SAP Updates Accounting Solution for IFRS Changes

SAP updates its Revenue Accounting and Reporting app to help CFOs meet the new international accounting regulations that are slated to go into effect in January 2018.


The accounting world currently faces a ticking doomsday clock. Three major International Financial Reporting Standards (IFRS) are slated for change in 2018, and each requires significant preparation.

To help CFOs and their teams prepare, SAP on Sept. 7 introduced new features to its Revenue Accounting and Reporting (RAR) application, which automates practices related to complying with current and impending accounting practices.

"CFOs are facing a perfect storm of accounting regulation," Thack Brown, general manager and global head of Line of Business Finance at SAP, said in a statement. "It takes approximately 18 months for the average Fortune 1000 company to make a change of this magnitude, and we just passed the point in the countdown to the mandatory effective date of the new standards."

The new features in the 1.2 release include cost recognition, capitalized costs integration with project systems and results analysis, improved contract combination and modification capabilities, and integration with service and billing scenarios in SAP's customer relationship management (CRM) application.

The IFRS 15 changes, which are known as ASC 606 in the United States, will apply to public, private and not-for-profit businesses and can affect reported revenue, how and when financial information is reported, and overall financial decision-making.

ASC 606 provides accounting guidance related to the revenue companies make, related to contracts with customers.

IFRS are mandatory in more than 100 countries, and the standards are dictated by the International Accounting Standards Board (IASB), which is the standards-setting body of the IFRS Foundation, an organization created in the public interest and that prides itself on transparency.

The Financial Accounting Standards Board (FASB) published its new guidance, "Revenue From Contracts With Customers," May 28, 2014. Its key objectives, it reported, were to remove inconsistencies and weaknesses in current requirements; to provide a more robust framework; to provide more useful information to users of financial statements; and to simplify the preparation of financial statements.

Racking the nerves of every corporate finance professional, it seems, was simply a byproduct.

An Aug. 20 post on the SAP IFRS blog cautioned:

"To get started, companies first need to understand the accounting aspects: including a five-step process outlining how to recognize revenue under the new standard. This is done via a technical accounting assessment of the revenue contracts that fall under the new standard. Depending on the size and structure of the company, the technical assessment can take from several months to more than a year. Once companies are up to speed on the accounting piece, they need to start drilling into the broader organizational and system aspects, and figure out the best approach to implement a system capable of handling this change.

On Sept. 1, the FASB met to discuss significant feedback it had received in the form of proposed amendments—which wouldn't change the new standards but rather clarify them, according to a Deloitte journal entry.

The FASB also discussed potential additional technical corrections ("phase two amendments"). The board plans to open the amendments for a period of public comment, after which it will issue a final revenue technical correction Accounting Standards Update.

SAP has further advised businesses to develop an industry-specific road map, to use best practices and accelerators to adopt the right approach, and to "mitigate risk" by choosing a solution that can address complex and risky scenarios.

"Corporate finance departments should act now to ensure that they are prepared for the transition and have the right tools to automate and simplify the process," added SAP's Brown.