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ASC 606 Preparation

Abstract

To meet ASC 606 regulation requirements, you must reconcile commission payouts to the transaction level.

To meet ASC 606 regulation requirements, you must reconcile commission payouts to the transaction level. For non-transactional commissions, this blueprint automatically determines the transactional commissions for the components in an aggregated commission table.  

What is ASC 606?

A US GAAP regulatory requirement on how organizations should recognize revenue and amortize those expenses.

Why is it important for commissions?

  • Revenue recognition requires the recognition and amortization of all expenses.

  • Sales commissions represent a major portion of expenses.

ASC 606 Preparation Prerequisites

  • A data set containing the transaction credits for payee-component combinations. Transaction Credits (Data)

  • A commissions table containing the amounts earned by payees for unique opportunity-component combinations, or just components if non-transactional. Base Commission Table (Data)

  • A transaction table with relevant contract length information. Transaction Table (Data)

Pipe and Offering Highlights

  • Flexibility: Can handle commissions at aggregated or transaction levels, has immediate expense reimbursement eligibility at the commission level, and has amortization eligibility for commission types (components).

  • Accuracy: Proration at a daily level.

  • Granularity: All commissions calculated at an aggregated level are prorated back to the transaction level.

Varicent ASC 606 Process Flow

In the ASC 606 Preparation blueprint process, reverse calculate commission at the Contract Level.

  1. Identify contact duration for transactions.

  2. Group transactions based on term and payee, and aggregate at term level credit.

  3. Prorate based on individual credit compared with Total Credit.

  4. Apply the proration at the payout level to reverse the calculation aggregated commission at the transaction level.

  5. Add the transactional and non-transactional commissions back together.

  6. Remove the transactions with 0 commission.

  7. Create a Revised Provision Date column.

  8. Export the data. Download the file and reimport it into Varicent ELT to use in the ASC 606 Amortization blueprint.

In the ASC 606 Amortization blueprint, apply the amortization schedule.

  1. Get the numeric date values for the transaction commission data.

  2. Add the amortization schedule rules to the data.

  3. Calculate the end of term date value.

  4. Convert the end of term numerical value to the actual ending date.

  5. Identify total number of days between contract start and end dates (or based on provision date and term). This allows for correct daily proration and amortization.

  6. Apply amortization frequency.

  7. Export to Incentives. The ICM ASC 606 calculation expects the same 26 columns in this blueprint, with each record representing one unique opportunity-component-payee combination.

Create an amortization waterfall in Incentives.

  • The Incentives. calculation uses the Varicent ELT pipe object to import the result from the In the ASC 606 Amortization blueprint, apply the amortization schedule.. step.

    Note

    If you cannot establish a live connection, you can upload a manual extract. Following that, the calculation is then:

    • Establish the list of periods (months) between Provision Date or Amortization Start date, and End Date.

    • Calculates the number of days in each period. This is to accommodate proration for all deals started mid period.

    • Creates a data set where each component-period combination has an added column that states how many days belong to that period.

    • Calculates the amortization amount for each period.

    • From there, a variety of aggregations and pivots are performed within the ICM component to present the waterfall view at the required granularity for reporting.