Practical Guide to SAP FI-RA — Revenue Accounting and Reporting

2.1 Impact of the standard on relevant SD business processes and applications

From the initial considerations so far, we could easily come to the conclusion that ASC 606 is a pure accounting topic. However, the regulations of the standard have far greater effects on contract management, on activities in the core of the sales and distribution processes, on supporting processes with regard to the correct timing and content for balancing accounts, as well as on further business key figures and the associated systems and applications (see Figure 2.1).

Figure 2.1: Business processes

To get a complete view of the potential implications, we have to look at the following questions:

• How strongly is the company’s business model affected by ASC 606?
• How relevant is the standard to existing contracts with customers and what adjustments have to be made to these contracts?
• What is the impact on the business activity of the company with regard to the future offer portfolio (bundles, multicomponent contracts, delivery and service agreements, as well as payment agreements with customers)?
• Which sales processes are affected by the impact and how much adjustment is necessary (returns processing, warranties, buy-back agreements, financing components, customer payments)?
• Which support processes—especially with regard to company and group reporting—are affected by the changes (in particular, financial statements, sales key figures, and budgeting)?
• How much adjustment is necessary for applications and systems that support the processes affected?
• To what extent are personnel processes and agreements affected (check for any required contract adjustments with regard to existing and future profit-based bonus agreements)?

At this point, it becomes particularly clear that contract, sales, and distribution processes (including the underlying systems and applications) have to be analyzed and, where applicable, redefined in terms of the extensive separation of operational activities from accounting and revenue recognition.

At the same time, when implementing the requirements, it is essential to make sure that in the future, more detailed information from these processes will be made accessible to the accounting process and the creation of the financial statements. What we can conclude from this is explained at the end of the book in Section 10.2.