To account for commissions under ASC 606 (IFRS 15), organizations must have a reliable and logical system of record. This system must be able to effectively manage and track the amount and detail of commissions data required, integrate with existing financial systems, and provide a clear and secure audit trail.
Now that the ASC 606 is in effect for both private and public organizations, many companies have discovered that spreadsheets are inadequate in managing their commission expense accounting (CEA) processes. While many companies intend to use Enterprise Resource Planning (ERP) software—in lieu of Excel or other homegrown solutions—to ensure compliance, these solutions have and will continue to fall short.
To choose the best solution for managing commission accounting processes, companies should consider the differences between using ERP software versus a purpose-built solution like Xactly CEA. There are several key considerations crucial to making the best decision when it comes to automating processes. Specifically, the ASC 606 accounting standard necessitates that your accounting solution meets five critical requirements.
Requirement 1: Access and Track Commissions Costs at a Granular Level of Detail
Not designed for large commission data volumes
Only provides journal entries at summary level
Provides dynamic and granular commission insights
Offers end-to-end traceability and clear audit trails for commissions
Requirement 2: Manage Accruals and Reallocations
No support included
Includes advanced accruals and reallocation processes
Requirement 3: Identify and Apply Adjustments Based on Customer, Contract, and/or Employee Changes
No true-up automation
Additional system required
Offers automated true-ups
Provides simplified management
Requirement 4: Monitor and Report on Commissions Reporting
No customizable features for commissions reporting
Includes built-in customizable reports
Requirement 5: Interoperate with Upstream and Downstream Internal Systems
Intrinsic integration with general ledger only
Difficult to integrate with other systems
Integrates with ICM and downstream financial applications
Supports open data model to support ease of integrations
Simplifying Commission Expense Accounting
Managing accounting processes for sales commissions has only become more complex under ASC 606. Although ERP systems can automate revenue calculations, control revenue processes, and ensure traceability—they were not designed to track the extensive details of incentive compensation.
Xactly CEA meets every ASC 606 requirement and ensures easier compliance. To see the complete comparison between ERP systems and Xactly CEA, download the guide: “Commission Expense Accounting Under ASC 606 (IFRS 15).”