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1000 North Case Study

Hospitality Finance Departments Save Big with Cloud ERP Solution

Hospitality Finance departments have been able to save money, and time by moving their ERP solution to the cloud. The cloud gives finance employees access anywhere anytime with easy to create reports that help cut close times every month. Below you will find examples of how companies have saved big by moving to the cloud. If you want to find out more about how they were able to get these results sign up for our webinar on October 30th at 1 pm Eastern.

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hospitality finance

Open API

The Power of Sage intacct’s Open API and Maketplace

Sage Intacct currently has over 200 software solutions listed on its marketplace with that number growing weekly. Currently, 75% of their users have integrations with 2 or more of their software partners creating seamless solutions within the cloud. The marketplace partners cover a range of categories including payroll, CRM, time & expense, inventory management, finance & admin, e-commerce, and business management. They have been able to create this best-in-class solution for their customers by having a completely open API. 

What is an open API? 

An open API is a publicly available application programming interface that allows developers to create their own unique integration into a certain piece of software. This is the backend system that creates a gateway between two solutions that need to be able to automate sharing information. Sage Intacct has made its API open allowing software companies to easily create their own custom integration. When marketplace partners have the ability to create their own integrations it takes away the coding process for customers.  

 

What makes Sage Intacct’s open API unique? 

When creating their API Sage Intacct created the backend before the user interface which creates a very robust and stable solution for all marketplace partners to build out integrations. The open API is so stable that they guarantee their API won’t change in any of their upgrades throughout the years. They currently have a 15-year proven streak 

The seamless integration allows for all your cloud-based solutions to easily push information back and forth eliminating manual processes that can be time-consuming and create mistakes.  This also means that your IT department won’t have to spend valuable time maintaining and installing new solutions. All of Sage Intacct’s main partners are plug and play. This means your accounting team can easily turn on new software and for those integrations that have a slightly higher amount of customization your VAR partner ( rinehimerbaker) can have you up and running quickly. 

The marketplace offers 3rd party solutions that allow connections between smaller software solutions that haven’t yet built out their own integration into Sage Intacct’s API. These additional connection solutions make the marketplace rare and powerful for its customers.  It also offers huge cost-savings to customers by being able to skip hiring an outsourced service to build out custom integration.  

rinehimerbaker’s Top Choices on the Marketplace: 

While Sage Intacct works with a variety of strong partners, here at rinehimerbaker we have a list we recommend based on our history and clients success.  

Bill.com is a software solution that helps you automated your accounts payable process to save time. We have implemented this integration for multiple partners, and all have had great time savings due to the automation and elimination of manual mistakes.  

Expensify is a mobile expense reporting solution that cuts down the hours of manual data entry and makes it faster to review expenses, reimburse employees and close the month. They allow employees to log expenses on the go through an app, easily reimburse employees the next day, and reconcile corporate cards through a complete integration. 

2CP is a custom payment solution that offers e-commerce, recurring capabilities, merchant services, and email invoicing through an integrated solution. This software solution helps you invoice quicker and get paid faster while eliminating data entry.  

FloQast is a close management software that helps accounting teams close faster and more accurately. It was built to address gaps in your organization, collaboration, automation, and integration for the financial close process.  

Salesforce is the leading CRM that has complete automated integration with Sage Intacct allow a business to see their customer’s journey from beginning to end. This best-in-class software has streamlined the quote to cash process and allows for better communication between departments.  

Workforce Go is a cloud-based human capital management solution. It helps manage payroll, people, and time from pre-hire to retirement. This helps save your company time, reduce manual errors, eliminate reporting delays, and make functionality choices.  

Avalara Avatax is a strategic tax compliance solution that delivers instantaneous sales tax decisions based on more than 12,000 taxing jurisdictions in the United States. This solution assigns hundreds of thousands of taxability rules to get the correct rate for your company. This takes the stress out of tax.  

 

To find your best-in-class solution, fill out the form below to speak with one of our senior accountants and implementation experts.  


Franchise Management

Franchise Management with Sage Intacct

Sage Intacct is the leading cloud-based ERP solution for franchise management. Franchise owners can easily manage multiple locations, access in real time data, and gain insights into each location’s performance without sacrificing roll-up reporting capabilities. All of this is made possible by Intacct’s best-in-class multi-entity management / consolidation capabilities and open API. Intacct relieves business owners of IT worries, all while eliminating cumbersome consolidations and manual reporting. Franchise finance and accounting teams can become proactive team players by refocusing their time on high value analytic tasks. Below are a few recommendations of how Sage Intacct can provide the boost your franchise’s finance team has been looking for:

Multi Location Reporting

Managing multiple entities or locations can be overwhelming with the wrong software. With Sage Intacct you can quickly see each individual location’s financial data, as well as the financial health of your entire franchise. The high configurability of Intacct makes roll up reporting for the executive team a breeze. Now decision makes can quickly analyze their total business with real-time data and seize time sensitive opportunities, both on the franchise and individual store levels.

