Accounting revenue governance: integrated assurance to strengthen an ethical culture.

Author:Fazio, Peter
Position:Revenue Recognition
 
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The new standards reinforce an organization's commitment to report useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from a contract with a customer.

Revenue recognition practices for many U.S. companies over the last two decades can be likened to a journey down a meandering river that eventually leads to a bottomless lake of rules. Along that journey, the accounting professional has witnessed magical events such as the "residual method/' which has appeared, disappeared, and is soon to rise yet again out of I he depths.

As we prepare to transform the lake of rules to foggy principles detailed in the new revenue recognition standards as proposed by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB), the cynics among financial executives may take comfort in the fact that a return to new rules limiting choices is just one more corporate financial scandal away.

It can be argued, however, that only by embracing a principles-based approach lo revenue recognition can we renew our commitment to building a more ethical corporate culture.

The principles detailed in the new revenue recognition standards form the building blocks of all revenue models. These principles provide flexibility in their application across different revenue streams rather than the rigidity of rules that simply bring about more rules to cover every new flavor of a transaction that a sales team can build.

The new standards reinforce an organization's commitment to report useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from a contract with a customer.

So how do we move accountants certified by their mastery of rules to the "touchy-feely" world of principles? Well, the answer is not likely to be found in another PowerPoint presentation or a software implementation. The key to unlocking that answer is moving the finance function from rulemaker and rule enforcer, to chief facilitator of good business practices.

Thai transformation with respect to revenue recognition is enabled by transitioning the organization from a transaction-based rules engine to an integrated assurance function across the enterprise.

There is an integrated assurance approach to revenue recognition that employs a framework for GAAP guidance, internal controls and transactional support to enable the enterprise to maintain the integrity of the financial statement assertions with respect to recognized and deferred revenue. This framework can be called "Revenue Governance."

The basic components of a Revenue Governance Framework are illustrated in Diagram A on page 29.

The principal focus of the Revenue Governance Framework is ensuring the organization achieves the highest level of accuracy and completeness in the revenue and sales cycles with a reasonable level of effort. Estimates of what constitutes a level of...

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