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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.

Security in the Cloud

Intacct Delivers Security and Peace of Mind to Today’s Financial Teams

For some, making the move away from traditional financial and accounting management systems toward an automated, digital solution can feel like a leap of faith. There’s a level of perceived security in something you can hold in your hands—the paper spreadsheets, for instance—and imagining your data floating out there in the cloud is might make you feel apprehensive. But in reality, cloud-based systems offer more control, security, and peace of mind than any manual system ever could provide. Let’s find out why.

There are Inherent Risks in a Paper-Based System

Consider an environment that depends on paper. Paper invoices, paper expense reports, paper payments, paper-filled drawers and filing cabinets, etc. Offices operating in a paper paradigm are vulnerable to data compromise and loss due to human error, misplacement of files, and even theft. What’s more, the technology they do use may run with sub-optimal environmental and system security measures, including out-of-date software, insufficient redundancy and backup, and weak firewalls.

Related: Stop Relying on Spreadsheets and Luck—There’s a Better Way

Cloud Solutions Offer Outstanding Application Security

It was uncovered at a 2013 Digital CPA Conference that information security is the primary barrier of adoption for starting to use cloud accounting services. Even so, nearly half of survey takers said they were using cloud-enabled business services to some degree in their firms, up from 44% 2012. Fast-forward to 2017, and cloud-based solutions are even more popular, as professionals get the message that the technology is sound and technology vendors are doing their due diligence to keep their customers’ data secure.

As for lingering concerns about web-based data storage, “Cloud-based accounting systems don’t actually store your data in a vapor mist in the sky,” CPA J. Carlton Collins explains in Journal of Accountancy. “Rather your accounting data are stored in world-class data centers with fortified concrete walls, steel doors, retina scans needed for entry, world-class firewalls, state-of-the-art anti-virus technology, continuous backups, and often a mirrored backup of the entire data center.

A Closer Look at Intacct’s Secure Solution

Intacct’s world-class financial management and accounting system is built on the highly reliable Oracle database infrastructure. It includes various security features that help prevent outside attacks as well as unauthorized user and program access into system processes, resources, and data—ensuring optimal safety of your digital assets.

Highlights of Intacct’s Security Features:

  • A data center that’s monitored around-the-clock and is equipped with backup power supplies and redundant network components.
  • Applications that require 2-step user verification every time a user signs on through an unrecognized device, enforced password changes and automatic session timeouts, and the option to set acceptable user log-in IP ranges.
  • System security that’s SSAE 16 SOC1 Type II and PCI DSS Level 1 certified, designed to protect your business via restricted access to production data, hardened networks and firewalls, real-time activity log tracking, automated security scanning and third party white hat penetration testing, and minimum 128-bit encryption for all data transmission.
  • Data that’s safeguarded through full daily backups to multiple locations, Continuous backups of transaction data, and secure streaming of transaction data to remote disaster recovery center.

Get full details here.

The Best Cloud Services from the Trusted Team at rinehimerbaker

As an Intacct Partner, we are proud to help growing businesses implement technology that makes it easier to manage their finances in the cloud. If you’re interested in upgrading from QuickBooks to Intacct, don’t miss the informative white paper, Outgrowing QuickBooks – How to Know When It’s Time to Change. Learn more about our services, and get in contact with us for more information.

ASC 606 Determining the Transaction Price

ASC 606 Step-by-Step Part 3: Determine the Transaction Price

A lot to cover, and not a lot of time to make it happen. ASC 606 is bearing down, and public organizations are in the final countdown. For private organizations, 17 months is not that long of a time, because you will need to get your accounting, legal, sales, and others on board, decide how you intend to transition, and make the move. Simply put, it’s not easy.

This is why 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 (Today)
  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 3: Determining the Transaction Price

Biggest Impacts: Aerospace and Defense, Asset Managers, Construction, Building, Engineering, Healthcare, Licensors, Software

From variable consideration to financing components to noncash considerations, there are many pitfalls that occur in determining the transaction price that make step three a complicated one.

In simple terms, the transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring goods and/or services to a customer. ASC 606 gives attention to the following factors in transaction price:

  • Variable Consideration
  • Constraining Estimates of Variable Consideration
  • The Existence of a Significant Financing Component
  • Noncash Consideration
  • Consideration Payable to the Customer

Variable Consideration (and the Constraint)

An entity estimates the amount of variable consideration to which it expects to be entitle, taking into account the risk of revenue reversal in making the estimate. 602-10-32-5 through 606-10-32-9 look into some of the determinations of variable consideration, which we look into below.

