SEVEN DIMENSIONS OF MONETIZATION
Revenue Management
The revenue management dimension focuses on ensuring revenue is properly accounted for and compliant with the most recent FASB/IASB accounting guidelines.
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Ad-hoc
Minimal defined processes around criteria, timing and methods used for revenue recognition, with limited documentation of such. Reporting and compliance are spotty, at best.
Structured
Revenue recognition processes are defined and documented, but aren't complete. Linked spreadsheets are a primary tool. Processes run monthly and need considerable review.
Coordinated
Standalone revenue recognition systems or ERPs are utilized to manage simpler parts of the process, while complex aspects are performed manually in spreadsheets.
Optimized
Fully operational, integrated revenue recognition system allows the company to recognize revenue in real-time throughout the period. Period close, audit and financial reporting processes are thorough, swift and accurate.
Revenue management includes the following steps:
Revenue accounting policy definition and enforcement involves establishing clear and comprehensive revenue accounting policies in line with accounting standards (such as ASC 606) and industry regulations. It ensures consistency in revenue recognition practices across the organization and compliance with relevant guidelines.
Compliance with accounting guidance is crucial to ensure accurate revenue recognition. This step involves understanding and implementing the requirements outlined in the guidance, which helps maintain legal and regulatory compliance.
The Five Steps of ASC 606 establish a framework for revenue recognition. The steps include identifying the contract with the customer, identifying the performance obligations, determining the transaction price, allocating the transaction price to the performance obligations, and recognizing revenue as the performance obligations are satisfied. Following these steps ensures proper revenue recognition and adherence to accounting standards.
Support for contract modifications: As business circumstances change, contracts with customers may require modifications. This step focuses on managing and supporting contract modifications while ensuring compliance with accounting standards. It involves evaluating the impact of contract changes on revenue recognition and making necessary adjustments.
Enforcement of controls and systems ensures accurate and reliable revenue accounting. This step involves establishing internal controls, utilizing appropriate systems and software, and conducting regular audits to monitor and enforce compliance with revenue recognition policies and standards.
Revenue recognition involves recording revenue transactions in the sub-ledger and general ledger (GL) systems. Accurate recording of revenue ensures proper financial reporting and supports decision-making processes within the organization.
Reporting and visibility focuses on generating timely and accurate reports related to revenue, ensuring visibility into revenue performance. These reports provide insights into revenue trends, variances, and key performance indicators, enabling informed decision-making and financial analysis.
Key Takeaways
Effective revenue management processes ensure revenue is recognized in accordance with established policies and accounting standards, while also prioritizing compliance, control enforcement and accurate financial reporting.