Secure, Granular Permissions

Sage Intacct’s user permissions allow you to easily assign and update user permissions, giving each person access to only the location(s), reports, and financial data necessary to their role within your organization. With their own login, managers can see their store(s) financial information without sacrificing the security of other franchise financial data or them having to wait to receive manual reports from the corporate finance team. Now franchises can structure their accounting system to fit their organizational structure, instead of modifying employees’ roles to fit the accounting system’s capabilities.

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Streamlined Tech Stack

Sage Intacct has a fully open API for seamlessly connection to your franchises’ other systems, such as your POS, HR management, and business intelligence software. Being able to connect all of your business tools to Sage Intacct means you can now pull data from disparate systems into one place for expedited review. Imagine having a dashboard showing sales from your POS, headcount from your HR system, and comparative report showing revenue by headcount across all your locations.

Hassle Free Expansion

Adding a new store location in Intacct can be done in a matter of hours, not days or weeks. Intacct was designed for rapidly expanding businesses, meaning your new franchise location or holding company can be added quickly without any IT resources or reconfiguration of existing locations.

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Benchmarking and KPI’s

Benchmarking is made easier with Sage Intacct’s ability to consolidate and report information. Business owners can quickly see how each location is performing against their KPI’s and against other locations. This means owners and their management team can quickly identify performance issues. Also, through

Sage Intacct’s dashboards management can dive deeper into the numbers and understand the drivers of each locations’ performance.

Negotiate Pricing

Sage Intacct’s numerous reporting tools allow your team to tailor reports that slice and dice data to your company’s individual needs. With this ability, data can easily be analyzed to show how much your franchise is spending with each vendor, at each location, and what types of goods are being purchased. Management can easily leverage this data to negotiate pricing with vendors and identify opportunities to streamline operational expenditures. Sage Intacct effortlessly provides opportunities to your franchise managers for increased insight and control of operations, driving increased profitability for your entire franchise.

To scale your franchise’s growth, you need a solution that provides meaningful capabilities. Find out more about how rinehimerbaker can help you implement Sage Intacct and achieve success with your franchise. Check out this case study where rinehimerbaker leveraged Sage Intacct to drive success in a high-growth franchise.


Closing the automation gap

Closing the Automation Gap in Finance

Closing the automation gap in finance is key to running an efficient business capable of scaling. Growth in your business, by product diversification or acquisition, creates additional work on your team. If the system is designed around manual tasks and spreadsheets, your company won’t reap the rewards or experience the profit growth you expect. Closing the gap allows finance teams to transform from error-prone clerical workers to strategic advisors capable of providing data and insight in real-time. 

What is the automation gap? 

The automation gap is the space between what can be automated within your current system and the actual processes your staff is executing.  The gap essentially represents the manual processes your team completes in order to run your business effectively.  As companies experience growth, the automation gap generally increases and can overrun a finance department. 

A great example of how the right system can close the automation gap is Sage Intacct’s multi-entity management capabilities. By automatically consolidating multiple companies and automating closing entries, when you grow by acquisition you no longer need to manually track the activity in spreadsheets and manually consolidate the books! With Sage Intacct, finance teams can rapidly close the books and reduce errors along the way allowing them to provide meaningful information to your management team faster. 

 

Growing through product diversification is great but that also means companies need to understand how that impacts their compliance standards such as ASC 606. Once you understand your compliance requirements, you then need systems in place to uphold them. 

When your current software doesn’t automate this for you, companies typically lean toward a spreadsheet as their process. Managing compliance in a spreadsheet is not sustainable over the long term as you experience continued growth and create new products. 

 Watch the Webinar: Closing the Automation Gap Now

Processes built around spreadsheets are extremely manual and the responsibility of managing and maintaining them typically falls on one or two employees who truly understand how the document works. We often find that the documentation and instructions of the process are nonexistent meaning all of that process knowledge leaves the company when the employees leave your organization. 

Managing complex processes using spreadsheets is not without risk. It’s not a question of “if” there is an error, it’s a question of “when” the error is going to occur and how big of an impact is it going to cause. 

