ROI of Cloud Accounting

Exploring The ROI of Cloud Accounting

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“What’s our ROI going to be?” If you’re considering moving your company’s accounting practices into the cloud, this is one of the top questions on your mind. You’re making a change to the way you manage your finances—and updating your technology is a big step in the right direction. But how can you be sure that your investment in a cloud-based solution is going to pay off and keep yielding returns?

Why the Cloud Delivers Faster Time to Value

A cloud environment, put simply, affords a growing business more agility and flexibility than any of their traditional alternatives. Consider the on-premise systems and boxed software programs that reside on your business machines (servers and PCs): they require you to maintain an IT infrastructure, which can be costly to establish and take care of. They’re costly from the get-go.

With cloud-based, Software-as-a-Service (SaaS) solutions, on the other hand, users access their apps, tools, and data over the internet. Their computing and delivery models make them inherently more cost-effective and scalable for long-term value. Take a look at these powerful stats:

  • Cloud application projects deliver 2.1x the ROI of on-premise ones, up 24% since 2012. (Nucleus Research)
  • Sage Intacct customers experience an average ROI of over 250%when switching to Intacct. (Sage Intacct)

Let’s take a closer look at what impacts the ROI of a cloud accounting solution:

Lower Implementation Costs

Cloud deployments, finds Nucleus Research, incur 63% lower initial consulting and implementation costs than on-premise ones. As we just stated, adopting a cloud accounting solution doesn’t require the purchase of new hardware and software licenses, or even the hiring of a skilled IT staff.

Moving financials to the cloud is a straightforward process for companies with basic infrastructures. They can upgrade to a best-in-class system without adding complexity to their tech environment. That means getting up to speed with web-based software is a faster, easier, and can provide results in a matter of a few short weeks—sometimes sooner.

Learn more in How Upgrading to the Cloud Lets You Hit the Ground Running.

Lower Maintenance Costs

According to Strategy&, the total cost of ownership for a cloud-based solution can be 50-60% less than for traditional solutions over a 10-year period. And Nucleus Research reports that on an ongoing basis, companies spend an average of 55% less on personnel to support cloud applications compared to on-premise deployments and they use an average of 91% less energy to boot.

These savings can be attributed to the cloud software vendors’ subscription model. Customers pay a per-user subscription fee for use of the software, hosting, and support, making the arrangement highly scalable as the company grows and adds new functionality and users. And vendor’s IT team—not your internal IT team—manages the upgrades, patching, user support, etc. It’s part of the service you pay for, enabling you to focus on building your business, not your IT systems.

“Automatic” Savings and Productivity Gains.

When your business replaces manual processes and workflows with automation, cost savings tend to follow naturally. Automating key financial and accounting processes is essential to saving time, increasing data accuracy, and ultimately, lowering costs. But don’t fail to take into account your employees’ ability to work from anywhere and on any connected device. And this includes users from the back office to the executive suite. There’s a great deal of ROI-supporting “power” in the real-time insights users can uncover 24/7. Take a more detailed look in How the Cloud Provides Real Time Insights for Real Time Decision Making.

Features and Functionality

Cloud-based software solutions are ideal for companies in the midst of growth. A cloud environment is an ecosystem that’s ready for evolution. Cloud accounting software suites typically come standard with core functionality that can be expanded as your business needs change—as your company takes on new clients, partners with more vendors, adds locations or product lines, etc. It’s easy to plug wew cloud accounting software modules into your existing workflow without a great deal of programming or “moving around” of data. This holds true for integrations, too, as cloud software is built with flexible APIs that enable seamless connecting of business systems.

The net result of this scalable product enhancement is that your business can grow without significant additional investments—and with each addition of new functionality, your team is able to add more value. Find out How Cloud Accounting Lets Users Take Control of Process.

Contact us to learn more about our cloud technology services and solutions.

Buy with Confidence in the Cloud

What Does It Mean to Buy with Confidence in the Cloud?

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Have you ever bought something, only to have buyers’ remorse? It’s a pretty terrible feeling—buying something, only to find out it didn’t hold up to your expectations or worse, feeling like you were the victim of a “bait and switch.” Maybe you made a decision without getting all of the facts, or maybe you were given information you thought to be accurate that turned out to be false (as discussed in our ‘Faux Cloud’ blog). Read more

ASC 606 Industry Considerations

Top Obstacles to Revenue Recognition Adoption for Healthcare Providers

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The healthcare industry in the United States is unique in many ways—for better and for worse. As the last country without centralized healthcare, providers and producers in the United States are still compelled to innovate and create new solutions that improve outcomes. However, the healthcare system in the US is also immensely complex, with many key players who have a say in how a patient works with a provider.

That said, providers enter into contracts with many of the third parties to provide services at different rates, and when entering with a contract to be paid by a government entity, the providers may be subject to retroactive adjustment. On top of this, some patients may not have a third-party payer and may not be able to pay, making collection unlikely.

