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34% of Companies at High Risk for Revenue Reporting Errors

A recent survey by RevenueRecognition.com in association with IDC of senior financial executives from 586 companies, found that companies rate revenue recognition accounting as having the greatest risk for errors and inaccuracies by a margin of three to one over other key finance and accounting processes. Revenue recognition accounting also ranked number one for being the most complex to manage and for errors having the highest level of materiality to financial statements.

This triple crown of threats to the integrity of revenue reporting processes corresponds to the continued, pervasive use of spreadsheets and to a lack of knowledge regarding the availability of specialized applications for revenue automation.

HIGH RISK COMPANIES

34% of responding companies indicated that the complexity in their business and the inadequacy of their information infrastructures puts them at much higher risk for revenue reporting errors. A key factor was the number and type of business models - companies with multi-element contracts, subscription/usage based billing, and royalty/licensing models were far more likely to have higher risk and complexity.

These business models require that billing and revenue recognition be managed separately, which can have a significant operational impact. "When revenue and billing are separated, a completely independent set of criteria governs how revenue flows from a contract to financial statements," explained Gottfried Sehringer, executive editor of RevenueRecognition.com "The typical IT infrastructure based on generic financial applications is unable to process the revenue cycle which is far more complex than billing. The result is a process laden with manual intervention and spreadsheets."

SPREADSHEETS ARE PERVASIVE

This year’s survey found that 92% of respondents from public companies are using spreadsheets for one or more key revenue accounting activities, the same percentage found in a previous RevenueRecognition.com and IDC survey ("Enterprise Systems and Revenue Recognition: The Missing Link," 2006). This suggests not only are infrastructures insufficient, companies are not being aggressive enough in adopting solutions to effectively eliminate the risks associated with spreadsheets from the revenue reporting process.

REVENUE DATA IS FRAGMENTED ACROSS THE ENTERPRISE

Another source of risk was the fragmentation of revenue information across the enterprise. "Data fragmentation adds multiple levels of risk to the revenue reporting process and the quality of revenue information," said Kathleen Wilhide, Research Director, GRC and BPM Solutions at IDC. "In order to lower that risk, information systems must continually improve so that the level of automation matches the level of complexity. With fully automated revenue processes, the risk of inaccurate reporting is greatly reduced, while the ability to manage the business and optimize top line performance is significantly enhanced."

Click here to download the full report.