With the December 2018 deadline come and gone, private and public companies alike must now fully comply with the ASC 606 / IFRS 15 revenue recognition standards. These standards require that, for contracts that are in force for more than a year, the costs included must be capitalized (that is, not immediately expensed) and then amortized over the life of the customer relationship. All other costs of obtaining a contract are immediately expensed.
Finance departments everywhere have struggled to adequately meet these standards—and evaluating your commission expense accounting options and selecting the best choice for your company is critical for future growth.
When ASC 606 Gives You Lemons. . .
The ASC 606 demands changes for compliance that disrupts the financial processes that most companies have had in place for years. Fortunately, mandatory disruption can be a good thing because it allows your organization to reexamine and optimize inefficient accounting processes. The importance of understanding and capitalizing on these benefits cannot be overstated. Below are three key ways you can leverage ASC 606 as an opportunity for long-term growth.
1. Capture the Data, Make Better Decisions
Accurate, high-quality data is critical to ensuring compliance. With the right systems in place, companies will be privy to an unprecedented amount of data. Since a waterfall amortization schedule will be required for every line item—for each employee on variable pay and on every contract—companies will be creating an incredible amount of information. This is a blessing in disguise as it will provide sales and finance leaders with more data to make better decisions.
2. Automate Commissions to Decrease Costs
If you’re still managing commissions manually, the compliance needs of ASC 606 are the perfect reason to automate. Not only will your compensation admins and sales ops managers thank you for it, but you will be able to rest easy knowing that the chance of costly errors is significantly reduced. Successful finance teams realize that automating processes based on real and predictive analytics leads to reduced risk, intuitive audit trails, and more profitable decisions for the entire organization.
3. Build Trust with Transparency
Business changes from M&As or legislation like ASC 606 denote risk for customers, prospects, and even employees. Change of any perceptible kind can alter the risk profiles of the companies involved. Under the new standards, finance teams are no longer only reporting on the state of the accounts receivable, but also on the state of the companies themselves. Automation ensures that your team is able to ensure consistent monitoring and communication. This increased transparency builds trust, which keeps costly turnover low.
By introducing tools that streamline and automate commission accounting, you can turn the burden of ASC 606 compliance into an opportunity to implement processes that reduce costs and spark growth. To learn more about the ASC 606 and to see a side by side comparison of ERP systems vs. Xactly Commission Expense Accounting, download the free guide: Commission Expense Accounting Under ASC 606 (IFRS 15).