Fixed vs. Variable Consideration

The first, most obvious determination that needs to be made in this is whether the consideration is fixed or variable.  If the consideration is fixed, include the consideration in the transaction price. However, if the contract includes discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, penalties, or other similar items, there are different steps to determining the price.

Expected Value vs. Most Likely Amount

There are two methods in estimating the amount of variable consideration, depending on whichever one better predicts the amount of consideration to which it is entitled.

  • The expected value—The expected value is the sum of probability weighted amounts in a range of possible consideration amounts. This method is best used when an entity has a large number of contracts with similar characteristics.
  • The most likely amount—The most likely amount is the single most likely amount in a range of possible consideration amounts. This method is best used when the amount of variable consideration has only two possible outcomes.

Additional Determinations in Variable Consideration

In this, there are some additional observations made by KPMG that can impact the variability of the transaction price:

Consideration Could be Variable Even if Price Stated in the Contract is Fixed

Promised consideration could be determined to be variable if an entity’s customary business practices indicate that the entity may accept a price lower than stated in the contract (for example, an implicit price concession). To address this, the entity needs to determine whether it has offered an implicit price concession or has chosen to accept the risk of default from the customer.

Variability of Consideration in the Event of an Undefined Quantity of Output

In the event that a contract is for an undefined quantity at a fixed contractual rate, consideration may be variable. In this, it’s important for the entity to determine how to treat the consideration under the new standard (distinct series of goods and/or services, stand-ready obligation, or an obligation to provide specified goods and services)

Is it a Customer Option or Variable Consideration?

This is an important note, as an entity needs to determine whether purchases of additional goods and services are variable consideration or customer options.

Customer options exist when the customer is not contractually obligated to pay consideration and the entity is not obligated to transfer goods or services. In this event, an entity needs to evaluate the options to determine whether they include a material right.

Comparatively, if the terms of the contract require a vendor to stand ready to transfer the goods and/or services, and the customer does not make a separate decision to purchase, the future event results in additional consideration.

Volume Discounts and Rebates May Convey a Material Right

Different structures and rebates may have different effects on the transaction price. In the event that a vendor offers discounts or rebates, pricing, variability, and the existence of material right is determined on when the discount is applied (retroactively upon customer meeting threshold vs. discount beginning after customer meets threahold)

KPMG provides additional looks at exchange rates and whether liquidated damages represent variable consideration or warranty in their Revenue Issues In Depth Article.

Reassessment of Variable Consideration

At the end of each reporting period, an entity shall update the estimated transaction price (including updating its assessment of whether an estimate of variable consideration is constrained) to represent faithfully the circumstances present at the end of the reporting period and the changes in circumstances during the reporting period. The entity shall account for changes in the transaction price.

Constraining Estimates of Variable Consideration

An entity shall include in the transaction price some or all of an amount of variable consideration estimated in accordance with paragraph 606- 10-32-8 only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

To determine the impacts of the estimates, an entity needs to determine how likely and how impactful a revenue reversal would be. Factors in determining this probability include:

  • Factors outside the entity’s influence (market factors, third-party factors, weather)
  • Time period surrounding the uncertainty
  • Entity’s experience with similar contracts
  • Entity business practices (i.e. entity has a history of offering concessions or changing terms)
  • A broad range of consideration amounts

Examples of possible constraints are discussed in the KPMG Revenue Issues in Depth Guide.

The Existence of a Financing Component

If a significant financing component exists, the entity will need to adjust the promised amount of consideration based on the time value of money. To make this assessment, the entity must consider relevant factors, including:

  • Difference between promised consideration and the cash selling price
  • Combined effect of the expected length of time between the transfer of goods or services and the customer paying for those goods or services.
  • Interest rates in relevant markets

Observations Pertaining to Significant Financing Components

Some important implications exist in determining whether significant financing components exist and should be accounted for, as discussed below:

Assessment Taken at Individual Contract Level

When looking at whether or not a financing component is significant, the entity determines the significance of the financing component at the individual contract level as opposed to the portfolio level.

No Significance if Transfer of Goods or Services is at Customer’s Discretion

In the event the customer pays for goods or services in advance (e.g. prepaid phone cards, gift cards), it is at the customer’s discretion on when he or she purchases said goods or services. In this event, there is no significant financing component.

Long Term or Multiple-Element Arrangements

In long-term or multiple arrangement contracts (transfers at various points in time, cash payments throughout the contract, changes in estimated timing), an entity faces complexity in determining the time value of money.

There are many additional observations discussed, including the fact that contracts with interest rates of zero may contain in one way or another a financing component, the presentation of income interest as revenue, and determinations on whether it is important to use an interest rate explicitly stated in the contract.

