When adopting the ASC 606/IFRS 15 standard, revenue might initially be understated. But when you look at the yearly numbers, the revenue numbers will normalize. There are Two Options:
- Restatement. You have to restate prior two years.
- Disclosure. You would want to disclose subsequent years as if you had not adopted.
Below are some Strategies in Transitioning into Oracle Revenue Management Cloud:
This is the strategy if you are using E-Business Suite using a transition ledger strategy.
From the diagram, We have the Five Steps to Revenue Recognition, and the Financials Cloud GL. In addition to the Revenue Management Configurations, you have to define enterprise structures (i.e. legal entities and ledgers in the Financials Cloud).
You would need to create a primary EBS ledger in your Fusion GL. This will contain the Journal entries from your external EBS Subledgers. The EBS Subledgers are entries from EBS Modules, particularly receivables, and order management. As those are the modules that contain that data that's going to be relevant to this new standard.
You would also need to create a secondary ledger specifically for EBS, referred to as an adoption ledger. This allows us to adopt the new revenue accounting standard. You would post balances to the adoption ledger when appropriate. You want to reconcile balances to the originally reported deferred revenue. You need to reconcile those balances to those original deferred revenue balances.
By Cutover day, balances should have explainable differences.You would need to create a primary EBS ledger in your Fusion GL. This will contain the Journal entries from your external EBS Subledgers. The EBS Subledgers are entries from EBS Modules, particularly receivables, and order management. As those are the modules that contain that data that's going to be relevant to this new standard.
You would also need to create a secondary ledger specifically for EBS, referred to as an adoption ledger. This allows us to adopt the new revenue accounting standard. You would post balances to the adoption ledger when appropriate. You want to reconcile balances to the originally reported deferred revenue. You need to reconcile those balances to those original deferred revenue balances.
Cutover and Post-Cutover for E-Business Suite
During cutover, you would want Revenue Management to now point to the Primary Ledger. You're no longer going to need that adoption ledger.
You need to do a couple of additional things. You need to write two journals. The first journal is going to debit deferred revenue balances and credit them to equity. The second journal will credit the performance obligations balances from the adoption ledger and debit them to equity.
So after cutover, that secondary ledger that you created for adoption purposes is no longer needed and you can proceed to decommission other revenue systems or engines, because now you're going to be using Revenue Management going forward.
Pre-Cutover for Fusion Applications
This strategy talks about transitioning for Financials Cloud. Let's say that you're using the Financials Cloud and you did not adopt Revenue Management Application from the start of the implementation. You need to use this strategy to transition to using Revenue Management. Some important cloud modules here are Receivables and Project Financial Management because that's where your contracts are going to come from.
We're going to follow the same strategy that we explained for E-Business Suite, what we want to do is to create a secondary ledger. That secondary ledger will adopt this new revenue recognition standard.
For cutover and moving forward, we will follow the same steps as in defined for EBS. On Cutover and going forward, you're going to be pointing Revenue Management to the primary ledger in the Financials Cloud GL. Similarly, you need to write two journals. The first journal is going to debit deferred revenue balances and credit them to equity. The second journal will credit the performance obligations balances from the adoption ledger and debit them to equity.
More details on can be found in the Support transition to ASC 606 / IFRS 15 (Doc ID 2446808.1) white paper in My Oracle Support.
More details on can be found in the Support transition to ASC 606 / IFRS 15 (Doc ID 2446808.1) white paper in My Oracle Support.
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