Arm – SAP Revenue Accounting & Reporting

Arm employs more than 4,500 people across Europe, North America and Asia Pacific and their technologies reach 80 percent of the global population. More than 95 billion Arm-based chips have been shipped to date, with nearly five billion Arm technology-based chips sold every quarter. As the world’s leading semiconductor IP company, Arm has sold over 1,400 licenses to more than 450 partners, and their complex portfolio of long running contracts has frequent changes and revisions.

Large multi-national organisations such as Arm, for which the revenue recognition rules had previously translated into complex accounting requirements, as per the prevailing financial reporting standard (e.g. IAS 18), have typically developed custom revenue recognition functionality in-house, or utilised classic SD revenue recognition functionality from SAP.


As of January 2018, companies reporting under IFRS had this requirement further complicated by the introduction of IFRS 15, a new five-step model to be applied to all contracts with customers. Due to the nature of Arm’s business, IFRS 15 will have a considerable impact upon how it recognises revenue for licenses, maintenance contracts and royalty management.

Preparing to meet a new standard

Initially, Arm needed to ensure they met IAS 18 requirements, so the business created a bespoke revenue accounting and recognition tool within SAP, however, to be compliant with IFRS 15 – they needed to decide whether they should continue to develop their in-house solution or move to the new SAP standard solution.

Keytree managed the discovery phase with SAP to assess the options available to Arm and what was involved in meeting the new standard. The outcome was Arm asking Keytree to deploy SAP Revenue Accounting and Reporting (SAP RAR) as the benefits of the new solution outweighed any alternative option. Before the project started, Arm with the support of Keytree reviewed financial processes to identify its vision and objectives for the project, which was to achieve statutory compliance in the most efficient and automated way.

The target solution needed to be compliant with IFRS 15, simplify internal processes through automation and be scalable to support growth targets through acquisition, and increasing growth while Improving transparency and reporting.

Keytree worked closely with Arm to understand their order to cash business processes, complex revenue contracts and billing solution to enable the implementation of SAP RAR. Supplementary development work was also undertaken to enable parallel running alongside the existing bespoke solution prior to the January 2018 deadline to ensure SAP RAR met specific Arm requirements.

It was crucial that the old and new solutions operated in parallel with each other, as for a predetermined period, businesses have to report in both standards and as Arm had a bespoke solution in place, Keytree had to be mindful on how the new solution was integrated with the old. It was imperative that it didn’t impact the old revenue postings – as Arm still needed to provide information in this way.

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Benefits

The SAP Revenue Accounting and Reporting module provides advanced standardised revenue recognition capabilities, ensuring IFRS 15 compliance. Therefore, Arm no longer needs to rely on developing new functionality themselves in their bespoke solution. SAP RAR can post multi GAAP (IFRS and US GAAP) revenue adjustments via either a multi-ledger approach or account-based approach in multiple reporting currencies.

The new solution also reduces the amount of manual effort in revenue reporting as previously there was a range of manual actions to be completed and as it sits on Arm’s existing infrastructure – there are no additional licence costs. SAP RAR provides regular upgrades, and if anything varies with the regulations, Arm will also benefit from updates or functionality changes SAP makes to the solution as and when they are delivered (as per the SAP roadmap).