Noncash Consideration

To determine the transaction price for contracts in which a customer promises consideration in a form other than cash, an entity shall measure this, depending on whether the noncash consideration can be measured:

  • If it can be reasonable estimated, noncash consideration is measured at fair value.
  • If it cannot be reasonably estimated, an entity is to use the stand-alone of selling price of the good or service that was promised in exchange for noncash consideration.

Consideration Payable to a Customer

In the event there is consideration paid back to the customer, an entity needs to determine if the consideration payable back to the customer should be accounted for as a reduction in transaction price, a payment for a distinct good or service, or a combination of the two.

The following table shows how an entity needs to look at consideration payable to the customer, and whether the consideration payable is a reduction in the transaction price or a purchase from suppliers:

Q1. Does the consideration payable to a customer (or the customer’s customer) represent a payment for a distinct good or service? (Yes/No)

Yes (Move to Q2)

No (Move to Conclusion 3)

Q2. Can the entity reasonably estimate the fair value of the good or service received? (Yes/No)

Yes (Move to Q3)

No (Move to Conclusion 3)

Q3. Does the consideration payable exceed the fair value of the distinct good or service? (Yes/No)

Yes (Q3): Excess of consideration payable is accounted for as a reduction in the transaction price, remainder is accounted for as a purchase from suppliers.

No (Q3): Consideration payable is accounted for as a purchase from suppliers.

Conclusion 3: Consideration payable is accounted for as a reduction in the transaction price and recognized at the later of when

  • The entity recognizes revenue for the transfer of related goods or services
  • The entity pays or promises to pay the consideration.

 

Additional Observations

In addition to the relative complexity of the above flowchart, there are additional situations that need to be analyzed by legal and accounting teams.

Payments to Distributors and Retailers

A common practice in the CPG industry, payments from brands to distributors or retailers are sometimes accounted for as identifiable goods or services. In these cases, the goods and services provided by the customer may be distinct from the customer’s purchase of the seller’s products. Refer to questions 2 and 3 on the flowchart above.

Scope of Consideration Payable to the Customer is Wider than Payments Made under the Contract

In the event that an entity pays a customer consideration, and the scope of the consideration payable is wider than the payments made under the contract, the entity will need to develop a process for evaluating whether any other payments made to a customer are consideration payable to a customer.

This adds more complexity if payments are made to a customer’s customer and if the amounts paid are outside the direct distribution chain (client/agency relationships, etc.).

Conclusion: Time to Get Moving

17 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

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.

Real Time Information Cloud Accounting

How the Cloud Provides Real Time Insights for Real Time Decision Making

Financial professionals at growing organizations face a ton of challenges. From ‘doing more with less’ to ‘taking on more roles to support the company and inform executives,’ there is little time to waste. Unfortunately, with this rapid growth comes the fact that there will only be more work to do in the future, and with the talent gap that exists, it’s unlikely you will have the help to do it. This is why it’s important to save time wherever you can and improve the speed and confidence in the way you make decisions.

The Need for Speed

One of the biggest challenges that growing organizations face is that employees need to do more without adding staff. However, as an organization grows, there are more transactions, more requests from stakeholders, and more numbers to crunch. This means more work inputting data into the accounting software (or worse—spreadsheets), manipulating the data into something useful, and creating actionable outputs in the form of reports.

Speed and automation were just a couple of the eight things you should look for in an accounting software solution. Click the aforementioned link to see part 1, and read part 2 of that blog here.

Three Reasons You Need Accurate Real-Time Information At Your Business

We briefly recognized lack of speed as one of the top challenges in our blog on knowing when QuickBooks no longer makes the cut, but would like to talk today about why speed and real-time decision-making is so important for organizations looking to jump on new opportunities when the time is right.

The Agility You Need

The beauty of working at a small business is that you can move faster than an enterprise. Unfortunately this agility can’t be recognized without the right information at the right times.

If you are spending too much time crunching the numbers that your company can’t recognize the first-mover advantage that exists when there are no committees and sub-committees of decision makers and influencers. Real-time decision making requires real-time information, when you need it, where, you need it, and how you need it:

  • When You Need It: With smarter accounting from Intacct, organizations can generate reports with the click of a button—no downloading of files or manipulation of data within Excel.
  • Where You Need It: Out of the office? Generate a report. On your phone? Approve an expense. Thanks to its cloud-based design, you can access Intacct securely wherever and whenever you need.
  • How You Need It: Slice and dice your information how you see fit. Intacct is the only mid-market cloud financial application that shows business and operational metrics by any dimension that matters to your business.