ASC 606 Poses Challenges for Pricing and Contracts

This combination poses challenges for finance professionals throughout the healthcare continuum, and with new revenue recognition standards on the horizon, new challenges could manifest. A recent CFO Magazine article explored some of the problems that go into recognizing revenue at healthcare organizations, especially as it pertains to the third step: Determining the transaction price.

“There’s an especially wide diversity of provider types within the health-care system, including hospitals, health plans, physician practices, nursing facilities, and retirement communities. They all have specific nuances to them, and one size does not fit all” in terms of how they recognize revenue, says Venson Wallin, a managing director at BDO.

Consolidation, Diverse Revenue Streams, and the Recognition Challenges Ahead

Add on to this the consolidation of providers of varying services into larger health groups, and the financial professionals, legal team, and accountants will need to do a lot of work to understand and represent an ever-diversifying set of payments, contracts, and metrics.

“When trying to represent such diverse revenue streams in financial statements, health-care organizations will need to be careful to include appropriate supplemental disclosures and discussions to avoid inadvertently presenting misleading information,” according to a BDO alert on the subject.

Value Based Payment Initiative

With Boomers reaching retirement age and the expansion of Medicaid continuing, healthcare facilities accepting Medicare and Medicaid will need to play by the government’s rules. These rules, of course, include the new value-based payment initiative set up under the ACA. Under the value-based payment initiative, acute-care hospitals will receive variable payments based on the quality of care Medicare beneficiaries receive.

This shift poses its own challenges, as value-based payments move payments away from a quantity-based fee-for-service model and toward a model where reimbursements are based on “episodes of care” in which services directed at fixing a medical problem are bundled together for billing purposes.

“The program presents health-care CFOs with the added difficulty of tracking a whole new set of quality metrics on top of the straight payment metrics of the existing fee-for-service,” according to Wallin. “What’s more, the quality metrics are likely to be different for the physician and nursing groups within an integrated health-care organization,” he says.

This, according to the CFO article, will make the estimation of the transaction price a challenge for CFOs.

Bracing for The Future: How Healthcare Organization Finance Departments Can Thrive in the Cloud

The new guidance will take effect three months from now for public companies and just over 15 months for private ones. While this change hopes to simplify the revenue recognition process across many different industries, the process of adapting to the new standards poses unique challenges as well. From shared savings arrangements to bundled payments to self-pay (first-party) patients, healthcare providers have to look at services and revenue in a new light.

No matter how you look at it, this is just one of many different changes that financial leaders at healthcare providers will need to brace for as 2018 and 2019 approach. We covered many of the future concerns in our most recent whitepaper, Modern Financial Management and Cloud Accounting at Healthcare Organizations, which introduces readers to Sage Intacct, the first software of its kind built to handle revenue recognition challenges. Preview the whitepaper below and download it here.

ASC 606 Revenue Recognition Step five

ASC 606 Step-by-Step Step 5: Recognize the Revenue When/As a Performance Obligation is Satisfied

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We’re entering the home stretch—in more ways than one. As we enter the Fall, private companies now have one year and one quarter to complete their transition to the new ASC 606/IFRS 15 standards pertaining to the way that all contracts are managed and accounted for. Additionally, we are entering the home stretch for this blog series, which took an in-depth look at the changes that are being made and the processes that will need to be changed as organizations get closer and closer to the effective date.

Today, we will close out our Step-by-Step Series, which looked to break down the 156-page standard and provide key takeaways, including who ASC 606 affects, a brief overview on the five steps, and a look at how ASC 606 will affect different industries. For more information, see each step in detail below.

  1. Identify Contract(s) with a Customer
  2. Identify Performance Obligations in the Contract
  3. Determine the Transaction Price
  4. Allocate the Transaction Price to the Performance Obligations in a Contract
  5. Recognize the Revenue When (or as) the Entity Satisfies a Performance Obligation

ASC 606 Deep Dive Step 5: Recognizing Revenue

Biggest Impact: Aerospace & Defense, Asset Managers, Construction/Building/Engineering, Manufacturers, Licensors, Real Estate, Software

The last step in the revenue recognition process is to recognize the revenue after the performance obligations are fulfilled by the supplier. With certain rule-changing regarding costs to obtain a contract and specific disclosure requirements, the new rules pose large changes to the accounting practices for nearly every industry, with the exception of asset managers, healthcare, and telecommunications.

Recognizing Revenue

For many contracts, in which a performance obligation is satisfied when a good or service is transferred to a customer, revenue recognition is a simple process—transferring the promised good and recognizing revenue after it is transferred:

  • An entity should recognize revenue when (or as) it satisfies a performance obligation by transferring a promised good or service to a customer.
  • A good or service is transferred when (or as) the customer obtains control of that good or service.

