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OpenWorld 2018 THT Revenue Best Practices Evolution After ASC 606 and IFRS 15
Seamus Moran Oracle Development October 22, 2018
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5. ASC 606 & IFRS 15: Worldwide Revenue Reform
In this session hear how customers are adopting ASC 606 and IFRS 15. Discover the lessons learned when deploying Oracle's revenue management cloud solution to optimize the performance obligation framework.

6. At the end of the day, your sales are the same but just everything about the process is different
I’m just trying to figure my deferred revenue at fair value
You are trying you figure your debt to customers for goods & services, offset by your future right to bill them, and you value that debt at expected consideration allocated on the basis of your “separate & similar sale” selling prices.
Now I need a revenue engine to book my invoices
You need to review at inception, accrue the obligation when either party acts, and can’t record an invoice as a receivable until time is the only obstacle to collection. Invoices wash against contract assets.
The observation tool should work on components
VSOE is gone. You either (a) observe SSPs or sell at SSPs, or you (b) estimate “Separate & Similar Sale” Standalone Selling Prices. Components are not separate sales; and SSPs are supported by separate sales.
We keep our revenue nice and smooth for the shareholders
Today, under ASC 606 & IFRS 15, we recognize revenue on transfer to customers – volatile or not

7. An Obligation (liability) balance to provide product of either:
Problem Statement,
as stated by the Customer
We contract to sell product to a customer 25 quantities each year for the next 8 years. We invoice the customer upfront $80 x 25 = $2000. The first year we ship 25. The second year the customer requests, 22 quantity as the demand that year is only 22. Revenue is recognized as per the fulfillment, which is 25 in the first year and 22 in the second year, and so on. Likewise, each the customer specifies the quantity they need. Accordingly, at the end of the 8th year we have supplied a total of 195 units only. That leaves an unearned revenue balance of $80 x 5 = $50. Contractually, at the end of the 8th year, there is a POB that will not be fulfilled and we are entitled to keep that money and we need the ability to automatically take credit for the remaining UER balance of $50. 
Revenue Basis?
Either or both of:
Revenue is recognized as per the fulfillment, which is 25 in the first year and 22 in the second year, and so on.
We are entitled to keep that money and we need the ability to automatically take credit for the remaining
Balance Sheet
An Obligation (liability) balance to provide product of either:
An unearned revenue balance of $80 x 5 = $50
POB that will not be fulfilled (no obligation means zero balance)
ASC 606 IFRS 15:
3 compliancy solutions on a spectrum: more are likely and possible
Revenue is recognized as per the fulfillment, which is 25 in the first year and 22 in the second year, and so on
One performance obligation (perhaps a series) with contract modifications each year
Fails to address the right to retain the underage; does facilitate billing an overage
One performance obligation (perhaps a series), representing a supply service. Recognition by unit quantity over total quantity (i.e. only indirectly by unit), total quantity reduced/increased by contract modification.
Both a) per fulfillment and b) keep that money
Two performance obligations, one by quantity, updated by contract modifications. The other a provisioning or updating service, discounted in full at the max. unit delivery, but kicking in on reduced quantities

