Oracle RMCS and all

you want to know

about the new revenue
recognition standard
ASC 606/IFRS 15
Prepared by:
Mohammad Shaniaz
Islam
Your Pr e se nt er
Moha m ma d Sha ni a z Is l a m
Se ni or Co nsul t ant ( Ora c l e Fus ion
Clo ud Fi na nci a ls ) a t Er ns t & Young
LLP

•6 + ye a r s e xpe r i enc e in Ora cl e EB S

an d 2 Ye a r on C loud Fi na nc ia ls
Im ple m ent at ion , Supp or t an d Tes tin g

•Qua l ifi c at io n: M B A ( Fin an ce ) , B B A

( A cc ount in g ) , C M A ( Par t) , O ra c le
Ce r t ifi ed C ons ul ta nt

•Cou ntr i es wor ke d i n: B a ng l ad esh ,

Indi a & M a lay si a
 1.New revenue recognition standards

2.The 5-step-model to suppor t new

revenue recognition standards

Agenda 3.Transition and implementation

considerations

4.Managing your revenue with RMCS

5.Q& A
 The core principle of IFRS 15 is that revenue
is recognized when the goods or services are
t ra n s f e r r e d t o t h e c u s t o m e r, a t t h e
t ra n s a c t i o n p r i c e . A 5 - s t e p m o d e l f o r r e v e n u e
Tactical 5-step- recognition in accordance to core principles
are shown below
model to support
new revenue S t e p 1 – I d e n t i f y t h e C o n t ra c t w i t h c u s t o m e r

recognition S t e p 2 – I d e n t i f y S e p a r a t e Pe r f o r m a n c e
O b l i g a t i o n s w i t h c o n t ra c t s
standards S t e p 3 – D e t e r m i n e t h e Tr a n s a c t i o n P r i c e

S t e p 4 – A l l o c a t e t h e Tr a n s a c t i o n P r i c e

Step 5 – Recognize Revenue

Revenue Management Solution Approach
Revenue Management Process
Import Sales Related Data Overview of ETL
Why RMCS ?

1. D ef er red r even ue a cc oun t rep la ce d wi th per fo rm a nce obl ig at ion

a cc oun ti ng .

2. Iss ue wit h def er re d re ven ue a cc ount in g i s th at de fe rre d reve nu e wa s

c la ss ifi ed a s a l ia bi lit y, bu t i t did not m ee t th e d efi ni ti on of li ab il ity

3. You do n ot owe i t t o a ny body

4. You a re ju st si tt ing on it un ti l it is a ll owe d t o be re c og niz e d

Financial Standard of Revenue
Recognition

1. T h e c o r e p r i n c i p l e o f A S C 6 0 6 a n d I F R S 1 5 i s t h a t a n e n t i t y r e c o g n i s e s r e v e n u e t o
defeat the transfer of promised goods or ser vices to customers is an amount that
r e fl e c t s t h e c o n s i d e r a t i o n t o w h i c h t h e e n t i t y e x p e c t t o b e i n t i t l e i n e x c h a n g e f o r
those goods or services

2. A S C 6 0 6 : r e v e n u e f r o m c o n t r a c t w i t h c u s t o m e r s . I n t h e U S t h e r u l e w a s i s s u e b y
t h e fi n a n c i a l a c c o u n t i n g s t a n d a r d s b o a r d

3. Pe r h a p s t h e b i g g e s t d i ff e r e n c e b e t w e e n t h e o l d r e g u l a t i o n a n d t h e n e w i s t h a t y o u
n o w r e v i e w r e v e n u e a t i n c e p t i o n o f t h e s a l e s o r d e r. Yo u i d e n t i f y c o n t r a c t s a n d
per formance obligations without any dependencies on actual billing of the
customer
Revenue Management Features

1. A l l o c a t e r e v e n u e a c c o r d i n g t o p u b l i s h e d g u i d e l i n e s

2. Id e n t i fi e s a n d c r e a t e s c u s t o m e r c o n t ra c t s a n d p e r f o r m a n c e o b l i g a t i o n b a s e d
o n u s e r d e fi n e d r u l e s

3. P r o v i d e s u s e r d e fi n e d r u l e s f r o m c o n t ra c t i d e n t i fi c a t i o n t o r e v e n u e
a c c o u n t i n g g e n e ra t i o n

