2. How to Set Up Standalone Selling Price Profiles
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How to Set Up Standalone Selling Price Profiles
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Cristian Ramirez Principal Instructor Oracle University
October 23, 2018

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4. Agenda 1
Revenue Management Overview ASC 606/IFRS 15 Standard Process Flow Five Steps to Revenue Recognition Contracts, Performance Obligations, and Standalone Selling Price Standalone Selling Price Profiles 2 3 4 5 6

5. Oracle Revenue Management: Overview
Revenue Management is a centralized, automated revenue management product that enables you to address the ASC 606 and IFRS 15 accounting standard.
In May 2014, the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) issued substantially converged final standards on revenue recognition.
The core principle of ASC 606 and IRFS 15 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
Oracle Financials Cloud: Revenue Management Core Team Training

6. ASC 606 and IFRS 15: New Revenue Principles
Replaces ASC 605 and IFRS 18 with:
Expected Consideration
Seven tests for the Transfer to Customers
Performance Obligations
Deals valued at inception of a contract
Point in Time and Over Time Recognition of Revenue
No Dependency on Billing
Contract Revision Tracking
ASC 606: Revenue Recognition and IFRS 15: Revenue from Contracts with Customers have radically change or replaced ASC 605 and IFRS 18 by:
Moving to the expected considerations value for all industries.
Replacing the four tests of GAAP with seven tests to depict the transfer of promised goods or services to customers.
Accruing performance obligations instead of deferred revenue. You accrue this debt for each distinct promise made to a customer and recognize revenue when either party acts. Performance obligations are now the unit of account.
Valuing deals at the inception of a contract. If pricing data is not available, estimates are mandated.
Recognizing revenue for a performance obligation either at a point in time or over time.
Making neither revenue nor performance obligation liabilities dependent on billing.
Tracking revision to contracts as either Variable consideration estimate corrections or contract modifications.
Oracle Financials Cloud: Revenue Management Fundamentals

7. Who Must Adopt and When Must You Adopt the New Revenue Standard
Covers all commercial public companies in the USA and all IFRS countries.
Covers all industries.
You must adopt the effective first day of the new fiscal year after January 1, 2018.
The standard was published three years ago and covers all commercial public companies in all IFRS countries and in the USA, including their subsidiaries in India. When India adopts IFRS, it will cover domestic Indian companies too. India and Japan are the only two countries not covered by IFRS or US GAAP today.
Several forces are behind the new standard. One is that they want all industries to use a common definition of revenue. So both the very technical accounting for the MEA-VSOE American companies and the very straightforward “book when bill” of some others are to move towards the center.
For that reason, it applies to all industries, not just to Hi-Tech and to Telephone companies.
The implementation timeline is the effective first day of the new fiscal year after January 1, Companies with a calendar based accounting calendar must adopt on January 1, If your fiscal year begins in June, then you must adopt by June 1, 2018.
Oracle Financials Cloud: Revenue Management Fundamentals

8. Revenue Management Process Flow
Revenue Management is a centralized, automated revenue management product that enables you to address the ASC 606 and IFRS 15 accounting standard Revenue from Contracts with Customers. Revenue Management provides a configurable framework to automate the identification and creation of customer contracts and performance obligations, their valuations, and the resulting accounting entries. It also lets you recognize revenue over time or at a point in time.
Revenue Management works with any source application and is integrated with Oracle Financials Cloud, Project Financial Management Cloud, and Oracle E-Business Suite (EBS) Release or higher. Revenue Management also provides robust integration with third-party applications through a file-based data import integrated workbook.
Oracle Financials Cloud: Revenue Management Core Team Training

9. What Has Changed: A Comparison
Obsoleted Deferred Revenue Accounting
Adopted Performance Obligation Accounting
You defer that part of a sales invoice you can’t recognize as revenue.
You accrue for goods and services that you owe to customers because either you or they have relied on the contract. You no longer defer revenue.
You value the deferral at fair value and it is non-monetary.
You value the accrual at estimated consideration and it is a monetary debt.
You calculate and book liability when you issue invoices.
You calculate the liability at inception and book it when either party acts. An act could be shipping or invoicing.
Liability is a list of invoices not yet posted to the P & L in full or in part for future release to the P & L.
Liability is a list of goods and services you actually owe to customers for future satisfaction via transfer.
You book the invoiced amount to the P & L when you meet the regulatory definition by industry.
You book revenue to the P & L when you satisfy the customer with no industry-specific rules bill or not billed.
Deferred Revenue accounting was replaced with Performance Obligation accounting. Deferred revenue was abolished because both the USA and the International companies had the same issue: deferred revenue was classified as a liability, but it did not meet the definition of a liability. You do not owe it to anybody. You are just sitting on it until it is allowed to be recognized.
At a certain point, you owe your customer to deliver what they have ordered. They have not replaced the accounting principle that orders do not go on the balance sheet. Rather, at the point when either party acts in reliance on the contract you must accrue your obligation to perform. The offset is an asset and your right to invoice as you perform.
Perhaps the biggest difference between the old regulation and the new is that you now review revenue at the inception of the sales order. You identify contracts and performance obligations without any dependencies on actual billing of the customer.
Oracle Financials Cloud: Revenue Management Core Team Training

