Assisting with Audit Readiness for Revenue Recognition & Deferred Revenue
As a result of Accordion’s support to management during the 2018 financial statement audit, the Company hired Accordion to assist with the 2019 financial statement audit with a specific focus on ASC 606 Revenue Recognition and Deferred Revenue of SAAS contracts. During the 2019 audit, the Company’s auditors found several exceptions with how the Company recognized revenue for SAAS contracts. To proceed, the auditor outlined the requirements to be comfortable with the 2019 financial results; in response, the Company hired our team to support their finance function to understand the root cause of the these exceptions, to verify that all root causes had been identified, and to quantify the full population of contracts to be reviewed for potential adjustments to recorded revenue and deferred revenue for 2018 and 2018 financial reporting periods. As part of the engagement, we assisted management in determining the sampling methodology for contract reviews and performed an independent analysis of the physical contracts in order to substantiate the accuracy of the contract revenue recorded in 2018 and 2019 reporting periods.
Accounting Policies & Procedures
Process & Controls Implementation
Phase I Assessment:
- Reconciled 2018 & 2019 contract population to general ledger at the invoice-level for each of the business units.
- Identified unique contract/invoice populations for each business unit that would need to be reviewed separately.
- Reviewed the ASC 606 technical accounting memo and related workpapers from the Company’s third-party specialist to gain understanding of company’s GAAP revenue recognition treatment.
- Reviewed the auditors’ exceptions listing from revenue testing procedures performed to-date.
- Performed an independent review of customer contracts/invoices for each Business Unit in the 2019 period in order to ensure:
- Appropriate supporting documentation
- Amount invoiced to the customer agreed to the underlying physical contracts signed by the customer
- Accuracy of the contractual terms within the CRM/ERP
Phase II Remediation Testing
- Identified sampling and testing approach for Phase II remediation including auditor sign-off for new approach.
- Reviewed customer contracts to gain necessary coverage over the entire 2018 & 2019 populations and captured necessary revenue recognition data points.
- Built the deferred revenue schedules for 2018 & 2019 financial reporting periods and quantified any necessary accounting adjustments to ensure truth of revenue deferred revenue account balances in current year and prior periods.
- Bridged the original deferred revenue balances to the updated deferred revenue balances with reconciling items at a financial reporting period level & consolidated level.
- Provided auditor with revised testing populations for 2018 and 2019 financial reporting periods that included updated deferred revenue waterfall schedules by business unit.
- Proposed process & control enhancements to prevent future issues.
Accordion supported the Company through the evaluation and remediation of revenue recognition errors identified by the auditors, and as a result of the work, the Company is on-track to meet their extended debt obligation deadlines. Additionally, our team provided the Company with a list of proposed process & controls enhancements to ensure errors do not perpetuate into the future.