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Automated revenue recognition boosts ERP, timing and compliance

RFP

Sector Technology
Client challenge Fully automate the revenue recognition process
Services provided Implement an ERP system that saves time, minimizes risk and provides greater insight into the business

A social media company uses NetSuite to successfully manage revenue streams.

The client

A social media company with nearly 2 million subscribers needed a better way to manage its revenue model, which included click-through advertising agreements, in-app purchases of virtual currency, and subscription fees.

The challenges

The company was managing its diverse streams of revenue in Excel spreadsheets and manually booking revenue entries on a month-end basis. The process was cumbersome, entailing many hours of manual labor and the strong possibility of human error both within Excel and when importing from Excel. Although the use of spreadsheets to manage revenue is common even at much larger companies, this organization was ready for a change.

Besides the intensive time and review requirements, managing by spreadsheet is challenging from a compliance standpoint, as well. Satisfying revenue recognition requirements for in-app purchases, such as those offered by the company, becomes complicated for the same reason gift cards present a quandary — these purchases are often not redeemed or only partially redeemed. If, for instance, 50% of a purchase is spent within the first 30 days, the balance must be accounted for and then recognized at some later date. Schedules have to be built and expenditures captured. Done manually, the process is complicated and time-consuming.

The solution

Professionals in Grant Thornton LLP’s Business Advisory Services (BAS) practice came onto the premises and assisted the client with documenting the current revenue recognition process. In order to get an understanding of the current state, we observed how employees interacted with the various systems, analyzed the reports being used to generate the revenue recognition spreadsheets, and documented the processes for entering revenue into the company’s general ledger system 

With the groundwork laid, we then identified the tasks and steps that could be eliminated from the current processes if the company moved to an ERP financial system that supports revenue recognition processes. Grant Thornton helped the client evaluate several ERP systems. The company decided to implement NetSuite, a cloud-based suite of software that includes a robust module for revenue recognition.

To begin, a project organization structure was created. At its core was a collaborative project team, including members from both Grant Thornton and the client. Grant Thornton team members led the configuration effort, proposing the design and walking the client’s team through the new process for managing revenue recognition.  Data conversion from the client’s existing system to NetSuite was a joint effort, with the client taking the lead in moving data off the old system and Grant Thornton professionals heading up the data import process. The team worked together to coordinate user acceptance and train users in the new system. 

The outcome

The client is currently running NetSuite in parallel testing mode with the existing system; go-live is scheduled for the start of the client’s new fiscal year, on Jan. 1, 2015. Already, the client can see that its monthly closing process will be accelerated, with an expectation that it will be cut from 8–10 days to 1–2 days. 

The reduction in time is a benefit unto itself, but the real win is a more auditable process that avoids a regulator red flag by reducing the potential for manual errors. With reporting improvements, long restatements should also be a thing of the past.

Going forward, the client’s finance group will be in charge of the process, and retain oversight and responsibility for the company’s core financial system. With a fully automated revenue recognition process, the organization will have better insight into the overall performance of the business.