PwC outlines a comprehensive framework for how companies should respond to the new revenue recognition standard. The standard will impact many areas of a company's operations, requiring changes to processes, systems, controls, and disclosures. PwC recommends a phased project approach including establishing governance, project management, and change management. Companies need to understand how the standard applies to their contracts and performance obligations to identify potential differences in accounting. Implementation requires understanding impacts across the organization and ensuring alignment.

1. How Are Companies Responding • New Revenue Recognition Standard
PwC
How Companies are Responding
© 2013 Leeyo Software, Inc. All Rights Reserved. Confidential Information.
New Revenue Recognition Standard
with Stig Haavardtun, PwC Assurance Partner

2. How are Companies
Responding
New Revenue Recognition
Standard
Strictly Private
and Confidential
January 30, 2015

3. How Are Companies Responding • New Revenue Recognition Standard
PwC
Overview – New Revenue Recognition Standard
Step 1 – Identify
the contract
• Generally consistent with existing practice
• Collectibility must be “probable”
• Additional guidance on accounting for contract modifications
Step 2 – Separate
performance
obligations
• Distinct criteria replaces standalone value for multiple element arrangements
• May result in more items being identified as performance obligations than under
current guidance
Step 3 –
Determine the
transaction price
• Variable consideration must be estimated subject to a constraint
• Exception for sales-based royalty arrangements for licenses of intellectual
property
• Consideration of time value of money
Step 4 – Allocate
transaction price
• Transaction price allocated based on relative standalone selling prices
Step 5 –
Recognize
revenue
• Model is now based on transfer of control
• Specific criteria for identifying when a performance obligation is satisfied over
time
Other • License (Dynamic vs. Static)
• Disclosure – much more extensive
• Contract costs
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4. How Are Companies Responding • New Revenue Recognition Standard
PwC
Potential areas of difference
Volume Discounts
Contingent
revenue
“Cash cap”
guidance
Service level
agreements
Distributor
revenue
Allocation of
discounts
Units of delivery
method
Extended
payment terms
Sales commission
Funded R&D
arrangements
Certain POC
methods
Ratable revenue
may change
Time value of
money
Consignment
arrangements
Bill and hold
arrangements
Other contract
costs
Term licenses
Certain
Subscriptions
Customer loyalty
programs
Vendor protection
clauses
Contract
modifications
Extended
Warranties
In-transit loss
coverage
Discounted goods
or services
No VSOE
limitation
Roadmaps
Implied
Maintenance
Residual
Approach
Customization
implementation
Elimination of
software guidance
Disclosures
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5. How Are Companies Responding • New Revenue Recognition Standard
PwC
What’s the change?
5
Revenue Recognition Systems
Transaction systems
(order, quoting,
contract processes)
Invoicing, Billing
and Collections
Systems
Revenue
Calculation
Systems
General ledger
Reporting
Platforms
Revenue
Models &
Triggers
New data may be needed from:
• Ordering systems
• Quoting systems
• Contracting systems
• Billing and invoicing systems
• Cash and treasury processes
• Licensing operations
• CRM
Accounting guidance has changed,
requiring new judgments and
estimates to be made, new data
capture, new calculations and new
reporting to meet guidance
requirements
“If I change $1 of revenue, what
are we going to have to change?”
New requirements may be needed in the following organizations or
processes:
• Revenue calculation systems
• Close and accrual processes
• General ledger and reporting systems
• Forecasting and budgeting processes
• Incentive compensation
• Investor relations
• Tax
• Channel partner incentive programs
The new Revenue Recognition standard impacts the allocation methodologies, triggers for, and timing when revenue is
recognized for products and services delivered to customers. This change impacts the order-to-cash and close-to-report
cycles as shown below.

