Finalizing revenue numbers on time*

Fewer than half of public companies are able to manage revenue reporting within their normal monthly close process, survey says

*This is an expanded version of an article that appeared in the January/February 2008 issue of CAmagazine

A majority of public companies are unable to finalize their revenue numbers on time, according to a recent survey from Revenuerecognition.com in conjunction with IDC. In fact, delays can be as along as three weeks.

The survey polled senior financial executives from 578 companies, mostly in the US. It found two factors for the delays: transactions are becoming more complex and revenue accounting data is not available in time. These problems are more pronounced at public companies — 57% reported making adjustments after the books were officially closed.

“This finding is symptomatic of companies not investing in revenue management processes in proportion to the complexity and importance of the problem,” says Gottfried Sehringer, executive editor of RevenueRecognition.com. “Other complex financial data is readily available from enterprise financial reporting systems, but revenue – the biggest and most visible number of all – slips through the cracks. To compensate, companies are using spreadsheets, in spite of the fact that they identified spreadsheet use as one of the top challenges to ensuring their revenue policies are being applied accurately and consistently.”

“The fact that complex transactions are the leading cause of delay in revenue reporting is a clear sign that underlying processes and systems have not kept up with changes in the business environment,” says Kathleen Wilhide, research director, GRC and BPM solutions, at IDC. “Enterprise standards for revenue reporting processes have not evolved to the point of best practices, but they must because manual approaches cannot ensure the accuracy and availability of revenue data within the standard financial close timeline.”

The survey also found that revenue recognition is among the top three ongoing control risks for finance departments. Contract management was ranked number one and using spreadsheets was number two.

Moreover, two-thirds of companies produce generalized revenue forecasts based largely on their sales pipeline – as opposed to evaluating the actual revenue impact of current and proposed business.

The survey concludes that “revenue reporting processes are not baked in to the financial systems infrastructure. Senior executives, especially those at public companies, realize that the potential exposure of weaknesses in revenue recognition processes is a key reason to make automation a priority for their finance organizations. When implemented properly, automation can lower the risk of reporting errors and misstatements; positively impact investor confidence in revenue numbers; and deliver better information for managing business performance.”

MOST DIFFICULT AREAS TO ESTABLISH EFFECTIVE INTERNAL CONTROLS
(Multiple responses accepted, n=578)

FINALIZING REVENUE NUMBERS IN THE MONTHLY CLOSE
(Public Companies, n=240)

The full report, “Best practices in revenue reporting,” is available online at www.RevenueRecognition.com.