8. as stated by the Customer
Problem Statement,
as stated by the Customer
We contract to sell product to a customer 25 quantities each year for the next 8 years. We invoice the customer upfront $80 x 25 = $2000. The first year we ship 25. The second year the customer requests, 22 quantity as the demand that year is only 22. Revenue is recognized as per the fulfillment, which is 25 in the first year and 22 in the second year, and so on. Likewise, each the customer specifies the quantity they need. Accordingly, at the end of the 8th year we have supplied a total of 195 units only. That leaves an unearned revenue balance of $80 x 5 = $50. Contractually, at the end of the 8th year, there is a POB that will not be fulfilled and we are entitled to keep that money and we need the ability to automatically take credit for the remaining UER balance of $50. 
Revenue Basis?
Either or both of:
Revenue is recognized as per the fulfillment, which is 25 in the first year and 22 in the second year, and so on.
We are entitled to keep that money and we need the ability to automatically take credit for the remaining
Balance Sheet
An Obligation (liability) balance to provide product of either:
An unearned revenue balance of $80 x 5 = $50
POB that will not be fulfilled (no obligation means zero balance)
ASC 606 IFRS 15:
3 compliancy solutions on a spectrum: more are likely and possible
Revenue is recognized as per the fulfillment, which is 25 in the first year and 22 in the second year, and so on
One performance obligation (perhaps a series) with contract modifications each year
Fails to address the right to retain the underage; does facilitate billing an overage
One performance obligation (perhaps a series), representing a supply service. Recognition by unit quantity over total quantity (i.e. only indirectly by unit), total quantity reduced/increased by contract modification.
Both a) per fulfillment and b) keep that money
Two performance obligations, one by quantity, updated by contract modifications. The other a provisioning or updating service, discounted in full at the max. unit delivery, but kicking in on reduced quantities
Your Adoption of ASC 606 or IFRS 15 must be determined before you can automate it.
It is a matter of your Governance, Risk Management an Internal Control.
It cannot be delegated to your System Implementer or Software Vendor.
Of course, we are pleased to help and share solutions.
Question like those raised here must be answered first in terms of your policy. Then we can map that objective to the software.

9. Transaction Price = Expected Consideration =
Getting started - Identify data needed to: Review Contracts and Allocate Prices at Inception
ASC 606 and IFRS 15 repeat the phrase “Review the Transaction at Inception and …” several times
Review At Inception
1. Contract ID # x
Transaction
Net Billing
Sale Price
Apparent Discount/ Premium
Standalone
Or ESP
Basis for Alloc.
4. Allocation
Revenue
& POb
Value
Discount
Allocation
Nets to Zero
True Discount
2. Perf. Obligation #1 40
(20) 60
95% * 60 = 57
17
(3)
Perf. Obligation #2 55 15
95% * 40 = 38
(17)
(2)
3. Transaction Price 95
Transaction Price = Expected Consideration = 0
When Sold Separately in Similar Sales Price (SSP)
Contract Discount, SSP-Trx: =
100
(5)
95/100=95% relativity; a 5% discount
ASC 606 & IFRS 15’s 1st 4 steps
Identify the Accounting Contract
Identify the Promises to the Customers
Determine the Transaction Price
Allocate the Transaction Price to the Promises based on Separate Sale prices

10. Transaction Price = Expected Consideration =
Identify that Data in your ASC 605 or IAS 18 EBS Deployment The practical side of adopting the standard
What data do you need to identify & link contracts? Where is it?
Where should we read your customer facing pricing from? Orders? Price Lists?
Where will your SSP or ESPS come from? How will your match them to your PObs?
Do you know the business events that will represent either party acting, and will send us to book the accrued obligation? You might not be able to rely on invoicing.
Review the Transaction at Inception And…
1. Contract ID # x
Transaction
Net Billing
Sale Price
Apparent Discount/ Premium
Standalone
Or ESP
Basis for Alloc.
4. Allocation
Revenue
& POb
Value
Discount
Allocation
Nets to Zero
True Discount
2. Perf. Obligation #1 40
(20) 60
95% * 60 = 57
17
(3)
Perf. Obligation #2 55 15
95% * 40 = 38
(17)
(2)
3. Transaction Price 95
Transaction Price = Expected Consideration = 0
When Sold Separately in Similar Sales Price (SSP)
Contract Discount, SSP-Trx: =
100
(5)
95/100=95% relativity; a 5% discount
What data do you need to identify POs? Where is it? How will you identify distinct? What is your Unit of Account?
Do you trust the total you are giving us? Have you a process in place to complete estimates before loading?
Do you know the business events that will represent transfer to customer, and will send us to recognize revenue? The 4 tests of GAAP are replaced with 7.
We’ll match your bills to your assets to follow this. What cross reference to use?
Identify the Accounting Contract 5. Determine whether the Promise is Point
Identify the Promises to the Customers in Time or Over Time
Determine the Transaction Price
Allocate the Transaction Price to the Promises