6. How Are Companies Responding • New Revenue Recognition Standard
PwC
Implementation considerations
Process and systems
• May need to update current software (ERP, revenue modules and other
databases) to capture new information that was not necessary previously
Technology
Involvement of IT is
paramount; the new standard
provides an opportunity to
implement revenue
automation replacing Excel
and manual processes
• The standard requires companies to make more estimates and disclosures,
calling for new controls and processes
Controls processes
• The new revenue standard may provide business opportunities around pricing
strategy and/or product offerings and bundles
Business opportunity
• Forecasting will need to reflect the new revenue recognition timing and patterns
• As new patterns from the new standard and potential new strategies emerge,
accurate forecasts may be difficult upon implementation
Forecasting
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7. How Are Companies Responding • New Revenue Recognition Standard
PwC
Other considerations
Cross functional impacts
• Bonuses are often based off of EBITDA metrics and/or revenue recognized
• The new standard may impact EBITDA and timing of revenue recognized
Compensation and bonus plans
Groups outside of accounting
that will need to be consulted
include:
Audit Committee
• Investor Relations
• Financial Planning &
Analysis
• Sales
• Legal
• HR
• Tax
• Accounting IT Function
• New contract terms resulting from new go to market strategies should be vetted
with Legal
• Existing terms could take on new meaning under the new standard. Companies
may consider re-negotiating contracts to maintain the original intent
Contracts
• Timing of cash tax payments could be affected – especially if revenue
recognition is accelerated under the new standard
Tax implications
• Stakeholders will want to know how revenue recognition will change and how
the new standard will affect the company’s financial results
Investor relations
Investors and analysts will
need to be educated on the
impact of the new revenue
standard
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8. How Are Companies Responding • New Revenue Recognition Standard
PwC
PwC’s Suggested Overall Project Approach
Phased approach entities should consider in implementing the Standard
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9. How Are Companies Responding • New Revenue Recognition Standard
PwC
Establishing the right foundation is critical for a successful project
Governance
• Identify and gain support of an executive sponsor and a business owner to lead and
advocate
• Appoint a steering committee that includes affected functional areas who will guide
and support
• Align sponsor, business owner, steering committee, and project manager around
vision, goals, and objectives; prepare and support them to advocate for the change
Project
management
• Select an experienced project manager
• Establish project management principles, processes, and practices based on past
successes and lessons learned
• Staff project management and key activities with flexible, experienced staff
• Develop continuous improvement process to adapt based on lessons learned
throughout the life of the transformation
Change
management
• Evaluate organization’s change management capabilities, practices, structure and
tools
• Determine approach to manage change for the transformation
• Enlist change team – both internal and external (if necessary)
• Initiate initial project communications to align leaders and prepare organization
Project / change
management on this
project will be complex
given judgments inherent
in adoption of a principles
based accounting
standard. Project plan will
need to be flexible and
responsive in the face of
this uncertainty
We suggest including
project management SMEs
who have extensive
experience of managing
complex projects.
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10. How Are Companies Responding • New Revenue Recognition Standard
PwC
How do I respond?
10
PwC has developed a program framework encompassing every aspect of a company’s operations impacted by the Revenue
Recognition standard. This forms a template for a company’s response.
• Ensure accounting policy
alignment across the
organization
• Understand tax implications
• Collaborate with
IT team to ensure accounting
inputs into system design,
testing, and training
• Review business
requirements and functional
design specifications
• Facilitate the future state process and enable capabilities
working with Finance and Accounting
• Lead the overall implementation of the solution and
provide inputs to IT
• Work with Program Management to utilize a standardized
implementation approach and to track program progress
• Understand the data landscape and elements
required for revenue calculation and
recognition and develop use cases
• Develop the data migration strategy to meet
use cases
• Integrate with Accounting Oversight and
Systems Implementation to enrich and
convert data as per policy and system
requirements
• Determine the
organizational impacts,
training strategy, and
post-go live support model
• Collaborate with Program
Management and Systems
Implementation to lead
employee mobilization,
training, and knowledge
transfer
• Understand the program
plan activities and
milestones to develop and
execute against a
communication strategy
• Understand the Accounting policy touch
points along the Order to Cash and Close to
Report cycle continuum
• Document Accounting impacts to any touch
points along the Order to Cash and Close to
Report cycle
• Develop a process oriented Use Case
Template that identifies impacts across the
entire program – This is for use with the
other elements of this program structure
Program
Management
Accounting
oversight
Process & Controls
Management
Systems
Implementation
Organizational
change
management
Data
Management

11. How Are Companies Responding • New Revenue Recognition Standard
PwC
Understanding the process flow
Understanding the process and controls management implications starts with building a comprehensive understanding of
the client’s new accounting policy and the related use-cases.
11
Accounting Policy Use Cases Technology Data Elements
Determine and document the
technical revenue recognition
accounting policy applicable
for the company
Create use cases to address
the accounting policy
Identify and document:
• Business process
• Stakeholders, owners and
actors
• Systems and software
• Key information
Inventory technology
solutions (systems, software
and stores)
Identify and document:
• Functionality
• Integration
• Security
• Controls
Inventory key data elements
Identify and document data
element:
• Existence
• Quality
• Life-cycle
• Controls

12. How Are Companies Responding • New Revenue Recognition Standard
PwC
Use case details
For each variation in business model, product type and order channel, management should consider documenting a use case
based on the following framework elements:
• Revenue processing rules, as driven by GAAP requirements
• Reporting rules, as driven by GAAP and internal requirements
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Expected Processing Rules:
• Identify Contracts
• Identify Performance Obligations
• Identify Transaction Price
• Allocate Transaction Price
• Recognize Revenue
Expected Reporting Rules:
• GAAP/SEC
• Sales and Compensation
• Business Unit/Geography
• Product

