Most accounting departments know about the upcoming convergence between IFRS (International Financial Reporting Standards) and U.S. GAAP (Generally Accepted Accounting Principles) in 2018. The basic premise for accounting standards is to provide investors with high quality decision-useful financial information that enables investors to make informed decisions. Financial statements of one company should be comparable to similar companies. But most private companies are still taking a “wait-and-see” approach.
While the revenue recognition standards are undoubtedly important, most mid-sized companies have more immediate concerns regarding revenue recognition. One could argue that using Excel spreadsheets to manage revenue recognition processes tops the list. According to Ventana Research’s “Eliminating the Risks of Spreadsheets in Finance,” 75% of mid-sized companies use spreadsheets extensively in their closing process. Furthermore, they found that “a majority” of mid-sized companies use spreadsheets to manage their consolidation process. In my experience, the same can be said for revenue recognition – most companies still rely heavily on spreadsheets.
Yet many of our clients cite “managing revenue in Excel spreadsheets” as a significant constraint to growth. For example, a company that wants to scale may acquire a new company. Like the acquiring company, that new company also manages their revenue in a subsidiary Excel spreadsheet. The two spreadsheets ultimately need to be merged and simultaneously updated with new transactions. This process alone is revenue accountant’s nightmare, and that’s just one scenario!
There are many types of errors in the spreadsheets including: data input, transposition, formula and formatting errors. Data input errors occur when a revenue accountant incorrectly enters data into a spreadsheet. Transposition errors occur when two digits that are either individual or part of a larger sequence of numbers are reversed, for instance, 20 is entered as 02. Formula errors occur when the wrong Excel calculation formula is used. Lastly, formatting errors occur when there are different Excel formats in each cell.
If we assume that for every 1/100 rows of data there is an error, it is easy to see how the problem compounds itself. It is also easy to see how quickly auditors lose confidence in financial statements that are based on spreadsheet calculations, instead of an auditable system, such as Novadek’s Revenue Lens. It’s easy to see how a mid-sized company will typically spend approximately $175,000 a year on auditors. (One of our client estimated that using our revenue recognition saved them 20% of that cost, or $35,000 annually!)
Between the difficulties with spreadsheets and the looming advent of ASC 606, many finance departments are concerned that they may soon need an army of revenue accountants to manage their revenue. With this anticipated need in mind, companies that can afford to are hiring now, if they haven’t already. According to Glassdoor, the national U.S. average pay for a revenue accountant is currently between $75,000 – $100,000 USD, and may well go up if supply becomes short. By implementing Novadek’s Revenue Lens, you could reduce the need to hire even more revenue accountants, potentially saving your company between $150,000 to $200,000 USD a year.
Novadek Technologies, a revenue recognition software company that illuminates dark corners of your revenue data. For Mid-Sized Information Technology and Services Companies, Novadek Technologies is a SaaS software platform that illuminates revenue recognition. Our platform enables mid-sized companies to handle the complexities associated with revenue recognition, contract billing and fair value allocation.
For more information about Novadek’s Revenue Lens, please contact us.