cp-42: revenue recognition standard asc606 …...objectives by the conclusion of this session, you...

CP-42:Revenue Recognition Standard ASC606 Addressing the Standard in Costpoint

Andy Unwin, Deltek

Course Description

CONFIDENTIAL © Deltek, Inc. All Rights Reserved. 2

Description: Still trying to initialize your

ASC606 Revenue? Come and hear an

overview of the Revenue Standard, ASC

Topic 606. You won't want to miss this

session. We'll also talk about: A new

Revenue Evaluation and Disclosures

screen to help you track your progress with

evaluating your contract revenue. New

revenue formulas that have been added to

Costpoint 7.1.1. How to use your Project

structure and EAC to comply with ASC606

Objectives

By the conclusion of this session, you will be able to :

» Identify the options for complying with the new Revenue Recognition Standard.

» Identify the pros and cons of two distinct methodologies.

» Identify the role of EAC computations and ASC606.


Agenda» Part 1: Introduction

» Part 2: Where Do I Begin

» Part 3: The Alternate Database.

» Part 4: Project Structure and the

Performance Obligation Level.

» Part 5: Using EAC as an Effective Tool.

» Appendix: Supplemental Info


Part 1

» Introduction


BACKGROUND INFO» ASC606 has a core principle:

The recognition of revenue must 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 and services.

» The five-step model for assessing the application of this principle includes:1: Identify the contract.2: Identify the performance obligation.3: Determine the transaction price.4: Allocate the transaction price.5: Recognize the revenue.

© 2019 Deltek, Inc. All Rights Reserved

Attribution: KPMG: Revenue Recognition Fundamentals, 2019

BACKGROUND INFO


Attribution:

A&D = Aerospace and Defense Industries

Attribution: “The Coverged Revenue Recognition Model Has Landed”, 09/2/2014, Deloitte

BACKGROUND INFO


Attribution: A&D = Aerospace and Defense Industries


Part 2

» Where Do I Begin?


AS606: Considerations


» Not all companies are impacted by ASC606 in the same manner.

» The level of goods and services provided, plus the contract type will influence the your response as a company.

» For specific industries, there is quite a few write-ups on how to address the new standard.

» In Costpoint, traditional revenue recognition methodologies such as CPFF may not best meet the standard’s intent on both Fixed Price and Cost Plus contracts.

» Always consult with your professional auditors for final advice.

Performance Obligation Level


» As a result of this standard, the recognition of revenue may necessitate

establishing the revenue formula at a higher level of the Project [thereby

combining contracts together].

» The revenue level may different than the billing level.

» The use of EAC (Estimate at Completion) formula may be more common.

» Use of formulas associated with Funded Value may become more

commonplace that with Contract Value.

Part 3

The Alternate Database


The Alternate DatabaseIn this scenario, changes are NOT made to the

revenue recognition formula. Rather an alternate

profile is created for use in a distinct database and

the results are compared externally through the

use of reporting tool such as CER/Cognos.


The Alternate Database: Configuration» Configuration of the Database in preparation for the deployment of the

“the Alternate Database”.


The “Alternate Profile” may include different ceilings and BARN codes

The Alternate Database: Configuration» A different formula may be utilized. Historical data can also be changed.


The Alternate Database: Configuration» Configuration of the Database in preparation for the deployment.


The subtasks can store the new configuration that is only invoked when the

database is flagged as “ALTERNATE”.

The Alternate Database: Configuration


The Alternate Profile is created in your Production environment.

Where Do I Begin…


» Carefully consider the options for the “Alternate Profile”.

» Define the new configuration parameters including revenue formula,

BARN codes, funded value, and PAG.

» Create a copy of the database environment.

» Flag it as “Alternate Revenue Calculations”.

» Activate the “Alternate Profile”.

» Run the normal revenue processing steps.

» Compare results with production environment.

Pros and Cons of this approach…


» Requires more Project setup.

» Necessitates the existence of another database.

» The alternate database will require ongoing refreshes.

» An external reporting tool such as CER is necessary to compare revenue

computation results.

» A whole another database may appear excessive when all we really need

another PROJ_SUM table.

» This approach requires technical support; not well received.

Part 4

» Project Structural Changes

The Performance Obligation Level


What You Need To Know…


» This option requires a re-examination of the existing Project Structure.

» Can the existing structure support a “Performance Obligation” level?

» Can an existing Project Level be repurposed?

» Is it practical to change the level associated with the Revenue formula?

» Can the revenue formula be changed?

» Would I recalculate the revenue in past years to see the impact of the

change in the revenue recognition methodology.

Configuration Item # 3: The “PYREV” Function Code.» Configuration: Modification of the Project Account Group (R&B PAG)


Validation of Project Setup


Prior to modifying any revenue

computations…

Examine all elements of

Project Setup.

Exercise caution: Setup at

the inappropriate Project

level is a common error.

Validate proper usage of

“BARN” codes on ceiling

screens.

What Are Others Doing?


» External computation with a General Ledger entry only.

» Re-examination of Project Structure with changes for future Projects.

» Adoption of different revenue recognition formula and potentially

modifying the level where the formula resides.

Part 5

» Making Use of the EAC formula


Why Use EAC



Why Use EAC


Using the [Estimate At Completion] EAC formula, may better correlate with the

actual measurement of performance.

