Transition to the New Revenue Recognition Standard

The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) announced new standards for revenue recognition in May 2014. The new standard is called Revenue from Contracts with Customers. The FASB refers to the standard as ASC 606, and IASB calls it IFRS 15. Advanced Revenue Management (Essentials) and Advanced Revenue Management (Revenue Allocation) supports both existing standards and the new standard.

NetSuite uses a transition period to define when the transition from current standards to the new standard occurs. The transition period affects processing of revenue arrangements as follows:

Revenue Arrangement	Treatment
Completed before the transition period	Processed purely under the existing standards
Generated after the transition period	Processed purely under the new standard
Generated before the transition period but not completed	Processed under the existing standards prior to the transition period Processed under the new standard after the transition period Create a one-time adjustment for the transition from the existing standard to the new standard

Revenue Arrangement

Treatment

Completed before the transition period

Processed purely under the existing standards

Generated after the transition period

Processed purely under the new standard

Generated before the transition period but not completed

Processed under the existing standards prior to the transition period
Processed under the new standard after the transition period
Create a one-time adjustment for the transition from the existing standard to the new standard

You should work with your revenue accountant to determine what changes are required for your business to meet the ASC 606/IFRS 15 standard. The following are some of the changes you may make:

Use Case	Reconfiguration
Start using revenue allocation	To add revenue allocation, set up the fair value price list. For more information, see Setup for Advanced Revenue Management (Revenue Allocation).
Stop using the residual method for revenue allocation	Change the Allocation Type on the item record to Normal. If you use Multi-Book Accounting, you can clear the Enable Two Step Revenue Allocation box on the accounting book record.
Use a different fair value definition	Define new fair value records with the Start Date set to the first day of the transition period. Set the End Date for current fair value records to the last day of the period prior to the transition period.
Use different revenue recognition rules	Create new revenue recognition rules. Select different revenue recognition rules on the item records.
Use different triggers to create revenue plans	Select different values for the Create Revenue Plans On field on item records.
Use a different grouping for revenue reclassification	Change the option for the accounting preference Unbilled Receivable Adjustment Journal Grouping from Element to Sub-Arrangement Group or from Sub-Arrangement Group to Arrangement.

Use Case

Reconfiguration

Start using revenue allocation

To add revenue allocation, set up the fair value price list.

For more information, see Setup for Advanced Revenue Management (Revenue Allocation).

Stop using the residual method for revenue allocation

Change the Allocation Type on the item record to Normal.

If you use Multi-Book Accounting, you can clear the Enable Two Step Revenue Allocation box on the accounting book record.

Use a different fair value definition

Define new fair value records with the Start Date set to the first day of the transition period.

Set the End Date for current fair value records to the last day of the period prior to the transition period.

Use different revenue recognition rules

Create new revenue recognition rules.

Select different revenue recognition rules on the item records.

Use different triggers to create revenue plans

Select different values for the Create Revenue Plans On field on item records.

Use a different grouping for revenue reclassification

Change the option for the accounting preference Unbilled Receivable Adjustment Journal Grouping from Element to Sub-Arrangement Group or from Sub-Arrangement Group to Arrangement.

The recommended steps to convert to the new standard are as follows:

Current Standard

Revenue arrangements are processed according to the current standard.

Parallel Processing with New Standard

(Optional – requires Multi-Book Accounting)

Set up a secondary accounting book with the new standard and begin processing revenue in parallel with both standards.

Pause

Before running the NetSuite migration tool, change revenue arrangement and revenue plan processing to manual.
Process all revenue contracts, including revenue recognition journal entries and reclassification, up to the cut-off date under the current standard.

Transition

Reconfiguration

Close all accounting periods prior to the transition period.
Reconfigure items and default revenue allocation rules according to the new standard.

Adjustment

Migrate revenue arrangements and plans to the new configuration. This process adds a one-time adjustment to revenue plans for the difference between the current standard and the new standard.

All revenue arrangements are now set to process according to the new standard.

New Standard

Change revenue arrangement and revenue plan processing back to automatic.

All revenue arrangements are now processed according to the new standard including those arrangements that were migrated.

The tools necessary to convert from existing standards to the new standard are included with the Advanced Revenue Management (Essentials) and Advanced Revenue Management (Revenue Allocation) features. However, the assistance of NetSuite Professional Services or a qualified NetSuite partner is required to process the migration. To see how the migration works, see Migrating Revenue Arrangements and Plans.

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