Companies are trying to close the automation gap by hiring talent. However, hiring high-level talent that can create and understand complex spreadsheets comes at a premium. Continuing to hire employees at top salaries to perform these tasks is not sustainable over the long term. This also contributes to creating a company culture where the focus is on clerical work rather than strategic work. 

Watch the Webinar: Closing the Automation Gap Now

Why is closing the gap important? 

90% of the decision-makers are under pressure to make decisions faster but only 28% trust the data in their reports. This is largely due to the almost guaranteed mistakes that happen when a company relies on manual processes instead of working with a system that closes its automation gap. 

Current CFO’s have more responsibilities than ever to strategically lead their companies with real-time data. Reacting on three-week-old data that is almost guaranteed to have some error within the report is no longer acceptable or the norm. 

Are you unsure of how to discover your automation gap and implement a solution to close it? The rinehimerbaker team can help you evaluate your current processes, identifies your opportunities, and build a plan on how to close your automation gap. 

If you would like to find out more, click here to watch the full Closing the Automation Gap Webinar. If you are ready to discuss closing your own gap, please fill out the form below to speak with a representative at rinehimerbaker 

 


Sage Intacct Partner of the Quarter

Sage Intacct Names rinehimerbaker, llc Partner of the Quarter Q4 2017

Some big news from the team at rinehimerbaker. Earlier this month, we were named the Sage Intacct Partner of the Quarter for our strong sales performance and high levels of ongoing customer satisfaction. Learn what this means for our prospects and customers below. Read more

Lure the right talent with cloud ERP

Meet the Expectations of Top Financial Talent with Cloud-Based Software

The benefits of cloud-based software are usually cited as lower costs, process and workflow optimization, and scalability. But the attraction and retention of key finance and accounting department personnel is another benefit of implementing the best-in-class technology—one that’s not included in the “top 5 benefits” lists, but should be. The reality is that today’s top financial talent—and tomorrow’s leaders—operate in a digital world, where 24/7 access, insight, and productivity reign. Read more

strategizing Accounts Payable Automation

Overnight Success? Let Strategy Guide Your AP Automation Expectations

Every day, more finance leaders at growing companies buy into the value prop of best-in-class, cloud-based financial management and accounting software. But that doesn’t mean they’re ready to put their money where their mouth is—not yet, anyway. What they have is a chicken-and egg situation: They want to “get strategic” and know they need to make the investment to get there, but they’re afraid the implementation of new technology won’t yield game-changing results fast enough.

They’re probably right, especially if they go into the endeavor with such lofty expectations. Overnight ROI isn’t realistic, but the ROI will appear—and, at some point, it will “take off” to the delight of all stakeholders, thanks largely to the strategic insights it affords finance leaders. When introducing game-changing technology that will eventually live up to its name, success is often dependent on a well-considered plan of attack.

It Takes A Strategy to “Get Strategic”

As we’ve discussed, The Biggest Benefit of Accounts Payable Automation is the strategic value it delivers to your finance and accounting organization—and to the business at large. This value is achieved by improving AP processes, reducing manual workloads, attaining operational efficiencies, enhancing data collection and reporting, and more. The quality of work goes up along with the volume of actionable insight. With more to bring to the table, CFOs and their teams are able to contribute to the strategic conversation and impact the company’s growth in new ways.

Strategic prowess is key—it’s where technology is taking finance leaders. But before they can get down to the business of strategizing they need to take care of other business first. It’s business that can be taken care of, however, by implementing the right technology. Yet consider these findings from Grant Thornton’s 2017 CFO Survey:

  • CFOs’ biggest priorities are increasing cash flow (45%), reducing costs (41%), and strategic planning (40%).
  • 46% believe that their IT platforms lack the ability to operate effectively and require future investment.
  • The barriers standing in the way of future technology growth include managing costs (51%), maintenance of legacy systems (41%) and seamless business integration (40%).

If upgrading their IT environments and adopting technologies like cloud computing and advanced analytics is what it takes to increase cash flow, reduce costs, and “get strategic,” then what’s the hold-up? Decision-makers might need some additional guidance on the matter. 