11. Performance Obligations – the new thing in accounting
Some Attributes of Performance Obligations
Performance Obligation Number & Description
Distinct Point in Time Overtime
Series
Item, UOM, Quantity
Start & End Dates
Customer Facing Price (invoice amount)
Separate Sale “standalone”
Selling Price
or estimate
Value:
Expected Consideration Alloc Basis: SSPs
Balance Sheet: Obligation Liab. Right to Bill & discount xfr.
Promise, until either party acts, then Performance Obligation
Contract, Customer;
Revenue Classification
Classification
of Similar Separate Sales for SSP
Source Lines; Bundling & Grocery Lists; Components
Revenue: Satisfaction Plans & events;
Initial & RR
Customer Authorized Contract Modifications
Variable Consideration Estimate Corrections
Denomination,
Currency;
Fixed Rate
Variable Rates

12. Similar Separate Sale “Standalone” Selling Prices
15-74 &
15-77 &
“when the entity
sells that good or
service separately
in similar
circumstances
and to similar
customers”
15-78 &
“If a stand-alone
selling price is
not directly
observable….”
VSOE & Fair Value (calculated SSPs) are dead, long live SSS-SSPs
Allocate Expected Consideration to Performance Obligations on the basis of SSS-SSPs
If you can observe them directly on Similar & Separate Sales, great; otherwise estimate
Do you have Separate Sales that are Similar to the current one ?
Note: VSOE literature cannot be used to justify “separate sales”
If yes, use their selling prices as a basis to allocate this one
If yes, you can use your list or contractual price to posit the standalone selling price
You must perform a test of your presumptions (e.g. list is 100%, we always sell at 80%)
IF No, Estimate what you would get for the POb if you sold it separately
Estimation is the successor to VSOE & evidencing your vendor-specific prices objectively
Needs “Estimation Accounting” pre- and post- processes, similar to accrual accounting
Not limited to 3 estimate types: Market, Cost Plus, Residual (only 2 cases)
Avoids Congressional Plain-English issues and “false precision”; requires mgmt. judgment

13. Model the accounting as you set it up
Have you identified & captured the attributes at inception, satisfaction, and billing, to trigger what you want?
When you are exercising an issue such as our customer transaction earlier, work out the accounting like this.

14. Customers Adopting ASC 606 or IFRS 15 with RMCS, October 2018
Jan 1, 2018: Effective First customers started first year
March 30, 2018 Many More customers started first year
Sept. 30, 2018
More customers started first year
Others started RM after
GAAP adoption date
Dec. 31, 2018
First customers’ first disclosures
Getting Started & Other
Testing GRC & Setup
Running Pre-Adoption & Testing GRC
Live or running pre-Adoption
Live, Adopted, & Public
Confidential – Oracle Internal/Restricted/Highly Restricted

15. The Famous Four Chevrons and Box: Steps 1-5 to Comply
US GAAP’s ASC and
IASB’s IFRS 15 RR
IPE
RMCS FUNCTIONALITY
Recognize Revenue When a Performance Obligation is Satisfied
Import Source
Data
Identify the
Separate
Performance Obligations
Identify the
Contract(s)
With Customer
Determine the Transaction Price
Allocate The Transaction Price
Accrue the Performance Obligation
Import
PD->PO->Contract Rules
Allocation
Accounting
“IPE” = Initial Performance Event, system event for “either party performing”

16. Revenue Management ASC 606 and IFRS 15 Compliance Automation
ERP CLOUD
Cloud Service order, billing, & fulfillment data
Cloud Service General Ledger
Revenue Management
ASC 606 and IFRS 15 Compliance Automation
The Standard’s Five Steps to Revenue
Third party and EBS On Premise Sales Cycle Data
EBS General Ledger