Implementing Accounting

Standard Changes:

A Real-World Example

Jennifer Benoit, MTS Systems Corporation

Josh Kinkeade, eCapital Advisors

4/18/2019 © 2019 eCapital Advisors, LLC.

Agenda

© 2019 eCapital Advisors, LLC. 24/18/2019

Introductions

Accounting Standard Change

Project Focus

Results

What’s Next?

Questions

Josh Kinkeade - Introduction

3

• 18+ years Hyperion Experience

including HFM, FCCS, Planning,

Essbase, FDMEE and Financial

Reporting

• Accounting background with

extensive experience in financial

consolidations and development

and administration of FP&A systems

• Application administrator

background

• With eCapital Advisors 12 years

Jennifer Benoit - Introduction

4

• CPA with 14 years Accounting,

Finance and Audit experience

• Comprehensive background in

financial reporting, technical

accounting, consolidations, and

M&A activity

• Almost four years with MTS

Systems Corporation

• Previous experience with

The Valspar Corporation and PwC

eCapital Advisors

90+EMPLOYEES

LocalUPPER

MIDWEST

>300CUSTOMERS

2001ESTABLISHED

Who are We?Performance Management Consulting Firm

Oracle Gold Partner

What we Do?Help companies make decisions quickly by

connecting people, plans and data

Advisory services, strategic assessments,

implementations, upgrades, training, customer

enablement and managed services

5

Accounting Standard:

ASC 606 – Revenue from

Contracts with Customers

© 2019 eCapital Advisors, LLC. 64/18/2019

Forget What You Knew About Revenue Recognition

7

General

Guidance

Service

RevenueProduct

Revenue

Real Estate

Software

RevenueIndustry

Guides

Multiple

Element

Arrangements

Revenue from

Contracts with

Customers

Transfer of

Control

Concept

Reevaluate

Policies,

Processes

and

Systems

Every

Company

Impacted

ASC 605 ASC 606

New Five Step Process to Recognizing Revenue

8

Identify the contract(s) with the customer

Identify separate performance obligations in the contract

Determine transaction price

Allocate transaction price to each performance obligation

Recognize revenue when each performance obligation is satisfied

Step 1

Step 2

Step 3

Step 4

Step 5

Multiple Changes Impacting Revenue Recognition

9

Number of performance obligations

More estimates

Timing of revenue recognition

“Control” vs. “risk and rewards” concept

Key

Guidance

Changes

Timing of Revenue Recognition Determined by

Performance Obligation

10

Customer simultaneously receives and consumes the

benefits provided by the entity’s performance

Over TimeEntity’s performance creates or enhances an asset that the

customer controls as the asset is created or enhanced

Asset has no alternative use and enforceable right to

payment exists in the contract

Point in TimeRevenue recognized based on transfer of control if no over

time criteria are met

Project Focus

© 2019 eCapital Advisors, LLC. 114/18/2019

Project Team

MTS Systems Team

Acc

oun

tin

g

IT

Aud

it C

om

mit

tee

Fin

ance

Rep

ort

ing

Busi

nes

s

External

eCap

ital

Ad

vis

ors

KP

MG

LL

P

(Aud

ito

rs)

Th

ird

Par

ty

Ser

vic

e P

rovid

er

Oth

er

© 2019 eCapital Advisors, LLC. 124/18/2019

GLOBAL

MTS Source Systems

Changes

• Layered new revenue rules on top of old revenue rules to allow one year dual reporting

• Constrained by timing, effort and cost

• Only impacted one business segment

Resources

• IT

• Accounting / Finance

• Business

Testing • Confidence

© 2019 eCapital Advisors, LLC. 134/18/2019

HFM Consolidation

Changes• Application Creation

• Mapping updates

Resources• MTS Reporting Team

• eCapital

Testing• Unit

• UAT

© 2019 eCapital Advisors, LLC. 144/18/2019

Results

© 2019 eCapital Advisors, LLC. 154/18/2019

© 2019 eCapital Advisors, LLC.

Lessons Learned

Planning is key

Identify and involve all impacted parties early

Source system testing takes time

Assess magnitude of impact upfront

4/18/2019 16

What’s Next?

© 2019 eCapital Advisors, LLC. 174/18/2019

© 2019 eCapital Advisors, LLC.

HFM Upgrade

Upgrade to 11.1.2.4 Release

Convert data integration processes

from FDM to FDMEE

Leverage dimensionality to provide

GAAP v Non-GAAP reporting

4/18/2019 18

Lease Accounting (ASC 842)

• Definition and recognition of a lease has changed

• Almost all leases will be reported on the balance sheet

▪ Right-of-use asset

▪ Offsetting lease liability

• Operating leases now contain an interest expense component

• Practical expedients available

▪ Exclusion of leases with terms 12 months or less

▪ Transition option

• System needed for lease calculations depending on number of leases

© 2016 eCapital Advisors, LLC. 194/18/2019

Other

• Alter rules logic

• Minimize on-going maintenance

• Create flexibility to get ready for

future changes

© 2019 eCapital Advisors, LLC. 204/18/2019

Questions?

Thank you!

eCapitaladvisors.com