Your BRIM strategy should not be a gamble
The increased demand for bundled multi-component contracts led to new rules for revenue recognition with IFRS 15. With SAP BRIM and the add-on RAR (Revenue Accounting and Reporting, with S/4 Hana 1809 including the add-on for SAP Sales Integration an integral part of S/4) designed by SAP for the purpose of standard-compliant revenue recognition, it is ensured that the accounting sheet is a good one.
BRIM provides the ability to manage the entire offer-to-cash business process from a single source. Offers for physical products as well as services can be created and combined into one invoice in Convergent Invoicing for the customer based on a valid contract.
IFRS 15 provides a new set of rules for customer contracts with multiple elements: The amount of revenue recognized must correspond to the ratio of the stand-alone selling prices (EVPs) of the individual services in the contract.
The timing of revenue recognition must occur simultaneously with the fulfillment of the performance obligation. This is where RAR comes into play. Two examples are used to reveal why the combination of SAP BRIM and RAR is the optimal starting hand: In the first case, a basic Internet fee of 40 euros per month is offered with a contract term of two years.
The package includes a laptop, which is priced at 1 euro. Using BRIM, the items from the upstream systems are invoiced convergently and the invoice amounts are posted to the subledger contract accounts receivable and payable.
RAR is used to identify the independent service obligations, i.e., laptop and basic charge, of the customer contract. The transaction price (1+40*24 = 961) is allocated to the individual performance obligations in relation to the EVPs and realized when the respective performance obligation is fulfilled.
Thus, when the contract is signed and the laptop is handed over, the EVP of the laptop relative to the transaction price is already recorded as revenue and not the priced 1 euro.
As a second case, two services are offered in a bundle. Together with a software license for 150 Euros, three years of support and maintenance are offered for 75 Euros per month.
In this case, too, the transaction price must be allocated to the performance obligations relationally to the EPPs. Since no physical transfer takes place here, the amount of the software license is realized at the time at which the user receives access to the software.
In addition, IFRS 15 requires the provision of more informative and relevant disclosures about revenue recognition. Since the effective date of January 1, 2018, it has come to a showdown for listed companies.
With the new revenue reporting guidelines, there is no chance for bluffs. With all the obvious advantages, it is important to note that the use of BRIM with RAR only becomes a safe bet if it is implemented professionally.
Due to the principle-based and therefore partly abstract revenue recognition under IFRS 15, the transfer of these principles to specific circumstances is made more difficult.
On the business side, decisions have to be made that will have a fundamental impact on accounting practices. Experienced implementation partners provide support in both conceptual design and technical implementation to achieve an optimal revenue model for individual business areas.
Some will be among the winners of digital transformation, some among the losers. SAP BRIM, together with RAR, provides the necessary starting advantage so that in the end it's not "Rien ne va plus."
Download as PDF only for members. Please create an account Here
