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Automating Revenue Deferrals and Revenue Recognition in Oracle

Automating Revenue Deferrals and Revenue Recognition in Oracle. Presentation for NorCal OAUG Training Day Date: January 19th, 2009 Track: Financials Presented By: Mark Aubin | Associate Partner Ram Iyer | Senior Associate @ aquarius consulting group llc. agenda. introduction

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Automating Revenue Deferrals and Revenue Recognition in Oracle

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  1. Automating Revenue Deferrals and Revenue Recognition in Oracle Presentation for NorCal OAUG Training Day Date: January 19th, 2009 Track: Financials Presented By: Mark Aubin | Associate Partner Ram Iyer | Senior Associate @ aquarius consulting group llc. Confidential to aquarius consulting group www.aquariuscg.com

  2. agenda • introduction • revenue recognition | current practices • managing revenue recognition and deferrals in oracle financials • order to revenue accounting cycle | challenges • the solution for Oracle • case study • SOP97-2 – residual method based revenue recognition on oracle • Q & A Confidential to aquarius consulting group www.aquariuscg.com

  3. about us • Founded in 2006 by experienced professional consulting executives and entrepreneurs • Boutique consulting firm with a global client base • Practice Areas: • Billing and Revenue Recognition (BRM) • Oracle Sales to Cash Consulting Solutions • Program and Project Management • Industry expertise: • Hi-Tech Manufacturing | product & services • Online Media and Publishing • Interactive Entertainment • Referencable industry leading global clients Primary Office: Silicon Valley Redwood Shores, CA 94065 clientservices@aquariuscg.com www.aquariuscg.com Confidential to aquarius consulting group www.aquariuscg.com

  4. aquarius + revStream aquarius is a niche consulting firm specializing in billing and revenue management solutions; program management and post merger/acquisition integrations. aquarius brings extensive expertise in process design and implementation of sales to revenue solutions for online media and software/services industry. aquarius revStream solution is the only Oracle based solution to manage complex billing and revenue recognition business models. revStream is a comprehensive custom solution developed by aquarius to address the complex billing and revenue recognition requirements for Hi-Tech product/services; online media and entertainment software industry. It essentially a billing and revenue automation engine and workbench that bridges the gap that exists in today’s major ERP systems Confidential to aquarius consulting group www.aquariuscg.com

  5. revenue recognition current practices Confidential to aquarius consulting group www.aquariuscg.com

  6. fact “Revenue recognition is the #1 reason for public high-tech companies to restate earnings – resulting in SEC investigation, drop in market value & plunging investor confidence” – IDC, 2006 Confidential to aquarius consulting group www.aquariuscg.com

  7. current practices | spreadsheets still rule! • 92% of the public companies use spreadsheets for critical revenue recognition and reporting purposes – IDC 2006 • Majority of ERP/financial IT infrastructure cannot automate all of your revenue recognition and reporting needs • 57% of public companies finalize revenue numbers after month close vs 43% at close • Revenue recognition restatements wipe out on average 10% of a company’s market value according to a new study by Audit Analytics. The study measured market reaction from 50 days before until 50 days after the announcement Source: revenuerecognition.com and IDC Confidential to aquarius consulting group www.aquariuscg.com

  8. what’s driving the need • SOP97-2 or EITF00-21 or EITF08-01 (June 15, 2010) • IFRS and/or US GAAP Reporting • Cumbersome Data File Management (all Revenue Calculations and Deferrals on Excel, Access, or Data Warehouses) • Internal Controls and Audit • High Audit Costs • Re-statements Confidential to aquarius consulting group www.aquariuscg.com

  9. managing revenue recognition and deferrals in oracle financials Contract-to-Revenue Process: Key Challenges The solution for Oracle Case Study: SOP97-2 residual method revenue recognition Confidential to aquarius consulting group www.aquariuscg.com

  10. contract to revenue | challenges Account Mgmt, Sales & Contracts/Pricing Operations, Delivery and Billing/Revenue Mgmt Period Close, Forecast and Financial Reporting Opportunity to Quote Contracts Order to Fulfill Bill to Collect Recognize Revenue Financial Close Financial Reporting 1 2 3 4 Complex Multi-element deals Bundled deals; tiered pricing, complex discounts Receivables = Revenue Billing not separate from revenue Manual = Excel Spreadsheets Offline data manipulation & reporting Complex and Evolving Revenue Accounting SOP 97-2 or EITF 08-01 or ?? Confidential to aquarius consulting group www.aquariuscg.com