An external tool such as Cobra® or Primavera® may be utilized to derive the

proper EAC. Program Control personnel may be the best qualified to provide an

objective assessment.

Revenue recognition is then equated to performance as opposed to simply the

incurrence of cost.


How to Update EAC


Manually Update the EAC by way of:

Manage Revenue Info, or

Manage Revenue Formulas

An EAC is creating combining Actual and Budget.

» .


How to Update EAC» .


How To Update EAC» The “Revenue Integration” application takes the EAC and

pushes the number back into the Project Manage

Revenue Info application screen.


Other Options…» Any other approaches may occur completely outside of Costpoint.

» Leveraging Costpoint, Planning, and the EAC formula may present the

best option for addressing ASC606.

CONFIDENTIAL © Deltek, Inc. All Rights Reserved.33

In Summary


Today we have covered:

ASC606 is an Accounting standard that ties the recognition of revenue

more closely to the delivery and acceptance of goods as opposed to the

traditional “matching” principle.

The “Alternate Revenue” profile could be leveraged, but it is difficult to

deploy due to multiple database upkeep.

EAC is typically more in compliance with ASC606; however, this may force

a change in revenue formula and level.

If you opt to change the Project – including the Revenue Formula and

Level, carefully follow checklist to make changes to revenue setup and

then reconcile. [See appendix]

Appendix


» Additional Information if you opt to restructure the Project.

» This content was also covered in our Session: “Revenue Re-Do”

» It is provided in case you were not able to attend this session.


Document the

“Before” View

PSR

Revenue

Worksheet

Revenue

Summary

PROJ_SUM

Rows

Change

Revenue

Formula*

* = Must be to any formula other than “Do Not Compute/NONE”

Designate

Current Fiscal

Year

PROJ_SUM

Cleared

Reset Revenue

Formula to

Appropriate

Designate

Current Fiscal

Year

Recalculate

Revenue:

Period 1 to

Current

Regenerate

Project Reports

PSR

Revenue

Worksheet

Revenue

Summary

PROJ_SUM

Rows

Reconcile

Results

Post Revenue

in Current

Period

Validate

Setup

1 2 3 4 5 6

7

What is “PROJ_SUM”…


» PROJ_SUM: the key table underlying the Project Ledger.

» It stores data by Project, Account, and Organization for Fiscal Year,

Period, and Sub-Period.

» It is a compressed view of transaction data from the General Ledger.

» Burden is stored at “Actual” and “Target” by Pool in the companion table

known as PROJ_BURD_SUM.

» PROJ_SUM is the basis for the computation of revenue.

» The Project Ledger is always reconciled back to the General Ledger.

Checklist: Revenue Reconciliation


Step Application Screen Activity

1. Manage Revenue Info Examine the existing setup.

2. Post Revenue Validate that all postings are complete.

3. Reporting Processes Validate that all report tables are updated.

4. View Project Ledger Activity Look for revenue plugs above the formula level.

5. Project Status Report Examine the Year-To-Date Revenue number.

6. Project Revenue Summary Report Examine the Year-To-Date Revenue number.

7. Validation Do numbers from steps 5&6 tie?

8. Print Project Ledger Detail. Aggregate revenue numbers. Tie to steps 5&6.

9. Validation Are there revenue postings at multiple levels?

10. Validation Are there Journal Entry postings?

Checklist: Revenue Formula Change



1. Project Status Report Print out and retain PRIOR to making any changes.

2. Project Revenue Summary Report Print out and retain PRIOR to making any changes.

3. Revenue Worksheet Print out and retain PRIOR to making any changes.

4. Manage Revenue Information Select the new formula. Enter the Fiscal Year.

[Never select “None”.]

5. View Project Ledger Activity Validate that all revenue data is cleared for the year.

6. Project Settings Validate: prior period revenue calculations are allowed.

7. Accounting Periods Journal “SJR” Compute Revenue must be “Open”.

8. Compute Revenue Compute revenue for Period 1.

9. Compute Revenue Compute for each successive period till Period “n”.

10. Revenue Worksheet Validate the new revenue numbers.

11. Post Revenue Only post if the numbers look reasonable.

Checklist: Changing the Revenue Formula

Checklist: Revenue Formula Level



1. Project Status Report. Print out and retain PRIOR to making any changes.

2. Manage Revenue Information Select any formula other than “None”. Enter Fiscal Year.

3. View Project Ledger Activity Validate that all revenue data is cleared for the year.

If there are any revenue plugs at a higher level,

remedial action will be necessary!

4. Manage Revenue Information Delete the Revenue formula at the existing level.

5. Manage Revenue Information Set up the Revenue formula at the new level.

6. Project Settings Validate: prior period revenue calculations are allowed.

7. Accounting Periods Journal “SJR” Compute Revenue must be “Open”.

8. Compute Revenue Start with Period 1 through Current Period.

9. Journal Entries Reverse revenue from former level: Debit Revenue and

credit Unbilled Receivables.

10. Revenue Worksheet Validate Revenue.

11. Post Revenue. Only post if the numbers look reasonable.

Checklist: Revenue Level Change

Questions & Answers


For further discussion or questions, schedule an appointment at”

“Meet the Experts”

cp-42: revenue recognition standard asc606 …...objectives by the conclusion of this session, you...

Documents