Get Help Pressing “Go” on the Investment

Recognize that increasing cash flow and reducing costs requires a new approach to accounting processes—it requires technology-driven automation. Deloitte’s assertion, presented in their Strategies for Optimizing Your Accounts Payable report, boils down to the fact that optimizing working capital requires accounts payables optimization! It takes management commitment—yes, a strategic commitment and investment in technology—to:

  • Centralize accounts payable processing and reporting
  • Move the organization toward a paperless processing environment
  • Enable more robust governance practices
  • Improve supplier relationships
  • Create management workflows
  • Strengthen purchasing approval processes

As these processes and workflows improve, your finance and accounting teams will gain the time and insights they need to focus on strategic initiatives. But how long will this take? When will these results be seen?

You should partner with a technology vendor who can help you customize your approach—so you can start seeing results.

  • Set up your software to to work with your existing systems and processes
  • Show you how to use the technology and tools in the effectively way
  • Grow with the technology as gain efficiencies, and growth into future.

Get in contact with us to learn more.

Accounts Payable Automation in the Cloud

The Biggest Benefit of Accounts Payable Automation

There are so many reasons to automate your accounts payable processes. By streamlining and standardizing your AP functions, you’ll quickly experience the benefits that come from a more efficient workflow and enhanced and more accurate data. You’ll save time and money, strengthen your vendor relationships, and increase productivity. But what you really gain—the benefit that’s driving the widespread adoption of cloud-based AP automation technology—is strategic value for your finance and accounting organization.

Accounting’s New Strategic Paradigm

As we recently explored in two blog posts, Meet the Tech Savvy CFO of 2017 and The Rising Value of the Strategic CFO, the role of today’s finance and accounting teams is changing. We can thank technology for simplifying many of their daily numbers-crunching activities—for freeing up their time and energy to focus on activities, like deep-dive data analysis and reporting, that push the business forward, not simply account for inputs and outputs.

With the right AP automation technology in place, finance and accounting departments are more agile and data-driven. They become part of the strategic conversation, the holders of invaluable insights that guide the business’s next steps and shape the future. But what does the “right” AP technology do for a growing company?

Building a Strong AP Foundation

Ardent Partners’ research report, The State of ePayables 2017, says that strategy-minded AP teams will be pursuing technology-enabled transformation in cash management, supplier management, and business intelligence—three key areas linked directly to AP processes. Taking this a step further, consider the core AP capabilities demonstrated by “Best-in-Class” AP teams vs. all others:

  • Standardized AP processes across the enterprise (88% vs. 61%)
  • Two or three-way matching capabilities (84% vs. 61%)
  • Ability to process invoices straight-through (73% vs. 34%)
  • Ability to automatically route invoices for approval (70% vs. 54%)
  • Ability to match invoices to contracts or payment plans (61% vs. 28%)
  • Ability to measure key AP metrics (47% vs. 22%)

Prioritizing these foundational AP capabilities, says Ardent Partners, “enables access to innovation and an ability to make a greater impact.” This is exactly why organizations are replacing their legacy systems and manual processes with more innovative solutions that automate—and add value to—core accounting functions. Traditional spreadsheets and yesterday’s technology are simply holding them back from making progress as a strategic business entity.

The Cloud Accounting Solution: A Strategic Investment

One of the fastest routes for a growing organization to achieve AP automation—and strategic prowess—is through a cloud accounting software solution. By way of automating once-manual processes, companies standardize transactions and workflows, increase accuracy and timeliness of payments, and have the tools to measure and even increase productivity. What’s more, they are also able to strengthen financial controls, increase visibility (even in real-time), and attain compliance and auditability—with access to user-friendly tools and data around-the-clock.

Learn more in How Cloud Accounting Lets Users Take Control of Process.

Sage Intacct offers the industry-leading and AICPA-preferred accounts payable software. Here are some of the AP tasks can you automate with Sage Intacct’s solution:

  • Expense allocations across entities, locations, and departments
  • 1099 coding, multiple entity consolidations, and IRS file generation
  • Payment approvals and payments—via check, cash, funds transfer, or manual
  • Amortization expenses
  • Vendor management workflows
  • Reports on vendors, aging, and payments

And when you integrate the cloud-based solution with your other systems, you can gain even more workflow efficiencies (e.g. less transaction re-keying) and insights over your data. As your capabilities expand by making the most of your technology ecosystem—with AP software at the center—your team will be able to uncover more opportunities and deliver richer, more actionable decision-support to the C-Suite.

So if you’re ready to stop managing payments manually—and you’d appreciate the strategic freedom afforded by a fully automated, digital AP process—contact us to get started.

Find out How Upgrading to the Cloud Lets You Hit the Ground Running.