  11. revenue accounting process | multiple touch points Account Mgmt, Sales & Contracts/Pricing Operations, Delivery and Billing/Revenue Mgmt Period Close, Forecast and Financial Reporting Opportunity to Quote Contracts Order to Fulfill Bill to Collect Recognize Revenue Financial Close Financial Reporting contract-to-revenue accounting cycle Confidential to aquarius consulting group www.aquariuscg.com

  12. critical revenue automation areas • Independent billing and revenue scheduling and processing • Apply different revenue treatments and carve-outs based on Fair Value/VSOE on elements within an order based on several different revenue recognition rules ex: residual method (SOP97-2) or revenue arrangements with multi-element deliverables (EITF00-21); contract accounting method (SOP81-1) recognition based on “relative selling price method” (EITF 08-01) • Perform “complete arrangement analysis” in a multi-element deliverable • Revenue scheduling based on business events (estimated and actual) and build revenue schedules to provide accurate and timely revenue forecasts. • Match COGS and expense deferrals to revenue deferrals • Configure complex revenue recognition and billing rules ex: define substantive rates and rule mapping for term or carve-outs • Adjustments to original terms are frequent, requiring creating rebuilds and revenue trueup/catchups • Create distributions and post approved transactions to GL. Confidential to aquarius consulting group www.aquariuscg.com

  13. revenue recognition for Oracle ERP In summary, our clients were seeking to automate revenue deferral and recognition with a solution that wasscalable to growth,flexible for new business models and products, allowed compliance to evolving regulatoryrequirements, and delivered a low cost of ownership. • Introducing revStream Revenue and Billing Manager. • The ONLY revenue management solution for Oracle eBusiness Suite. Built entirely on the Oracle eBusiness Suite technology stack, it’s a sub-ledger module that fits within the Oracle eBusiness Suite portfolio. Confidential to aquarius consulting group www.aquariuscg.com

  14. major features and functionality • Business Process Driven Arrangement Analysis and Revenue Recognition • Automated identification of transactions for revenue deferral • Complete arrangement analysis • Automatic application of revenue treatment and amortization rules • Automatic application of multi-element carveouts and reclasses • Transaction approvals and revenue holds • VSOE and Terms Maintenance • Configurable Fair Value and VSOE matrices by multiple dimensions such as tier, customer type, service level, region, etc. • Complies with SOP 97-2, EITF00-21, EITF 08-1, EITF 09-3 requirements. • Supports reapplication of VSOE to historical transactions for restatements. • Event based Revenue Recognition • Automated acquisition and application of transaction events such as Execution, Shipment, Delivery, Installation, and Customer Acceptance • Forecasting based on estimated events. • Allows manual event adjustments with automatic reapplication of revenue treatments. • Dynamic AutoAccounting Engine • Org specific AutoAccounting to derive GL Code Combinations from numerous sources or defaults. • Supports creating GL Distributions for US GAAP and IFRS reporting across multiple Sets of Books. • It is a part of the eBusiness Suite; a new subledger. • revStream components use standard Oracle eBusiness Suite architecture: Oracle Forms, PL/SQL, Concurrent Programs, Lookup Codes, Value Sets, etc. • Uses Multi-Org structure and functionality. • Uses common security components such as Responsibilities, Menus, Functions, Profile Options, and Request Groups. • Full native integration to oracle modules – no interfaces Confidential to aquarius consulting group www.aquariuscg.com

  15. revStream | separates billing from revenue in Oracle ERP Opportunity to Contract Order to Fulfill Invoice, Rev Rec. to GL Create Opportunity Customer & Deal Info 2 Create Order a revStream: Billing Manager b c d Billing Schedule Invoices (AR) Configure Price Quote 3 Book Order Load Invoices Transfer to AR Review & Approve Debit: Receivables Credit: Unearned Revenue 1 4 Fulfillment Quote Approval Create /Accept Contract revStream: Revenue Manager 6 8 7 GL 5 GL Load Revenue Transfer to GL Review & Approve Create installed base Debit: Unearned Revenue Credit: Revenue Oracle Other CRM (aquarius solution) Other Systems revStream Confidential to aquarius consulting group www.aquariuscg.com 15 15

  16. Case Study: SOP97-2 residual method revenue recognition Confidential to aquarius consulting group www.aquariuscg.com

  17. primary contacts Rajiv Chopra Managing Partner Phone: 415.509.8213 | Fax: 650.362.1967 | rajiv@aquariuscg.com Mark Aubin Associate Partner Phone: 310.766.8072 | Fax: 650.362.1967 | mark@aquariuscg.com Confidential to aquarius consulting group www.aquariuscg.com 17

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