Performance Obligations Satisfied Over Time

The process for recognizing revenue differs slightly in the event that an entity satisfies a performance obligation over time. In order for performance obligations to be met over time, and revenue to be recognized in this way, one of the following three criteria must be met.

  1. The customer simultaneously receives and consumes the benefits provided by the entity’s performance as the entity performs. (A weekly recurring service: Cleaning)
  2. The entity’s performance creates or enhances an asset (for example, work in process) that the customer controls as the asset is created or enhanced. (building an asset on a customer’s site)
  3. The entity’s performance does not create an asset with an alternative use to the entity, and the entity has an enforceable right to payment for performance completed to date. If a performance obligation is not satisfied over time, an entity satisfies the performance obligation at a point in time. (building a customized or specialized asset that only the customer can use)

Measuring Over-Time Progress: Input and Output Measurements

For these, companies take a different approach, in which a provider will measure progress using one of the following two methods, output and input.

  • Output Method: Based on direct measurements of the value to the customers of goods or services transferred to date, relative to the remaining goods or services promised. Examples include milestones reached, time elapsed, etc.
  • Input Method: Based on an entity’s efforts toward satisfying a performance obligation, relative to the total expected inputs to satisfy the obligation. Examples could include labor or machine hours used, resources consumed, costs incurred, etc.

Satisfying Performance Obligations at a Point In Time

The alternative to over-time satisfaction of performance obligations is the satisfaction of performance obligations at a point in time.

Point in Time Consideration: Transfer of Control

To determine the point in time at which a customer obtains control of a promised asset and an entity satisfies a performance obligation, the entity would consider indicators of the transfer of control. Control, and therefore transfer of control, is explained as the following:

  • The Ability of the Customer… (the customer has present right to an asset)
  • …To Direct the Use of… (the customer can deploy the asset, or can allow or prevent another entity from deploying the asset)
  • …And Obtain Remaining Benefits from… (the customer can obtain potential cash flow—directly or indirectly—through use, consumption, sale, pledging, or holding the asset)
  • …An Asset

Additional Issues to Look At

In addition to the issues regarding transfers, there are certain practices that need to be heeded regarding things like repurchase agreements, consignment agreements, bill and hold agreements, customer acceptance, and more, as discussed in the full text and KPMG Revenue Issues In Depth Article.

Conclusion: Time to Get Moving

15 months may seem like a long time (it’s only three if you’re a public entity), but many organizations are seeing challenges in making the move to implement new processes and systems to meet the requirements of the new standard.

Even if we’re posting monthly blogs leading up to the effective date, you should already be looking at transition methods and other industry-specific considerations that you need to make. To address this, we’ve compiled a list of resources for companies looking to prepare for the upcoming standard:

On Demand Webcasts: ASC 606/IFRS 15

Sage Intacct recently presented a three-part series on the new standards, which you can view on-demand.

We welcome you to peer through the full text, the AICPA guidance, and to get in contact with us to learn more about preparing for ASC 606 with outsourced accounting services and/or a new accounting software designed with new RevRec Standards in mind.

Cloud Accounting Medical Practices

How Medical Practices Can Leverage Modern Financial Technology

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The medical provider industry has undergone massive change over the past decade, and with possible changes like tort reform on the horizon, provider organizations will need to stay on their game as new innovations and challenges change the landscape that is the healthcare industry.

Additionally, providers need to look at omnipresent challenges and threats posed to their organization from regulators, watchdogs, and cybercriminals who will gladly crush your organization for their own gain.

Healthcare Organizations Face Challenges, Finance Pros at Healthcare Organizations Face Even More

But for the financial professional, the aforementioned issues are just part of the set of challenges you face on a day to day basis. You’re dealing with the same cybersecurity, talent, and regulatory challenges that your non-financial colleagues need to handle, but you also have to answer all the questions posed by regulators, payers, and board members about where the money is going. But, it’s what happens when you’re the person with all the answers.

As your healthcare organization grows, however, being the person with all the answers becomes more and more challenging, as you’re sourcing data from more and more sources, and the time it takes to bring it all together grows. Adding a new location means adding (at least) a few hours per week to roll up the information and present it in a way that is useful. There comes a point when you just run out of time.

If you’re trying to do all this with spreadsheets, good luck answering if and when an audit happens. With nearly 90 percent of spreadsheets containing errors, it’s likely you’ll have to backtrack, reorganize, and correct a few things before you can even answer a question. But, there is a better way, one that provides automation to make your life easier, security that meets the needs of healthcare organizations, and user-friendly functionality so that you’re not calling IT for every tiny change.

Get the Guide to Modern Financial Management for Healthcare Organizations

We recently completed our latest whitepaper, the Guide to Modern Financial Management and Cloud Accounting for Healthcare Organizations, which aims to show readers the skills and technologies needed to own the financial future of your healthcare organization in the face of changes and challenges sure to affect the way your business operates.

From finding new ways to automate to leveraging enhanced security functionality to always having the latest software, this guide will show you what it takes to be successful in 2017, 2018, and beyond. Learn more about the guide by reading the preview below, and download it in its entirety here.

Dimension based Reporting

How Nonprofit Leaders Can Regain Control of Their Chart of Accounts

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Leading a successful, honest nonprofit requires a lot of attention to detail. With regulators and watchdogs breathing down your neck, standards boards making the reporting process more complicated than ever, and more competition for donor and grantor money, running a nonprofit is more challenging than ever.

Many Reporting Challenges, Many Stakeholders

How many people do you answer to? How many different ways do you have to answer a question? At a traditional small or medium for-profit company, answering these questions is often somewhat straightforward. However, for a financial professional at a nonprofit, this is much more disparate, and many stakeholders expect ad hoc reporting from the finance department for a much more disparate set of metrics and entities.

Think of what you need to track, how you need to track it, and who needs these questions answered. How often do you need to drill down to a specific metric to answer the questions of a potential or current large donor or grantor who wants to see if the money is being used effectively? How fast do these entities want this information?

The landscape is complex, with financial leaders at nonprofits facing the following battle, answering questions from stakeholders about many different metrics and dimensions:

Nonprofits need to account for: Reporting to the following Stakeholders
·         Funds

·         Grants

·         Projects

·         Programs

·         Locations

·         Board

·         More

 ·         Board

·         Donors

·         Grantors

·         Staff

·         Executives

·         Congregation

·         More

 

Worse yet, if you’re like so many others, you have to make all of this reporting happen in spreadsheets. This means more time, effort, and unfortunately, errors as you attempt to cut and paste data between spreadsheets. This poses a problem, creating an environment in which nearly 90% of spreadsheets have errors.

The Answer: Simplify, Categorize, and Automate

When you need to answer multiple questions from multiple people about multiple data—fast, the easiest way to make this happen is through point-and-click reporting and automation. This is where Sage Intacct is built to meet the needs of nonprofit organizations, letting you get set up with point-and-click tagging, categorization, and customization. Better yet, add multiple attributes to a single element to improve analysis and comparison.

The Problem with Spreadsheets: Unnecessary Complexity

A recent webcast, The Modern Day General Ledger: Leveraging Cloud Technology for NFP Accounting, explored the challenges that even a nonprofit with a simple structure faces to account for a task like printing. This example nonprofit had a relatively simple setup:

  • Five Funds: G&A, School, Facilities, Cap Assets, and Debts
  • Four Grants: Federal, State, Local, Corporate
  • Three Programs: Fundraising, Management/General, and Other
  • One Restriction: Unrestricted/Restricted

With a spreadsheet-based approach, this nonprofit will need 60 different combinations of accounts—just to accomplish some form of printing. If you add a new grant, guess what, the account just grew from 60 to 75. Add on this another program (now at 5/5/4/1), it grows to 100. Maybe the grantor has a specific restriction, and you’re up to 200 combinations of numbers.

The Answer: Smarter Chart of Accounts

On the other hand, with a smarter solution like Sage Intacct, you can tag an action or line item as you need, reducing errors and speeding up the reporting process. Rather than setting up dozens or hundreds of different combinations, just select printing. From there, you can move down a list of drop-down menus so that the expense is sent to the right location. This presents less chance for a finger slip throwing everything out of whack. On top of this, you can even scan the invoice so that even in an audit, you can track down when, where, and how something happened.

Bringing it All Together: Answering the Who, What, and Where

By taking advantage of a smarter chart of accounts, it becomes easier than ever to answer the who, what, and where (when it needs to be answered). Through dimension-based accounting, nonprofit financial leaders can tag a transaction or line item in any combination they see fit. Sage Intacct offers eight standard dimensions, but takes this one step further by allowing you to tailor a dimension as needed:

Standard Dimension Tailored Dimension
Who Customer, Vendor, Employee Customer, Member, Funder
Where Project, Department, Location Project, Grant, Department, Cost Center, Program, Fund, Ministry
What Item, Class Item, Service, Restriction

 

What This All Means

You may be thinking, “So what?” Good question, with a much better answer.

You want to save time, right? You want to generate more revenue for your mission, right? You want to make your own life easier, right?

That’s what dimension-based reporting is for. By taking advantage of flexible dimensions, you can improve the quality of your reports, you can do so in less time, and you can answer questions like “should we make this purchase now?” or “how can I be sure my money is going where it needs to?” quickly, easily, and accurately.

Learn More: Sage Intacct Making Life Easier for Thousands of Companies and Nonprofits

With over 11,000 highly satisfied customers, many of them in the nonprofit space, Sage Intacct has become a leader in the movement to improve the lives of nonprofit leaders and cut down the red tape between them and those they hope to serve. Whether the nonprofit is a church, association, charity, or school, they have been there, helping finance professionals to save time and money, making life easier, and helping these organizations get closer to accomplishing their mission. We welcome you to watch the entire webcast from Sage Intacct, and read some of the following case studies to learn more:

Trade Contractor Accounting Challenges

Three Financial Time Drains for Trade Contractors

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There are over 10 million trade service contractors, and while some operate as single independent contractors, many others operate in a larger business unit, with large-scale time management, purchasing, and accounting needs, run either by a business manager or staff who needs to manage purchasing, labor, billing and more.

Whether you’re in the business of electrical work, plumbing, HVAC services, data networking, roofing, painting, carpentry, sheet metal, or one of the many other trades, your industry faces some unique back office challenges.

With this in mind, one of the biggest concerns is likely this: You’re doing more and more work each month, and expected to get it done in the same amount of time. While you used to be making or supporting decisions that positioned your company for growth, nowadays you’re struggling to just complete the basics. In essence, you’re working in your business, not working on it.

Working in vs. Working on Your Trade Contractor Business

For an accounting professional, manager, or other business leader at a trade contractor, working in your business is simple: spending your day completing the necessary tasks in line with your job description.

However, when you’re working on your business, you’re getting all of the necessary tasks done, but also doing work to improve the business. This could include anything from highlighting opportunities for purchasing to save money, finding new opportunities for the project department to improve efficiency, or even finding ways to generate new business. Simply put, working on your business is where the money is made.

Unfortunately, one of the problems that trade contractors face is that leaders constantly get caught up in the minutiae of the daily grind and lose sight of the big picture. With rare exceptions, the people at a business want to help said business grow, but they often lack the processes or technology to do so.

If you really want to start focusing on the big picture, you need to take a step back, look at your everyday tasks, and look for certain things you can automate, so you to get back to working on your business.

Three Necessary Time Drains Preventing You from Working On Your Business

While the trade may differ, the process of accounting for it is relatively similar, and if you’re like most, you waste away on manual processes surrounding one or more of the following tasks.

Contracts, Completion, and Revenue Recognition

Much of your work is based in contracts, and whether you’re looking at the current way of doing business (PCM/CCM) or the ones about to take hold (performance obligation), bringing everything together poses challenges and creates a lot of work.

If the current method seems laborious, the new standards about to take hold will create a new set of challenges, as the contractor task force has been among the most vocal of the AICPA working groups who have noted implementation challenges. For businesses with outdated, manual processes, this means you will be doing a lot more work transitioning to the new standard and managing contracts under it.

The Cure: Technology Designed with ASC 606 in Mind

Revenue Recognition for trade contractor organizations can be a complex series of decisions and paperwork—both under the new and old standard. However, with major changes on the horizon, having plans, processes, and technology in place can be the first step in a successful transition to new standards. Sage Intacct was built to make contract management under the new standard simple, handling the complex requirements and providing peace of mind for accounting and project teams.

Learn more about the new standard and how Sage Intacct is ready to tackle the challenges it presents here.

Project Cost and Profitability Tracking

You have to answer a lot of questions on a daily basis. Will this job be completed on time? On budget? Do we have the people to take this job on this date?

Back-office professionals at trade contractors need to be able to answer these questions quickly, efficiently, and accurately. If your answer to any of these questions was “I don’t know” or “let me get back to you,” you don’t have a complete picture of your business. You need to have a complete view of each project—from materials to labor—before, during, and after the project. More importantly, it’s vital that you can come up with answers to these questions quickly.

The Cure: Speed through Automation, Visibility Through Dashboards and More

By automating your processes and setting up dashboards, you can receive and present information quickly, clearly, and compellingly—when and where you need to present it. Sage Intacct offers the right project insight when and where you need it. Whether in the form of dashboards, analytics, or project accounting-focused design, Sage Intacct can handle anything a finance team at a trade contractor can throw at it.

Cash Flow

Just as you need to look at projects before, during, and after, you need to be able to present a cash flow statement for both these projects and for the organization as a whole. This is the job not only of the back office, but of the project manager as well, who needs to be able to accurately present a schedule of values.

Financially savvy companies use standardized processes to ensure that the ability to be cash flow positive exists earlier in the project. PMs need to understand that their goal is to define a revenue recognition strategy that ensures a good cash position for their projects.

The Cure: Anytime, Anywhere Access for Those Who Need It Most

To make this happen, trade contractors need to combine automation with mobility, allowing project managers to access the numbers, submit costs, mark up the costs based on predetermined standards, and get all of this to billing—whenever and wherever. However, thanks to the cloud, providing access to the people who need it is easier than ever. Sage Intacct was recently recognized for its cash management function. Learn more about the feature and how it can make everything from billing to planning easier here.