13. How Are Companies Responding • New Revenue Recognition Standard
PwC
Linking system capabilities to processes
Revenue automation scope includes 3 key processes – Assess Contract, Allocate Revenue, & Release Revenue
13
Identify
Contract
Assess
Contract
Transact
Contract
Report
Revenue
Release
Revenue
Elements/SKU/
Item Master
Customer
Contracts
Delivery
Fulfillment
GAAP Reporting
Distinct
Performance
Obligations
Allocate
Revenue
Establish Fair
Value
Bundled SKUs
Marketing
Programs
/Promotions
Terms and
Conditions
Standard and
Discount Pricing
Delivery
Obligations
Customer Master
Deferred Revenue
Elements
Pre-defined
Product/Service
Bundle
Revenue
Deferral/hold
Simple “Accounting
MEA”
Complex
“Accounting MEA”
Sales Orders
Invoices
Adjustments/
Cancellations
Pricing
Consumption-
based Billing
Establish Revenue
Allocation Rules
Compare Sell Price
vs Fair Value
Revenue Allocation
Build Deferred
Revenue Schedule
Amortize Service
Revenue
Record
Revenue/Deferred
Revenue
Provision Services
Apply Revenue
Release Triggers
Calculate Deferred
Revenue/Reserves
Manage revenue
waterfall
Revenue
Forecasting
Segment/Channel
Reporting
Management
Reporting/WWIC
Statutory
Reporting
Revenue
Compliance
Monitoring
In-scope processes
for revenue
automation solution
Automated via
transaction system
Automated outside of
revenue automation solution
(could be based on reports
from revenue automation
solution)
*In scope and automated processes are
dependent on specific system capabilities

14. How Are Companies Responding • New Revenue Recognition Standard
PwC
What can be automated
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Manual
Automated
• Straight-forward single element revenue recognition
• Overtime (Ratable) revenue recognition for service/maintenance
• Point in Time - Revenue recognition on an systematic pattern
• Performance Obligation breakout with bundled SKUs
• Standalone Selling Price calculation and allocation
• Fair Value establishment (i.e. standalone selling price)
• Simple deal/contract deferral (e.g., FOB, partial shipment)
• Linking deals/contracts into multiple elements arrangement
• Complex deal/contract deferrals
• Deal/contract review
• Variable considerations
• Simple cost deferral
• Complex cost deferrals

15. How Are Companies Responding • New Revenue Recognition Standard
PwC
Data management implications
The following are a list of expected master and transaction data sets that will be impacted and/or required for the New Standard
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• Product/Service
• Pricing & Discounts
• Customer
• Volume Licensing Offer
Master Data
• Contract (MPSA, PAR Agreement)
• Sales Order
• Benefits
Sales Transaction Data
• Billing Document
• Credit/Debit Memo
• AR/Collection
• GL posting for Revenue Adjustments
Billing & Collection Data
• Fulfillment (physical or digital delivery)
• Provisioning (services)
• Entitlement
Revenue Trigger Data

16. How Are Companies Responding • New Revenue Recognition Standard
PwC
C2C process implications – Revenue processing
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Calculate Standalone Selling Price
Variable Consideration Management
Options for Future GoodsCombine Contracts
Contract Reviews
Revenue Processing
Revenue processing now
follows a five step process
with allocation and
recognition based on
performance obligations
Contracts entered
into at or near the
same time and are
negotiated as a
package, payment
is interdependent,
and reflects a single
performance
obligation must be
combined
Free or discounted
future products and
services can give
rise to performance
obligations
Contract review
process needs to be
updated and
provide inputs into
first three steps of
the revenue
recognition process
Recognize Revenue
Identify Contracts with
Customers
Identify Separate
Performance
Obligations
Determine
Transaction Price
Allocate Revenue
Contract Modifications
Disclosures and Reporting
Contracts create
enforceable rights and
obligations and
collectability is probable
at contract inception
Unique promises in a
contract to transfer goods
or services to a customer
need to be identified
Establish the expected or
most likely transaction
price, considering both
variable and non-cash
considerations
Transaction price
allocated to separate
performance obligations
based on relative
standalone selling prices
Standard allows for the
recognition of revenue
when control is
transferred to the
customer
Constrained to the amount for which it is
probable [US GAAP] or highly probable [IFRS]
that a subsequent change in the estimate
would not result in a significant revenue
reversal
A modification is a change in the scope or price
or both of a contract and it creates new, or
change existing, rights and obligations under
the contract
Disclosures are enhanced compared to current
requirements and data gaps/system
requirements may need to be addressed to
populate disclosures
VSOE, TPE, BESP
hierarchy goes
away and only the
selling price of an
item provides the
strongest evidence
Cost Capitalization
Requirement to
capitalize
incremental
contracts costs if
amortization
period is greater
than a year

17. How Are Companies Responding • New Revenue Recognition Standard
PwC
PwC Revenue Recognition Toolkit
PwC has developed a suite of flexible, project-enabling tools and templates to
support our clients to quickly mobilize and help facilitate an efficient and
effective conversion project
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18. How Are Companies Responding • New Revenue Recognition Standard
PwC
This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information
contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the
information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any
liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any
decision based on it.
© 2014 PricewaterhouseCoopers LLP, a Delaware limited liability partnership. All rights reserved. PwC refers to the United States member firm, and may sometimes refer to the
PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and
should not be used as a substitute for consultation with professional advisors. © 2014 PricewaterhouseCoopers LLP, a Delaware limited liability partnership. All rights reserved.
PwC refers to the United States member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for
further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
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19. How Are Companies Responding • New Revenue Recognition Standard
PwC
Stig: stig.haavardtun@us.pwc.com
Leeyo.com
© 2013 Leeyo Software, Inc. All Rights Reserved. Confidential Information.
Leeyo: sales@leeyo.com