Questions to Ask Cloud Accounting Vendor

6 Questions to Ask to Narrow Down Cloud Accounting Vendors

If you’re outgrowing QuickBooks or simply looking to simplify and automate your processes by moving accounting to the cloud, the process for building a long list and then narrowing it down to a short list can be a challenge. As part of the narrowing-down process, you will spend a lot of time demoing the software and discussing it with the sales team for each vendor.

As you narrow down your options, it’s important to understand what you’re looking for and how the solution will fit into the equation. This is why we have developed a non-exhaustive list of important questions to ask—and what you should expect in terms of an answer.

Question 1: How Much Uptime Can You Promise?

The uptime discussion is one of the main things that can separate vendors, and should be one of the first things you look for. Uptime is generally discussed in terms of “nines,” as in “how many nines can you promise,” and shouldn’t be taken lightly, as each nine promised is a testament to the company’s commitment to the customer:

  • Two Nines (99%): 3.65 days per year, 7.2 hours per month, 1.68 hours per week
  • Three Nines (99.9%): 8.76 hours per year, 43.8 minutes per month, 10.1 minutes per week
  • Four Nines (99.99%): 52.56 minutes per year, 4.32 minutes per month, 1.01 minutes per week
  • Five Nines (99.999%): 5.26 minutes per year, 25.9 seconds per month, 6.05 seconds per week

While five or more nines is often reserved (and priced) for mission critical applications like telecommunications, utilities, and more, your cloud provider should be able to promise and deliver more than two nines. Often, the sweet spot for SaaS applications is right around three nines, meaning you will see no more than ten minutes of unplanned downtime per month.

However, the real way to judge a vendor is not by promises made, but promises kept. For instance, a leading vendor in the cloud space promises 99.8% uptime, but delivers a 12-month rolling average of 99.987%—nearing the five nines “promised land.”

Question 2: Have You Worked in Our Industry Before?

While the answer is probably yes (the cloud accounting and ERP market is relatively mature), the real question you should be asking is “have you had success with our industry?” It’s common for a vendor to have product or service pages for many different industries, but few case studies pertaining to the industries. It’s important to look at these case studies and success stories for companies like yours in size, needs, and industry.

Question 3: How Much Will It Cost to Get Up and Running?

Another of the natural advantages of a cloud-based accounting software, there are still differences in start-up pricing and implementation. This is an example in which time is quite literally money, as you will be charged for each hour of migration, training, and other necessary services.

The biggest differentiator in this equation is the scope of the implementation—how deep will the software reach into your organization? Suites will naturally take longer to implement, but it will be a one-time project. Single-focus best-of-breed applications can be done quickly and easily, but you may have to complete multiple, less disruptive projects. We discuss the Implementation process in our blog series, Eight Things to Look for in Accounting Software, Part 2.

Question 4: How Will Ongoing Pricing Work?

Pricing is one of the key advantages of SaaS-based applications, generally allowing a move away from licenses, which in turn helps to offer more transparency and ease decision-making. With this in mind, as you compare vendors, one of the most common structures you will see is the per-user, per-module pricing.

In this, it’s important to know what you’re getting, how much it will cost, and how much it will cost for additional users—some users will need additional access, functionality, and modules. Know what you’re getting, how much you’ll be paying, and how much it will cost to add users, modules, or more as your business expands.

Question 5: Is There a Process for Requesting New Features?

At some point, you’ll be using a software, and think, “wow, wouldn’t it be nice if I can do [this]” or “how much easier would my job be if the software could do [this]?” One of the advantages of the cloud is that updates are much more flexible and frequent. Rather than having to wait a year for new patches, cloud accounting applications offer much more frequent updates—up to four times a year.

Knowing this, it’s important to understand the process for requesting new features. Is it easy to ask? Will you be given the same opportunity to request as a large business? How does the vendor narrow down what will be added in the release?

Question 6: How Often Will These Updates Come Through?

As we said, cloud software updates more frequently and easily than an on-premises offering (updates are hands-off; often you walk in to an update the next day or on a Monday). However, the more moving parts that a software has, the less frequent or focused an update will be. This is a main difference between suites and best of breed offerings—suites add a lot of complexity to the equation, so R&D money is spread across multiple products.

Conclusion

When you look to change accounting software, it’s just as important to plan as it is to find the right software. If you know what you want, you will be able to narrow down vendors with minimal stress. Stay tuned for an upcoming blog in which we discuss some of the internal discussions you will need to have before you even start looking at new cloud solutions, coming early next month. If you’re ready to learn more about the power of Sage Intacct for your growing business, contact us today.

Step 4 ASC 606

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

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.