IFRS 15 process automated with SAP BPC

Automate the IFRS 15 revenue recognition process using SAP BPC.

Since January 2018, all companies across all industries are required to comply with the IFRS 15 revenue recognition standard. The IFRS 15 revenue recognition standard has been developed by the IASB in order to provide guidance on accounting for revenues from contracts with customers. The main purpose of the standard is to align IASB’s and FASB’s definition of revenue. The IASB also felt that its guidance for revenue was not sufficiently detailed. We have developed an automated and integrated solution in SAP BPC for IFRS 15 revenue recognition.

What does it mean for your organization?

To recognize revenue under IFRS 15, your organization should apply the following five steps:

This means that there can be an impact on when and how the revenue should be recognized for all contracts with customers according to IFRS 15. This can lead to complex revenue recognition rules, which have to be applied to individual contracts. The impact will be noticeable in several areas of the organization like Financial Reporting, IT and Operations. An efficient revenue recognition process is key for a fast and efficient month-end closing.

Automate the monthly revenue recognition process using SAP BPC

At CPMview, we have developed a solution which is able to automate the IFRS 15 revenue recognition calculations using SAP BPC. The solution includes a set of standard calculation rules and can be fully integrated within the existing systems-landscape. This means that the IFRS 15’s process can be executed using an automated, integrated and efficient process which will reduce the manual effort required during the month-end closing.

Some key features of the solution:

  • Integrated in the existing (SAP) landscape. Transactional and master data can be integrated into the solution. This can also be transferred back into the source systems to ensure data consistency across systems and reports;
  • A set of standard revenue recognition rules and the possibility to create additional rules specifically for the business requirements;
  • Workflows to 1. support the business in setting up the contracts and performance obligations and 2. to execute the reporting process;
  • A set of reports is provided to analyze, validate and report on generated data. This provides the insight to see which invoices have come in and what the impact of the IFRS 15 revenue recognition rules will be on the invoiced revenues;
  • Automatic deferral and accrual calculations. With a full adoption of the solution, no manual intervention is required;
  • Automated contract-to-date calculations within the tool which provides the possibility to report on Total Revenue, Deferral Balances and Accrual Balances.

Important to know

IFRS 15 revenue recognition rules are not only based on the actual data. To get the correct revenue recognition, the plan is also important! This means that changes in the plan can have an impact on the revenue recognition. By leveraging BPC for revenue planning, all of the information relevant for IFRS 15 can be stored in one tool and made available in a standard set of reports. Due to the fact that most IFRS 15 revenue recognition rules are based on the total contract value, the impact of the plan is noticeable.

The solution has already been implemented at a customer and this customer has been using the automated solution for the reporting.

Within BPC it is possible to perform the following activities:

1. Load the IFRS 15 related contracts. For the contracts it is important that the following information is available:

  • Contract Start date;
  • Contract End date;
  • Contract Currency

If not all the information is available, the system will provide the possibility to update or maintain this information directly in BPC.

2. For the contracts, load or maintain the performance obligations. For all performance obligations, the following information must be maintained:

  • Related Contract;
  • Currency for the performance obligation;
  • Start date;
  • End date;
  • Product/Material.

The tool provides the possibility to load this information from a seperate tool (for example Nakisa) or to create and maintain the performance obligations directly in BPC.

3. Load actual information from SAP.

4. Load the forecast information into BPC, if BPC is not already the tool which is used for the revenue forecasting.

5. Perform the IFRS 15 calculations. This will generate deferrals, releases and accruals in BPC.

6. Validate the BPC generated data using the provided reports.

7. Once validated, export the generated data to the ERP system and into the forecast solution.