Anyone have experience accruing / counting savings for indirect categories with a very strict finance stakeholders ?

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To add more context, publicly traded F500 client. Savings methodology is written based on GAAP but it seems to be much more applicable to direct materials than indirect categories.

Following.

Haven't done the work, but it is something I am very interested in. I have an accounting degree, and work supply chain. And have identified this as a classic problem in SCM space.

Interestingly thats not the normal scenario, where I think this is a problem. Usually non recurring cost avoidance is what doesn't get recognition.

In this scenario the revenue can be recognized one of two ways:

1. Either as a contra account (cost reduction for services rendered) on the period the bonus is paid out.

2. Recognized as revenue when the bonus is paid. Because it is non forfeitable, it should be recognized all the same year.

Under some circumstances, you could amortize the bonus over the life of the contract
But that should only be done if there is some fine print that could put the bonus in jeopardy.

Regardless of, if you received the $1M in cash on signing and want to amortize to reduce taxes, you should take 333k as revenue, and the other 666k as unearned revenue (which act as a liability until closed).

If you do that weird amortization, then on reduction of that liabilty, procurement should take the credit. After all it will be on the following years that procurement behavior will lead to that liability reduction as more services are procured from that supplier.


Note: I have an accounting degree, and try to keep up to date on knowledge, but you should use my opinion as a starting point for research, in case I am wrong, since I am not a practicing accountant.

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Savings methodologies vary greatly from company to company. In my experience (both industry and consulting) a sign on bonus is counted fully in the year in which it is received as savings, whether that is a sign on bonus, pre-bate (based on historical volumes), or rebates.

Then there are hard (cost reduction) and soft savings (cost avoidance, working cap improvements, the value of additional services at no cost, etc.) which it doesn’t indicate in the comments are are a concern. These savings you have a little negotiating room with finance since they are not actual funds coming into the company. I’ve seen these calculated a many different ways. Happy to expand more.

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