The complexity of revenue management continues to challenge finance professionals.
The Four Key Complexities of Revenue Management
The complexity of revenue management continues to challenge finance professionals. Only recently,
have companies been able to stay competitive by developing and delivering new products and services
to meet diverse customer demands.
From a financial controls perspective, revenue is an area that financial auditors declare as displaying inherent risk and one that is frequently probed by regulators. As a result, companies should design Internal Controls Over Financial Reporting (ICFR) to mitigate the risk of material error in revenue accounts. One of the primary drivers for risk in the revenue account is the significant management judgement that comes with recognizing revenue, especially with the upcoming revenue standards.
Guidance from the American Institute of Certified Public Accountants (AICPA), the Securities Exchange Commission (SEC) and the Financial Accounting Standards Board (FASB) can make revenue managers feel like they’re trying to hit a moving target—blindfolded. These regulations are challenging to interpret and apply consistently, particularly since many companies execute so many non-standard agreements with customers. To add to the complexity, the International Accounting Standards Board (IASB) and FASB have issued a new revenue recognition standard that will replace the current U.S. industry standards for Fiscal Periods ending on or after December 15th, 2017. Industry leaders have called this new standard the most significant revenue recognition guidance in the last 15 to 20 years.
For many companies, revenue forecasting is more art than science. There is often confusion as to whether sales or finance owns the revenue forecast. Furthermore, since a traditional income statement does not distinguish between one-time and recurring revenue, companies fail to properly manage the impact of deferred revenue and recurring business. This translates into more than just failures of predictability—it also represents tremendous potential for lost opportunities in renewals, upsells, and cross-sells.
Today, too many companies are using simple spreadsheets for critical revenue-accounting tasks. Fragile, static and complex single-user spreadsheets require extraordinary manual effort to build and maintain. Even with all that effort, almost all sophisticated spreadsheets contain errors, which can lead to wasted time spent investigating those errors, and, in the worst cases, material financial reporting errors. Complex revenue recognition spreadsheets are a chief cause of monthly close delays and revenue leakage. What’s more, they lack the easy auditability and strong security that are required for such a heavily regulated function.