10. The Five Key Steps to Revenue Recognition
The five steps provided by FASB and IASB are:
Step 1: Identify the contract(s) with the customer: The definition of the accounting contract in the accounting standard is a little different than the definition of a legal contract in law. The step applies to each contract that has been agreed upon with a customer and meets specified criteria. In some cases, it requires you to combine contracts and account for them as one contract. It also provides requirements for the accounting for contract modifications.
Step 2: Identify the performance obligations in the contract: A contract includes promises to transfer goods or services to a customer. If those goods or services are distinct, the promises are performance obligations and are accounted for separately. A good or service is distinct if the customer can benefit from the good or service on its own or together with other resources that are readily available to the customer and your promise to transfer the good or service to the customer is separately identifiable from other promises in the contract.
Step 3: Determine the transaction price: The transaction price is the amount of consideration in a contract to which you expect to be entitled in exchange for transferring promised goods or services to a customer. The transaction price can be a fixed amount of customer consideration, but it may sometimes include variable consideration or consideration in a form other than cash. The transaction price also is adjusted for the effects of the time value of money if the contract includes a significant financing component and for any consideration payable to the customer. If the consideration is variable, an entity estimates the amount of consideration to which it is to be entitled in exchange for the promised goods or services. The estimated amount of variable consideration is to be included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized does not occur when the uncertainty associated with the variable consideration is subsequently resolved.
Oracle Financials Cloud: Revenue Management Core Team Training

11. Customer Contracts and Performance Obligations
What is a customer contract?
A customer contract is an agreement between two or more parties that creates enforceable rights and obligations.
What is a performance obligation?
A performance obligation is a promise in a contract with a customer to transfer to the customer either:
A good or service (or a bundle of goods or services) that is distinct or
A series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer
An Accounting contract is the primary document not authored in Revenue Management but identified based on information received from various source applications.
The features are based on Contract Identification Rules. Revenue Management groups the lines into contracts for each identified customer. It can combine multiple revenue basis source documents using a common attribute. For instance, your company has two sales tools: one for products and one for services. The customer submits one Purchase Order. That PO is used in both source systems. Revenue Management can combine those sources lines into one contract based on Customer PO number.
Contracts comprise one or more performance obligations that are identified and grouped based on performance obligations rules similar to contract identification rules. Performance obligations are ledger specific. Multiple contracts are created if POs belong to different ledgers.
You can also define exclusion conditions to exclude few lines after including the lines based on a common link. For example, you have included all the lines based on purchase order number and exclude the lines having same the purchase order number and the currency is equal to Japanese yen (JPY).
Contracts detail selling amounts, allocated amounts, revenue recognized, and billed amounts.
Oracle Financials Cloud: Revenue Management Core Team Training

12. Standalone Selling Prices
Standalone selling price is the price at which a customer would purchase a component of a contract separately.
The graphic in the slide illustrates the two types of Standalone Selling Prices.
Revenue Management Cloud cannot allocate pricing on customer contracts without Standalone Selling Prices. SSP is derived by two methods:
Automatically Calculate: Based on a previous period’s SSP, Revenue Management Cloud automatically calculates Observed Standalone Selling Prices (OSSP). OSSP is calculated using median, low, or high values of qualified standalone sales within a given period. Industry-suggested standard guidelines for OSSP should be followed.
Upload from Spreadsheet: If you do not want SSP to be calculated automatically by Revenue Management, you can manually upload the SSP by the ADFdi spreadsheet interface.
Oracle Financials Cloud: Revenue Management Core Team Training

13. Standalone Selling Price Profile
A standalone selling price profile combines all the key setup attributes of pricing into one place.
SSP Profiles are used for establishing standalone selling prices for a product or service.
Revenue recognition rules rely on Standalone Selling Price or SSP for an allocation calculation.
You can use our SSP sub module to observe Stand Alone Selling Prices in your existing sales records, and analyze the results before using them as the basis for your allocation. Standalone Selling Price Profiles determine key parameters for establishing SSP for a product or service.
Observed standalone pricing takes multiple factors into account. For example, location of the customer, classification of the customer, sales channel (direct, through agent), sales volume, deal size etc., Each factor on their own or multiple factors together can influence product pricing. These factors are represented as Pricing Dimensions in Revenue Management. As the price for a product varies based on the pricing dimension values, so does the SSP of a product. Utilizing Oracle’s Flexfield architecture, Revenue Management gives an entity ultimate flexibility in setting up Price Dimensions to represent its pricing strategies.
Standalone Price for a product generally varies based on the volume or value purchased. The higher the volume or value purchased the lower the unit price. For this purpose, the volume or value amounts are grouped into bands and a separate price is set for each band. These bands are captured in the Revenue Management as Pricing Dimension Bands. Utilize Flexfields architecture, Oracle Revenue Management Cloud gives entity ultimate flexibility in setup price bands to support further fine grain on its pricing strategy.
You can also import Standalone Selling Prices that you have estimated or calculated in other ways. A common source of standalone prices are your regular pricing engines, where you might determine the SSP alongside your list price or other standard prices.
Oracle Financials Cloud: Revenue Management Fundamentals

14. Sample SSP Profile
Navigation:
Functional Setup Manager/Setup: Financials/Functional Area: Revenue Management/Task: Manage Standalone Selling Price Profiles
Oracle Financials Cloud: Revenue Management Fundamentals

15. Revenue Allocation Using SSP as Basis
The graphic in the slide illustrates the two types of Standalone Selling Prices.
Revenue Management Cloud cannot allocate pricing on customer contracts without Standalone Selling Prices. SSP is derived by two methods:
Automatically Calculate: Based on a previous period’s SSP, Revenue Management Cloud automatically calculates Observed Standalone Selling Prices (OSSP). OSSP is calculated using median, low, or high values of qualified standalone sales within a given period. Industry-suggested standard guidelines for OSSP should be followed.
Upload from Spreadsheet: If you do not want SSP to be calculated automatically by Revenue Management, you can manually upload the SSP by the ADFdi spreadsheet interface.
Oracle Financials Cloud: Revenue Management Core Team Training