www.pwc.

com/il

Software Arrangements
Revenue Recognition
Best Practice Business Process

Na’ama Drukman
ERP Consulting Leader
Agenda

• The Industry

• Revenue Recognition Challenges

• The Customer & Project Goal

• Oracle Projects Suite

• Revenue Recognition Solution

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The Industry

Software industry challenges:

• Delivery through projects of different length and complexity

• Multiple components arrangements including:

- Licenses

- Services

- Maintenance

• Complex revenue recognition methods

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Revenue Recognition Challenges

Revenue Recognition method is decided using many

considerations, including:
• Different types of arrangements require different handling of
revenue recognition

• VSOE (Warranty handling)

• Different types of deliverables:

- Software License
- Software Enhancement
- Services
- Maintenance

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The Customer

Global Financial Software Solutions Company

• Leading provider of financial technology - banks and corporations

• Clients in the Americas, EMEA, and Asia-Pacific

• Software, license and Services

• Constant growth through mergers and acquisitions

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The Customer

Implementation Goal – Revenue Recognition

• eliminate manual accounting processes

• reduced billing time
• reduced Period End & Reporting Time
• accuracy of revenue processes

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Customer Requirements

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Oracle Projects Suite

Oracle Projects suite enables separate billing and revenue

schedules:

Revenue
Draft Revenue Journal Entries
(GL)
Billing Event
Invoice Journal
Draft Invoice AR Invoice
Entries (GL)

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Revenue Recognition Solution

The solution incorporates the following methods:

Billing & Revenue Methods Carried Out Using

Percent of Completion Oracle Project Billing Extension

Oracle Project Billing Standard

Time and Materials
Functionality

Upon Delivery Project Contracts

Prorated
Service Contract
(Non-Software Arrangements)
Taking VSOE Into Consideration

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Revenue Recognition Methods
Percent of Completion

Using Oracle project billing extension, revenue is recognized

using the following calculation:

𝐴𝐴ℎ ∗ 𝑇𝑇𝑇𝑇
𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 𝑇𝑇𝑇𝑇 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 = − 𝑅𝑅𝑅𝑅
𝑇𝑇ℎ

• Ah - Actual Hours Invested – Derived from employees time sheets

• Tr - Total Estimated Revenue – Entered as Project Revenue Budget
• Th - Total Estimated Hours – Entered as Project Cost Budget
• Rr - Revenue Already Recognized – Previous events created

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Revenue Recognition Methods
Percent of Completion

PoC Solution abilities and requirements:

• Abilities:
- Revenue Can be recognized for each component separately
- If estimations are changed revenue amount will change accordingly
- Project Revenue can be altered manually within projects module with
no effect on the calculation

• Requirements:
- Ability to set each component's revenue (VSOE)
- Ability to estimate the progress towards completion
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Revenue Recognition Methods
Time and Materials

In Time and Materials agreements, standard Oracle project

billing functionality is utilised

Revenue is recognized based on hours performed and bill rates

• Billing Rate Schedules (Hour and Expenses) should be set;
• Override of rate schedule is possible:
- Per Employee
- Per Job
- Per Day
- Etc.

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Revenue Recognition Methods
Upon Delivery

Fixed Price arrangements in which revenue is recognized upon

delivery:

Using Standrd Oracle project contracts functionality, Oracle Projects

revenue event is created from Project Contracts Module.
• Project Contract may contain multiple rows
• Each row can contain multiple deliverables
• Revenue event is created per deliverable (Deliverable based billing)

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Revenue Recognition Methods
VSOE Considerations

Using Oracle project billing extension, revenue derived form

warranty component is reduced from the total revenue and
recognized throughout the warranty period.

Warranty amounts are reduced and recognized automatically based on:

• Warranty Ratio

• Warranty Period

• Total Estimated Revenue

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To Conclude

Using Oracle Standard tools we were able to provide a comprehensive

solution
Flexible yet Methodical
Rapid yet Systematic
Comprehensive yet manageable
Automated yet Controlled

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Thank You
Na’ama Drukman
ERP Consulting Leader
Naama.drukman@il.pwc.com
054-2000443

Rony Zucker
Rony.zucker@il.pwc.com
054-3269075

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