“This is big news and it’s not covered enough,” Mr Tzuo told The Australian. “Stocks are going to drop by 10, 20, 50 per cent, companies will come out and realise things like, ‘I can’t close my books, I have to delay my earnings call’.”
In a recently published article in The Australian, Zuora CEO, Tien Tzuo, talks about the upcoming changes to the Revenue Recognition Standards and focuses in on the fact that stock prices may plummet worldwide due to the new standards not properly accounting for the subscription economy.
Tzuo points out that although accounting standard bodies around the world are making an effort to tackle the issue, they aren’t going far enough. With guidelines coming into place for reporting subscription revenue, there will still be different ways of interpreting them. He notes that a recurring revenue is of course more enticing and holds more opportunity than a one-time payment, however those two different models of payment are being reported as being the same.
Our closely aligned vision with Zuora is reiterated by our partnership with them. Leaders in the subscription economy, Zuora coined the term and is helping businesses from all industries move their businesses to a subscription model. As more businesses make the shift to a subscription-business model, they will also have to consider how they will be impacted by upcoming changes to revenue recognition standards. That’s where we come in.
The nature of a subscription business is defined by change and with every change, though exciting for a company’s growth, means additional accounting and processes, especially with updates to accounting standards. Typically, the biggest expense associated with obtaining contracts with customers is incentive compensation, and for subscription businesses, that includes more than just the sales team’s commission. Compensation also includes professional services, customer success, account management, overall management and everyone else who is directly associated with obtaining and executing the contract. Any time there is a change to a contract (subscription line items added, numbers of users amended, etc.) the amortization has to be changed, which is followed by a waterfall of complex calculations.
Learn more about how Obero SPM can help ensure you’re compliant with the upcoming changes to revenue recognition – ASC 606.