The Challenges in Accounting for Trade Contractors Don’t Stop There

These are just a few of the time drains that finance and accounting professionals at trade contractors face every day, month, quarter, or year. However, by taking steps to increase automation, mobility, and reporting, the jobs mentioned above can be completed in less time, so you can get back to working on your business.

Sage Intacct provides the automation, reporting capabilities, and analytics you need to make decisions and prepare for the road ahead. Whether you need to manage a team of 10, 100, or 1,000 contractors, Sage Intacct can grow with you, working with other technology you need to manage your business.

Step 4 ASC 606

ASC 606 Step-by-Step Step 4: Allocate Transaction Price

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With just over a year to go for private companies to have their ASC 606 plans in place, many organizations are yet to have done much to get the ball rolling. This is why we began this series, to introduce you to the various steps involved in recognizing revenue under the new standard.

Background

As part of an ongoing series, we are breaking down the 156-page standard and providing key takeaways, including who ASC 606 affects, a brief overview on the five steps, and a look at how ASC 606 will affect different industries, but today we would like to introduce a deeper look at each step:

  1. Identify Contract(s) with a Customer
  2. Identify Performance Obligations in the Contract
  3. Determine the Transaction Price
  4. Allocate the Transaction Price to the Performance Obligations in a Contract (August)
  5. Recognize the Revenue When (or as) the Entity Satisfies a Performance Obligation (September)

ASC 606 Deep Dive Step 4: Allocating Transaction Price to the Performance Obligations

Biggest Impacts: Software, Telecommunications

With considerations including standalone selling price, allocating discounts and variable consideration, and changes in the transaction price, there are certain pitfalls in allocating price to each obligation.

Determine/Estimate Standalone Selling Prices

After Step 3, determining the transaction price as a whole, you will need to determine the standalone selling price of each good and/or service promised in step 4. As is often the case, the way to do this is to determine the price based on standalone sales of the good or service to similarly situated customers.

However, this is not often observable. When this is the case, a seller is to determine standalone prices in one of three ways:

  • Adjusted Market Assessment Approach: Evaluate the market in which goods or services are sold and estimate the price that customers are willing to pay.
  • Expected Cost Plus Margin Approach: Forecast the expected costs of satisfying a performance obligation and add an appropriate margin for that good or service.
  • Residual Approach (rare): Subtract the sum of observable stand-alone selling prices of other goods or services promised from the transaction price. This is only usable if the following two criteria are met:
    • The entity sells the same good or service to different customers (at or near the same time) for a broad range of amounts (that is, the selling price is highly variable because a representative standalone selling price is not discernible from past transactions or other observable evidence).
    • The entity has not yet established a price for that good or service, and the good or service has not previously been sold on a standalone basis (that is, the selling price is uncertain).

Oddly, for US-based businesses, the new standard will provide more flexibility for organizations than the previous standard, a rare occurrence within ASC 606 according to the KPMG Revenue Issues in Depth Article. Under the current standard, standalone selling prices are often established by determining vendor-specific objective evidence (VSOE).

Developing a Standalone Price Determining Framework

Notably, determining standalone prices will require a fair amount of judgement from the selling entity, as many organizations do not have robust processes in place for determining prices. To reasonably establish controls, KPMG recommends organizations follow this five-step process.

  1. Gather all reasonably available data points (cost to manufacture, profit margins, third-party pricing, etc.)
  2. Consider adjustments based on market conditions (demand, competition, awareness) and entity-specific factors (market share, pricing, bundled pricing)
  3. Consider organizing selling prices into meaningful groups.
  4. Weigh available information and make the best estimate.
  5. Establish ongoing processes for monitoring and evaluating prices.

Allocating a Discount

A discount should be allocated entirely to one or more, but not all, performance obligations in the contract if all of the following criteria are met:

  • The entity regularly sells each distinct good or service (or each bundle of distinct goods or services) in the contract on a standalone basis.
  • The entity also regularly sells on a standalone basis a bundle (or bundles) of some of those distinct goods or services at a discount to the standalone selling prices of the goods or services in each bundle.
  • The discount attributable to each bundle of goods or services described in (b) is substantially the same as the discount in the contract, and an analysis of the goods or services in each bundle provides observable evidence of the performance obligation (or performance obligations) to which the entire discount in the contract belongs.

If a discount is allocated entirely to one or more performance obligations in the contract, an entity should allocate the discount before using the residual approach to estimate the standalone selling price of a good or service.

KPMG brings up a few observations, most notably that entities should take a different approach when a large amount of goods and services are bundled in various ways, and to establish a policy for determining what ‘regularly sells’ together.