4. B o o k s r e v e n u e w h e n p e r f o r m a n c e o b l i g a t i o n i s s a t i s fi e d

5. P r o c e s s e s r e v e n u e i n d e p e n d e n t l y o f b i l l i n g

6. S i m p l i fi e s a n d a u t o m a t e s r e v e n u e a c c o u n t i n g a c r o s s p r o d u c t b u n d l e s
 What has changed: A Comparison

OBSOLETED DEFERRED REVENUE ACCOUNTING A D O P T E D P E R F O R M A N C E O B L I G AT I O N A C C O U N T I N G

You deferred that part of sales invoice you can not recognize as You accrue for good and services that you Owe to customers
revenue because either you or they have relied on the contract. You no
longer defer revenue

You value the deferral at fair value and it is non monetary You value the accrual at estimated consideration and it is a
monetary debt

You calculate and book liability when you issue invoices You calculate the liability at inception and book it when either
party acts. An act could be shipping or invoicing

Liability is a list of invoices not yet posted to P&L in full or partial Liability is a list of goods and services you actually owe to
for future release to the P&L customers for future satisfaction via transfer

You book the invoiced amount to the P&L when you meet the You book the invoiced amount to the P&L when you satisfy the
regulatory definition by the industry customer with no industry specific rules bill or not billed
 Contract Structure

Source Documents Accounting Contracts

Source Document Lines Performance Obligations

Source Documents Sub Lines Promised Details

Satisfaction Events
 What is a Performance Obligation?

A p r o m i s e i n a c o n t ra c t w i t h a c u s t o m e r t o t ra n s f e r t o t h e c u s t o m e r e i t h e r :

1. A g o o d s o r s e r v i c e s ( o r a b u n d l e o f g o o d s o r s e r v ic e s ) t h a t i s d i s t in c t o r

2. A s e r ie s o f g o o d s o r s e r v ic e s t h a t a r e s u b s t a n t i a l l y t h e s a m e a n d t h a t
h av e t h e s a m e p a t t e r n o f t ra n s f e r t o t h e c u s t o m e r

3. W h e n a c o n t ra c t is i d e n t i fi e d i n R M C S, e a c h l i n e i t e m i n t h e c o n t ra c t i s a
p e r f o r m a n c e o b l i g a t i o n , w h e n p e r f o r m a n c e o b l ig a t i o n i s s a t i s fi e d r e v e n u e
i s r e c o g n iz e d
 RMCS Accounting

Init i al Pe r for m a nce

C ont ra c t A ss et Dr

C ont ra c t L ia bil it y Cr

Per for ma nc e Ob li ga t i on Sa t is fi e d

C ont ra c t L ia bil it y Dr

Reven ue Cr

Per for ma nc e Ob li ga t i on Bi l le d

C ont ra c t C lea ri ng Dr

C ont ra c t A ss et Cr
Performance Satisfaction
Plans

Performance Satisfaction Plans

Create satisfaction plans to determine the number of periods and the amount of revenue to recognize in each period for a
performance obligation.

There are four types of satisfaction plans that you can create when the satisfaction measure model is Period.

1. Daily revenue rate, all periods: Prorate revenue recognition using a daily rate for all periods. This rule type requires that the rule start
date and end date be specified in the transaction data.

2. Daily revenue rate, partial periods

P r o r a t e r e v e n u e r e c o g n i t i o n u s i n g a d a i l y r a t e o n l y f o r p a r t i a l p e r i o d s . T h e w h o l e p e r i o d s a r e p r o r a t e d e v e n l y. T h i s r u l e
t y p e r e q u i r e s t h a t t h e r u l e s t a r t d a t e a n d e n d d a t e b e s p e c i fi e d i n t h e t r a n s a c t i o n d a t a .

3. Fixed schedule

4. P r o r a t e r e v e n u e r e c o g n i t i o n o v e r a p r e d e fi n e d n u m b e r o f p e r i o d s a n d p r e d e fi n e d p e r c e n t a g e s o f t h e r e v e n u e
amount. For example, you can specify three periods for 30 percent, 30 percent, and 40 percent.

5. When you use this rule, the application derives the duration from the rule.

6. Va r ia bl e s ch edu le P r o rat e r ev en u e r e co gn i ti o n ov er a n u mber o f per i o ds . T h is r u le ty pe r equ ir es t h a t t h e r u le

s t a r t d a t e a n d e n d d a t e b e s p e c i fi e d i n t h e t r a n s a c t i o n d a t a .