or group of items to have multiple SSPs and meet stratification requirements.

Powerful allocation calculator

NetSuite’s allocation calculator can help you leverage fair-value prices and automatically allocate arrangement consideration across all elements within the arrangement.

This includes support for ASC 606/International Financial Reporting Standards (IFRS) 15 standards.

Receive multi-industry revenue recognition support

Companies have traditionally been required to follow industry-specific guidance for revenue generating activities relating to the licensing, selling, leasing, hosting, or marketing of products and services as specified in various preceding revenue recognition standards.

ASC 606, however, includes principles that extend its requirements beyond the industries that have traditionally fallen under the guidance. These requirements encompass multiple deliverables or elements, including software combinations with specified or unspecified enhancements, post-contract customer support, services, and additional licenses.

Industry-specific insight and automation

Nonautomated software requires accounting departments to recognize and defer revenue amounts separately because they have multiple elements with different delivery dates. This can be time-consuming and lead to operations errors.

NetSuite, on the other hand, provides a platform that accounts for and meets each industry’s revenue recognition requirements.

It also enables accounting departments to consider any contract under any revenue standard, for any given set of products and services, including supporting:

• Percentage-of-completion accounting. Support revenue accounting for projects leveraging percentage-of completion mechanisms.
• Event-driven revenue plans. Align revenue recognition with event triggers — for example, the fulfillment of an item, the generation of a bill against an order, or work beginning on a project. A single performance obligation can be associated with multiple plans to support partial fulfillments or billings.

Integrate multiple accounting standards

The globalization of business today is powered by several factors, including global capital markets, foreign direct investment, and economic interdependence.

To report financial results accurately within revenue recognition mandates based on multiple accounting standards, such as GAAP and IFRS, accounting departments worldwide can leverage a powerful multibook accounting engine that records and posts revenue-related activity to all books concurrently.

This eliminates data entry replication and manual intervention.

How NetSuite supports accounting standards

Netsuite helps companies remain compliant with changing accounting standards in the following ways:

• Fair value prices, revenue rules, plans, and arrangements. Automates concurrent posting to all books as business transactions occur in real time, versus after-the-fact posting or waiting until the end of the period to replicate data entry and post adjustments.
• Foreign currency management. Enables accounting departments to use book-specific foreign currencies when calculating the general ledger impact, including the realized and unrealized foreign currency gain/loss amounts per transaction.
• Financial Reporting visibility and automation. Makes real-time revenue visibility for any book, anywhere, anytime.