Allocating Variable Consideration

Variable consideration that is promised in a contract may be attributable to the entire contract or to a specific part of the contract, such as either of the following:

  • One or more, but not all, performance obligations in the contract (for example, a bonus may be contingent on an entity transferring a promised good or service within a specified period of time)
  • One or more, but not all, distinct goods or services promised in a series of distinct goods or services that forms part of a single performance obligation (in accordance with FASB ASC 606-10-25-14(b)) (for example, the consideration promised for the second year of a two-year cleaning service contract will increase on the basis of movements in a specified inflation index)

While discussed after the application of discounts in the standard, variable consideration allocation needs to be completed before allocating a discount. For more information, see our discussion on the differences between variable consideration and discounting in our analysis of step 2.

Changes in Transaction Price

Prices change, and for that, there are certain paths to follow and pitfalls to watch. If and when this does happen, an entity should allocate to the performance obligations in the contract any subsequent changes in the transaction price on the same basis as at contract inception.

Consequently, the transaction price should not be reallocated to reflect changes in standalone selling prices after contract inception. Amounts allocated to a satisfied performance obligation should be recognized as revenue, or as a reduction of revenue, in the period in which the transaction price changes.

Allocating Price Changes to Performance Obligations

A change in the transaction price should be allocated entirely to one or more, but not all, performance obligations or distinct goods or services promised in a series that forms part of a single performance obligation, but only if both of the following criteria are met:

  • The terms of the change in transaction price relate specifically to the entity’s efforts to satisfy the performance obligation or transfer the distinct good or service (or to a specific outcome from satisfying the performance obligation or transferring the distinct good or service).
  • Allocating the change in transaction price entirely to the performance obligation or the distinct good or service is consistent with the overall objective for allocating the transaction price to performance obligations, when considering all of the performance obligations and payment terms in the contract.

A change in the transaction price that arises as a result of a contract modification should be accounted for in accordance with the guidance on contract modifications. However, for a change in the transaction price that occurs after a contract modification, an entity should apply the guidance in whichever of the following ways is applicable:

  • Allocate the change in the transaction price to the performance obligations identified in the contract before the modification if, and to the extent that, the change in the transaction price is attributable to an amount of variable consideration promised before the modification and the modification is accounted for as if it were a termination of the existing contract and the creation of a new contract (in accordance with FASB ASC 606-10-25-13(a)).
  • In all other cases in which the modification was not accounted for as a separate contract (in accordance with FASB ASC 606-10-25-12), allocate the change in the transaction price to the performance obligations in the modified contract (that is, the performance obligations that were unsatisfied or partially unsatisfied immediately after the modification).

Conclusion: Time to Get Moving

16 months may seem like a long time (it’s only five if you’re a public entity), but many organizations are seeing challenges in making the move to implement new processes and systems to meet the requirements of the new standard.

Even if we’re posting monthly blogs leading up to the effective date, you should already be looking at transition methods and other industry-specific considerations that you need to make. To address this, we’ve compiled a list of resources for companies looking to prepare for the upcoming standard:

On Demand Webcasts: ASC 606/IFRS 15

Sage Intacct recently presented a three-part series on the new standards, which you can view on-demand.

We welcome you to peer through the full text, the AICPA guidance, and to get in contact with us to learn more about preparing for ASC 606 with outsourced accounting services and/or a new accounting software designed with new RevRec Standards in mind.

Sage Intacct Acquisition

What Sage’s Acquisition of Intacct Means for the Software Market

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If you haven’t heard the news, international leader in software for accounting and finance Sage recently announced that it was acquiring leader and innovator in the cloud accounting space Intacct for nearly $1B.

The acquisition was announced in a press release on 25 July 2017, and has had profound impacts on the accounting space. Now that the dust has settled, we would like to take a big picture look at the acquisition, the impact for both companies, and why we feel it will be a positive for customers—both potential and current.

Addressing Two Major Needs for Sage

If you’ve paid a lot of attention to the recent financial disclosures of the Sage company, you will know that prior to the Intacct acquisition, the company has seen headwinds in getting on to the cloud. While making some progress with the release of Sage One and X3, but in the words of AccountingWEB Managing Editor Seth Fineberg, “cloud has eluded Sage in that it never built a cloud financial product [on par with a company like Intacct].”

Fineberg goes on to explain just how much of a win this for Sage, in that it continues their successful strategy of growth through acquisition.

Additionally, this acquisition will help both companies compete in markets in which they needed to improve—Sage in the US and Intacct globally.

Expanding the Scope and Backing of Intacct

With Intacct’s history spanning nearly two decades, a majority of its growth came in the last 7 years. In other words, Intacct was so far ahead of its time, it was quietly improving, ready for the rise of “the cloud” in the past few years, as explained in Fineberg’s article:

“[For Intacct] I can’t not see this as a win. I got to know them 15 years ago when I started covering the space, and to their credit they were able to grow steadily in an area that really has only recently been embraced, or at least largely accepted, by accountants … that being “the cloud.””

