If you’re paying your team commissions as part of your sales compensation plan, then your organization must adhere to the new Revenue Recognition Standard, known as ASC 606 (IFRS 15). This new accounting standard is changing the way companies report the costs of obtaining a contract—most often, sales commissions. As companies are implementing new accounting practices, they’re discovering new ASC 606 compliance challenges that weren’t necessarily foreseen prior to implementation.
In a recent webinar, Xactly Assistant Controller, Tom Stehno, and Sitecore Director of Finance, Mayank Kalla, discussed how their organizations are handling implementation and best practices for tackling the challenges associated with ASC 606 compliance.
The biggest lesson companies have learned so far? The implementation and compliance process is far more complex than expected. To give you a snapshot, here are four best practices for easier ASC 606 compliance that emerged from their conversation.
1. Determine What Data You Need to Collect
Problem: You don’t know what data you need for compliance
Best Practice: Get to know your sales compensation plans
In order to get the data you need for ASC 606 compliance, it’s important to first understand the different sales compensation plans your organization currently has in place. In most companies, incentive plans differ by sales role, product, etc., and there are often other incentives, such as SPIFs and MBOs in place.
By diving into your compensation plans, you can understand what incentives are truly instrumental to obtaining a contract. This tells you what data you need to gather so that you can accurately amortize commissions and expenses.
2. Use Automated Incentive Compensation Management (ICM) to Gather Data
Problem: You don’t have access to historical commissions data
Best Practice: Take advantage of ICM custom reporting to gather data easier
Under ASC 606, companies need detailed levels of historical data to breakdown the associated costs of a contract. This has proved challenging for organizations that are manually managing their commissions through spreadsheets and homegrown tools.
Using automated ICM tools, businesses can custom design reports to gather all of the data they need for ASC 606 compliance. This simplifies ASC 606 compliance, but it also gives leadership more insight into the sales organization as a whole—which allows for more strategic sales planning and better decision-making.
3. Get Advice From Auditing Experts
Problem: There’s no precedent to follow for implementation
Solution: Keep your auditors in the loop from the beginning
Determining the best path to ASC 606 compliance is challenging for organizations because, under the revenue recognition standard, there are no guidelines for the proper way to gain compliance. Because of this, two main transition methods have gained popularity.
Talking with your auditors early will give you better clarity on the entire ASC 606 compliance process. Work with your auditors to ensure you choose the right transition and compliance path for your organization. Your auditors can also help you determine the right data to pull so that your ICM solution is generating the right reports.
4. Start Implementation as Soon as Possible
Problem: You aren’t sure when to start implementation
Solution: Give your team as much time as possible
Every implementation and company are different—so the more time you have to plan and implement, the better. Because there are no true guidelines for the “right” way to comply with ASC 606, each company is interpreting the standard differently.
That’s why both Xactly and Sitecore recommend (if you haven’t already started), you do so ASAP. That piece of advice was also echoed at the ASC 606 customer roundtable we held at CompCloud on the Road in Austin, TX—read more about it here.
Want to learn more ways you can simplify ASC 606 (IFRS 15) compliance? Watch our on-demand webinar with ExaGrid Systems to see how they tackled ASC 606, “A Path to ASC 606: Two Corporate Controllers on Managing Commissions Accounting.”