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Accounting

Don’t Succumb to Revenue Recognition Fatigue


The deadline is fast approaching for private companies to adopt the new revenue recognition standards and many are finding it’s not as simple as they may have hoped.

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Whether private or public, every company has had their unique struggles in achieving compliance with the new revenue recognition requirements. “It takes longer than you think. It is more complicated than you think,” says Xactly CFO Elizabeth Salomon. “There's a little 606 fatigue out there, as you might imagine.”

One of the biggest takeaways from a recent a CFO Roundtable, co-sponsored by Xactly and Salesforce, was that companies are struggling with data. Salomon shared about one company, “They changed their whole implementation methodology for 606 because they realized they needed the data at a granular level. They needed to be able to tie the commission expense to the specific transaction.  In this particular instance, they were just paying commissions. They'd calculate the sales for a particular period for a rep, and then apply a percentage of pay to the commission check. But under 606 it's not that simple. It involves a lot more granular tracking of the commission tied to the actual deal, and so that was a surprise.”

This data challenge led many companies to decide on the modified retrospective approach, instead of the full retrospective approach, another surprise for Salomon. “As we've been out talking to customers, a lot of them thought, ‘We'll do full retrospective adoption.’ …But as they got into it, and realized the need for the data, more companies are doing the modified approach.” 

Salomon explained that companies have been so focused on the revenue aspect of 606, that they may have ignored the commission aspect, which isn’t as simple as they may have though. “To be able to capture the commissions, capitalize them appropriately, and amortize them, I think companies early on just thought, ‘That won't be that hard. We'll just group this together. We put it in an Excel spreadsheet, and amortize it. It should be pretty easy.’ We knew that it was not going to be as simple as what companies were thinking.”

Another takeaway from the discussion was that companies have found it's much better to get the auditors involved early. “What we’ve found is that auditors are catching up on 606 as well… Nobody wants a surprise after you've implemented a standard, and then later in the audit the auditors don't agree. That's a terrible place to be. Getting your auditors involved early is very important, and that's what we heard from our customers who are dealing with this as well. They're learning too.”