In 2017, the cloud is quickly becoming the go-to option for finance and accounting, and with this deal, Intacct will have the global backing of a power player—combined with its high amount of loyalty from customers and channel partners.

The Power of Millions, the Continued Innovation of Intacct

As one of the largest international vendors of accounting software and ERP, Sage brings decades of experience in the space and the market presence needed to fuel Intacct and its sellers to the next level. For Intacct, its partners, and its customers, this means more innovation, as well as increased validation that cloud accounting and ERP is the present and future of delivery.

In addition to the major validation that this provides Intacct, the company will still stay true to its heart, with CEO Robert Reid staying on to lead the growth and innovation. At rinehimerbaker, we are committed to providing the same quality service that our customers expect and deserve, and are excited for the road ahead. Learn more about making the most of your growth with the power of Sage Intacct here, and contact us to learn more.

Process Efficiency in the Cloud

How Cloud Accounting Lets Users Take Control of Process

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When you consider the many pain points of using yesterday’s financial management processes—non-integrated systems, cumbersome data entry and re-entry, error-prone spreadsheets, unsecured and vulnerable data, etc.—it’s easy to see why “enhanced control” is one of the key reasons for system upgrades. Your business data, which is getting ever-more voluminous and complex as you grow, requires secure and reliable management.

Want More Control? Your Solution is in the Cloud

Today’s cloud-based financial management and accounting software solutions offer just what you need. Let’s explore the ways your business can enjoy enhanced control at the hands of a cloud-based system:

Data and Process Control

Manual processes are, by nature, out of control: they create time, cost, and data efficiencies that can be hard to recoup. When your finance and accounting staff are shuffling through stacks of paper, waiting on wet ink signatures, re-keying data into multiple systems, copy and pasting and managing multiple formulas in spreadsheets, there are many opportunities for costly human error and data isn’t being used efficiently or to its potential. Plus, there are likely more strategic projects your employees could be working on, if only some of their day-to-day activities were automated.

Learn more about How Intacct’s Cloud-Based Financial Software Supports Growing Business with Automation

Cloud-based financial management software is designed to replace manual workflows with automatic, streamlined processes. The result is faster, less costly outcomes—and more control over your staff’s time, data, and costs. And keep in mind, the process of setting up your cloud-based system is completely customizable and flexible. That means you’ll be able to configure your software, templates, and workflows based on the way you work today—and how you want to work tomorrow.

Compliance Control

One of the main advantages of moving your financial data and processes into the cloud is that you’ll enjoy the automation and controls around accounting, billing and reporting that you needs to stay audit-ready and always-in-compliance. That’s because your system can be set up according to the business rules, internal controls, workflows, terms of engagement, and any other data or documentation factors that are required for your organization to maintain compliance and deliver according to regulations. You’ll also have data integrity that ensures your reporting (to employees, the government, investors, etc.) is accurate, up-to-date, and easy-to-understand.

You’ll find more about having audit-ready financials in 5 Common Accounting Mistakes Made By Growing Companies

Cost Control

Cloud technology is inherently affordable. It offers capabilities to SMBs and rapidly growing companies that were once available to only enterprise organizations with massive IT budgets. Here are some high points:

  • Hosted software is managed by your vendor, taking the pressure (and costs) off of your internal IT support team.
  • Data and tools are accessible using a browser or app on any internet-connected computer or device, so your business doesn’t need to invest in new hardware to support the system.
  • Access is subscription-based, so adding new users and scaling for business growth is easier and less costly when compared with buying software licenses and installing software on office machines.

Finally, and perhaps most significantly, the combination of streamlined automation and data transparency virtually transform your financial and accounting operations so your team is more productive and strategically oriented. The impact on costs in the long-term can be substantial. In fact, Intacct customers enjoy and average ROI of over 250% when switching to Intacct.

Big-Picture Control

Because cloud-based solutions are built for flexibility—both within the core financial management system itself and in integrations support—users get a 360-degree view into their financials, no matter where the data is coming from. Intacct’s solution, for instance, captures both financial and operational data, and it’s capable of syncing up with your business’s other digital systems and best-in-breed software, so decision-makers have access to metrics and insights spanning their organization. These can be as holistic or granular as they need to be, and they’re easily explored using web-based dashboards.

Security Control

As detailed in Cloud Solutions Deliver Security and Peace of Mind to Today’s Financial Teams, financial management and accounting software solutions like Intacct’s offer multiple security safeguards across their applications, processes, and servers to ensure customers’ data is “safer in the cloud” than it could ever be living in on-premise and paper-based systems.

No matter how you look at it, you can trust your financial data and processes to the cloud. Contact us if you’d like to learn more about our expertise with cloud technology and discuss solutions that might make sense for your growing business.