Accuracy You Can Rely On

Did you know that nearly every spreadsheet contains errors? If you are driving the decision making at your business with financial metrics, you need to make sure that the numbers are right, as an incorrectly calculated number could mean that you are jumping at an opportunity that you can’t fund, or taking a holding stance when you actually could make a move.

With over 11,000 customers, Intacct has a repeatable, accurate, and efficient way of stacking up the numbers, and has the development capabilities to provide the answers you need.

Time Savings to Deliver Better Strategy

With APQC estimating that nearly half of a financial professional’s time being spent on transaction processing—making sure the lights are on—they also estimate that only 18% is spent on control, 17% is spent on decision support, and 16% on management activities.

With all this time spent on basic activities, and so little being spent improving the business, there is a lot of room for improvement. Executives want fast, reliable, and concise information about how decision A will impact outcome B.

APQC found that successful companies have worked hard to boost the productivity of their transaction processing, simplifying systems, reducing the number of vendors, employing workflow automation for processes like invoice approvals, streamlining ERP environments, and standardizing to a single chart of accounts.

If you hope to take the steps to reduce the time spent processing transactions so you can get back to improving the business, you need to automate what you can so you can put those skills to better use.

Learn Even More

Our latest whitepaper, Taking Your Accounting System to the Next Level, explores some of the warning signs, challenges, and opportunities that organizations face when they outgrow entry-level accounting software. Download the whitepaper here, take your understanding even further by reading the 2017 Buyer’s Guide to Accounting Software on Intacct’s website, or learn more by reading the preview of our whitepaper below.

How Churches Can Embrace Modern Finance

How Church Financial Leaders Can Break Their Spreadsheet Habit

Spreadsheets. Used to manage everything from personal activities and budgets to organizational financial activities, the latter of these poses a multitude of dangers for religious organizations who try to manage funds, cash flows, and expenses using them.

The use of spreadsheets is prevalent in finance, but poses a danger, as a majority of spreadsheets contain errors. Worse, the time spent copying, manipulating, and pasting data is time better spent driving the organization’s strategy or focusing on the mission of your religious organization. Today, we’d like to share with you the dangers of spreadsheet gluttony and how to break your religious organization’s spreadsheet habit.

The Pains of Spreadsheet Gluttony

Spreadsheet gluttony is just one of the seven deadly sins of financial management—joining other common pain points like lack of compliance and slothful tracking—but it is often the most painful and risky ones that plagues financial leaders at churches.

Inaccurate Fund Management

When it comes to managing the different funds at your religious organization, your job includes disbursing, recording, and reporting how the church is managing its funds. When you use spreadsheets, however, you can’t guarantee speed or accuracy in doing this, and the distribution of money into different funds and the management of said funds becomes more challenging with growth.

If you can’t manage the funds, you can’t share in detail what you’re doing with parishioners’ money (which we will discuss below) and you risk the tax man’s hammer. An improperly filed Form 990 can result in the loss of tax exempt status. Learn more about the Form 990 here.

Lack of Detail

The biggest pain of spreadsheets is the lack of insights they provide into the numbers. Even if you are an expert at writing formulas and building relationships between data, this is still only scratching the surface of what could really be measured.

Now you may be thinking, “I don’t need all of these bells and whistles,” but when push comes to shove, you have to realize that your parishioners are more taxed than ever and have more choice in where they send their money as well. This means you need to share with parishioners that you are making good use of their money, as well as knowing when to ask for more.

Details matter, and being able to communicate these details efficiently and accurately to stakeholders, parishioners, and institution leaders was one of the biggest challenges we highlighted in our last blog, Three Common Annoyances Faced by Church Financial Teams.

Less Time Focusing on the Mission

It’s unlikely you got into managing the finances at your religious institution for the lucrative paycheck. It’s more likely you joined for the rewarding work and to help more people to find the grace of religion.

When you rely on spreadsheets and other antiquated processes in accounting, you are taking time directly away from this mission. By automating your processes, you can take the time back your time so you can give back more (or recognize the hidden value of wasting time).

Conclusion

An overreliance on spreadsheets is just one warning sign that your church is outgrowing its accounting software. If you are plagued by extended times generating reports, getting information to decision makers, or even buying paper, it’s time to learn about your options.

At rinehimerbaker, we are focused on helping your church, synagogue, or other religious institution to select, implement, and operate accounting software and other complementary applications. We welcome you to download our guide for organizations outgrowing QuickBooks, to take a look at Intacct’s 2017 Buyers Guide to Selecting Accounting Software, and to read the following to learn even more: