During the second webinar in our Revenue Recognition Standards series, Caitlin Steel shares how the new Accounting Standards Update (ASU) will change your accounting process for commission expenses, and how you can get ready for it. With these new changes you will be required to produce more, and different, data than is expected today.
We’ve identified three primary challenges when it comes to the new standards.
The first challenge is one that directly affects commission administrators, around meeting data needs. This data will most likely be used by a balance sheet accounting team to establish accounting estimates around the life of the customer, and to manage the amortization to ultimately create the journal entries they need.
Of course, all these pieces must be consistent, reliable and ultimately, auditable. In our previous webinar, about 82 percent of our viewers indicated that they anticipated having to change their data. As we review common practices, many companies approach their commissions calculations by aggregating detail on the payee. This of course makes sense when you’re producing a payroll file.
However, with the new rules, you’ll need to structure your data differently, to be able to report on the commission at the customer, contract, or product level. So how will you approach this data challenge? Where do you begin? Here are our 7 steps.
Assemble a Team
The right team members could include your Comp Admin team; from plan designers to executives to the people producing the data.
It could also include accounting team members; this could be controllers, those from your internal audit organization, or balance sheet accountants. Individuals from your internal Audit team, as well as IT may need to be included in analyzing how you approach your data.
Gather Your Existing Data
Once you have the right team assembled, gather your existing data. What do you have today? When you understand what you have, you understand if you have enough detail to report correctly on it.
Over 90 percent of our Xactly Incent™ customers use the Xactly Analytics™ tool, which holds the opportunity to report the data out in a structure that best support this change for you.
Identify the Data you Need
This is where assembling the right team becomes very important.
First, identify the approach your company will take to deal with these accounting changes. Next, look at what kinds of transactions that you have in your system, because different types of transactions will require your accounting team to conclude how they’ll make their estimates or their amortization calculations. Third, you also need to be clear with your accounting and auditing teams about the timing of these changes.
For most U.S. publically traded companies, everyone is going to need to start reporting under these changes for fiscal years that begin after December 15th, 2017. But, that can require companies to have a “look-back” of two years. Lastly, understand the method to calculate the amortization. Where is this data going to go? Where will it be used?
Determine any Gaps in What is Available Today
Outline the reports that accounting will want to make eventually, and then identify what’s missing in that report. What kind of information do you need? What is the source of that missing data?
Design Solutions to Meet your Company’s Specific Needs
What is the solution for each gap you identified? Some of these will be smaller efforts, such as including a piece of data in your analytics view that you haven’t before. Some will be bigger pieces, like making sure you capture more data that you previously haven’t captured.
Make sure you keep track of your progress for each piece. Don’t forget that unexpected challenges will come up, and implementing changes like this will be a huge team effort. It’s important that you jump in to help solve these unexpected challenges.
Test Results and Improve as Needed
What items are you expecting? Try running a scenario. If you’re a customer of Xactly Incent, run some information through your Xactly Sandbox™, and make sure that the data that’s produced is what you expected. Learn more about ASC 606 (IFRS 15) compliance in our recent webinar, " Meet Commission Accounting Requirements Under ASC 606 (IFRS 15)."