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Accenture PLC (ACN)

Analysis of Revenues

Difficulty: Advanced

Revenue Recognition Accounting Policy

Revenues from contracts for technology integration consulting services where Accenture designs/redesigns, builds and implements new or enhanced systems applications and related processes for the clients are recognized on the percentage-of-completion method, which involves calculating the percentage of services provided during the reporting period compared to the total estimated services to be provided over the duration of the contract. Contracts for technology integration consulting services generally span six months to two years. Estimated revenues used in applying the percentage-of-completion method include estimated incentives for which achievement of defined goals is deemed probable. This method is followed where reasonably dependable estimates of revenues and costs can be made. Estimates of total contract revenues and costs are continuously monitored during the term of the contract, and recorded revenues and estimated costs are subject to revision as the contract progresses. Such revisions may result in increases or decreases to revenues and income and are reflected in the Consolidated Financial Statements in the periods in which they are first identified. If Accenture’s estimates indicate that a contract loss will occur, a loss provision is recorded in the period in which the loss first becomes probable and reasonably estimable. Contract losses are determined to be the amount by which the estimated total direct and indirect costs of the contract exceed the estimated total revenues that will be generated by the contract and are included in Cost of services and classified in Other accrued liabilities.

Revenues from contracts for non-technology integration consulting services with fees based on time and materials or cost-plus are recognized as the services are performed and amounts are earned. Accenture considers amounts to be earned once evidence of an arrangement has been obtained, services are delivered, fees are fixed or determinable, and collectibility is reasonably assured. In such contracts, Accenture’s efforts, measured by time incurred, typically are provided in less than a year and represent the contractual milestones or output measure, which is the contractual earnings pattern. For non-technology integration consulting contracts with fixed fees, Accenture recognizes revenues as amounts become billable in accordance with contract terms, provided the billable amounts are not contingent, are consistent with the services delivered and are earned. Contingent or incentive revenues relating to non-technology integration consulting contracts are recognized when the contingency is satisfied and Accenture concludes the amounts are earned.

Outsourcing contracts typically span several years and involve complex delivery, often through multiple workforces in different countries. In a number of these arrangements, Accenture hires client employees and becomes responsible for certain client obligations. Revenues are recognized on outsourcing contracts as amounts become billable in accordance with contract terms, unless the amounts are billed in advance of performance of services, in which case revenues are recognized when the services are performed and amounts are earned. Revenues from time-and-materials or cost-plus contracts are recognized as the services are performed. In such contracts, Accenture’s effort, measured by time incurred, represents the contractual milestones or output measure, which is the contractual earnings pattern. Revenues from unit-priced contracts are recognized as transactions are processed based on objective measures of output. Revenues from fixed-price contracts are recognized on a straight-line basis, unless revenues are earned and obligations are fulfilled in a different pattern. Outsourcing contracts can also include incentive payments for benefits delivered to clients. Revenues relating to such incentive payments are recorded when the contingency is satisfied and Accenture concludes the amounts are earned.

Costs related to delivering outsourcing services are expensed as incurred with the exception of certain transition costs related to the set-up of processes, personnel and systems, which are deferred during the transition period and expensed evenly over the period outsourcing services are provided. The deferred costs are specific internal costs or incremental external costs directly related to transition or set-up activities necessary to enable the outsourced services. Generally, deferred amounts are protected in the event of early termination of the contract and are monitored regularly for impairment. Impairment losses are recorded when projected remaining undiscounted operating cash flows of the related contract are not sufficient to recover the carrying amount of contract assets. Deferred transition costs were $690,868 and $739,212 as of August 31, 2018 and 2017, respectively, and are included in Deferred contract costs. Deferred transition amortization expense for fiscal 2018, 2017 and 2016 was $333,118, $289,555, and $283,434, respectively. Amounts billable to the client for transition or set-up activities are deferred and recognized as revenue evenly over the period outsourcing services are provided. Deferred transition revenues were $581,395 and $606,095 as of August 31, 2018 and 2017, respectively, and are included in non-current Deferred revenues. Contract acquisition and origination costs are expensed as incurred.

Accenture enters into contracts that may consist of multiple deliverables. These contracts may include any combination of technology integration consulting services, non-technology integration consulting services or outsourcing services described above. Revenues for contracts with multiple deliverables are allocated based on the lesser of the element’s relative selling price or the amount that is not contingent on future delivery of another deliverable. The selling price of each deliverable is determined by obtaining third party evidence of the selling price for the deliverable and is based on the price charged when largely similar services are sold on a standalone basis by Accenture to similarly situated customers. If the amount of non-contingent revenues allocated to a deliverable accounted for under the percentage-of-completion method of accounting is less than the costs to deliver such services, then such costs are deferred and recognized in future periods when the revenues become non-contingent. Revenues are recognized in accordance with Accenture’s accounting policies for the separate deliverables when the services have value on a stand-alone basis, selling price of the separate deliverables exists and, in arrangements that include a general right of refund relative to the completed deliverable, performance of the in-process deliverable is considered probable and substantially in Accenture’s control. While determining fair value and identifying separate deliverables require judgment, generally fair value and the separate deliverables are readily identifiable as Accenture also sells those deliverables unaccompanied by other deliverables.

Revenues recognized in excess of billings are recorded as Unbilled services. Billings in excess of revenues recognized are recorded as Deferred revenues until revenue recognition criteria are met. Client prepayments (even if nonrefundable) are deferred and recognized over future periods as services are delivered or performed.

Revenues before reimbursements ("net revenues") include the margin earned on computer hardware, software and related services resale, as well as revenues from alliance agreements. Reimbursements include billings for travel and other out-of-pocket expenses and third-party costs, such as the cost of hardware, software and related services resale. In addition, Reimbursements include allocations from gross billings to record an amount equivalent to reimbursable costs, where billings do not specifically identify reimbursable expenses. Accenture reports revenues net of any revenue-based taxes assessed by governmental authorities that are imposed on and concurrent with specific revenue-producing transactions.

Source: 10-K (filing date: 2018-10-24).

Revenues as Reported

Accenture PLC, Income Statement, Revenues

US$ in thousands

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12 months ended Aug 31, 2018 Aug 31, 2017 Aug 31, 2016 Aug 31, 2015 Aug 31, 2014 Aug 31, 2013
Communications, Media & Technology 8,030,775  6,884,738  6,615,717  6,349,372  5,923,821  5,686,370 
Financial Services 8,237,982  7,393,945  7,031,053  6,634,771  6,511,228  6,165,663 
Health & Public Service 6,688,467  6,177,846  5,986,878  5,462,550  5,021,692  4,739,483 
Products 10,854,339  9,500,451  8,395,038  7,596,051  7,394,980  6,806,615 
Resources 5,657,178  4,847,073  4,838,963  4,988,627  5,135,309  5,143,073 
Other 104,709  46,129  15,074  16,560  15,364  21,606 
Net revenues 39,573,450  34,850,182  32,882,723  31,047,931  30,002,394  28,562,810 

Based on: 10-K (filing date: 2018-10-24), 10-K (filing date: 2017-10-26), 10-K (filing date: 2016-10-28), 10-K (filing date: 2015-10-30), 10-K (filing date: 2014-10-24), 10-K (filing date: 2013-10-29).

Item Description The company
Net revenues Amount of revenue recognized from goods sold, services rendered, insurance premiums, or other activities that constitute an earning process. Includes, but is not limited to, investment and interest income before deduction of interest expense when recognized as a component of revenue, and sales and trading gain (loss). Accenture PLC’s net revenues increased from 2016 to 2017 and from 2017 to 2018.