Many companies struggle with the proper application of revenue recognition rules. One of the most common material weakness disclosures of public-reporting companies is inadequate and ineffective control related to revenue recognition.
Often, companies lack both the internal technical skills to properly navigate and apply the complex revenue recognition guidance, and the processes and controls to adequately evaluate and record revenue transactions. For these reasons, public auditors focus heavily on revenue recognition, and a material weakness in this area is especially concerning to CFOs, regulators, and the investment community.
DCG has assisted clients with the proper interpretation and application of the following guidance:
- SAB 104, Revenue Recognition
- SOP 97-2, Software Revenue Recognition
- EITF 00-21, Revenue Arrangements With Multiple Deliverables
Representative services that we have provided for clients include:
- Developed contract review methodology and guidelines for client personnel to correctly determine the applicable guidance for each transaction
- Developed valuation models for all deliverables (VSOE) and Relative Fair Value models for evaluating multiple deliverables contracts
- Designed and implemented processes to track and document multiple deliverable contract status with respect to meeting revenue recognition criteria, supporting revenue recognition positions, and assuring the accuracy of Deferred Revenue accounts
- Advised Sales and Operations management of revenue recognition issues in existing contracts, of suggested modifications to standard contracts to ensure adherence to revenue recognition policies, and of implications of certain business practices, customer concessions, or side agreements that create back-end revenue recognition issues