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White Paper Revenue Recognition Challenges in the High-tech Industry: The Importance of Channel Data Integrity
Executive Overview
High-tech companies that sell through indirect channels face many challenges when deciding on a revenue recognition policy. They must comply with regulations, ensure access to accurate and timely channel sales data, and maintain robust systems and processes that support revenue accounting. Company finance departments need to evaluate the pros and cons of the "sales-in" vs. "sales-out" approach for revenue recognition. While the sales-out approach is considered to be more conservative, and may benefit companies by leading to lower required reserves, it poses implementation challenges because it is dependent on self-reported distributor information, and because the company lacks control over information accuracy. Transitioning from a sales-in to a sales-out approach is a significant effort, but one that can be managed by systematically on-boarding channel partners, consolidating and validating partners' point-of-sale (POS) and inventory data, and using a compliance scorecard to ensure timeliness and data quality. Partner compliance in providing timely and accurate POS and inventory data enables companies to perform an accurate reconciliation of sales-in vs. sales-out data. Such data forms the basis of inventory valuation, while rigorous monitoring of variances between calculated and reported inventory can provide valuable insights. |
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