Original article was published on Artificial Intelligence on Medium
Automation of document review and checklist workflows for enterprise, starting with ASC 606 contract review.
At Klarity, we want to automate the review of the world’s documents. We were born out of an MIT classroom three years ago where our two co-founders met: Andrew was studying at Harvard Law School and knew first-hand the struggle of manual contract review, and Nischal was studying computer science and natural language processing at MIT. Since our inception, we have worked with some of the world’s most innovative companies to develop our core technology: an extensible and powerful document-processing AI engine that can analyze contracts and other documents to the same level of understanding as a human reviewer.
Since our inception, we have worked with some of the world’s most innovative companies to develop our core technology: an extensible and powerful document-processing AI engine that can analyze contracts and other documents to the same level of understanding as a human reviewer.
AI for Revenue Recognition
There are so many documents and roles that could benefit from the technology we built, but where do we start?
Six months ago, we started to receive a large amount of inbound interest from the finance departments of existing customers of our automated NDA review technology. They thought our technology could be useful in their own contract review workflows, and we were astonished when we learned about the inefficiencies in the revenue recognition process.
We spoke with Nick Tiscornia, an experienced revenue accountant and previously the Senior Revenue Manager at Slack and Senior Manager of Revenue Accounting at Riverbed Technology, about his experiences with contract review for revenue recognition.
For years, revenue accountants like myself have been looking for a solution to a major problem during the monthly accounting close and periods of audit: post-signature contract review. Reviewing customer contracts to ensure that they are in compliance with ASC 606: Revenue from Contracts with Customers and your company’s policy and reflected accurately in your accounting system is a critical step in accurately closing the books and preparing for audit. So why does it have to be so manual and painful?
The current process goes something like this:
1. Prepare for Review
- Pull into Excel/Google Sheets a list of contracts executed during the accounting period from your system of record.
- Identify which contracts require your team’s review based on a materiality threshold and your control objectives.
- Pull the executed contracts from your contract retention system or CRM (Dropbox/Google Drive/local shared folders/SFDC).
- Pull all relevant accounting documents including invoices, revenue waterfalls, and multiple element allocations from your accounting system.
2. Review and Document
- Have a first level reviewer review the contract against all relevant documentation to ensure compliance. Make notes to evidence review and document any anomalies in a checklist.
- Save all relevant documents and conclusions in a shared file.
- Manually notify the next level reviewer that the contract and all relevant comments/documents are ready for their review.
- Have the first level reviewer clear any comments.
- If possible, have the next level reviewer confirm that the checklist and all documents are ready for memorialization.
- Finalize the review process.
I’ve also noticed through my career in revenue accounting and consulting that the monotony of the process leads to fatigue and contributes to burn-out.
- Weeks or months later, your external audit team selects a contract for audit. Your team must re-review the contract and the associated documentation and send it to the audit team for review. Answer any audit questions and support them through this process.
Phew! This process is manual and tedious and detracts from your team members’ ability to focus on strategic initiatives. I’ve also noticed through my career in revenue accounting and consulting that the monotony of the process leads to fatigue and contributes to burn-out. In addition, if you have multiple team members performing reviews, documentation can be inconsistent and the information provided to auditors could be convoluted. Automating and streamlining this process is the first step in providing your team with much needed bandwidth during month and quarter end when they’re already stretched thin, and during the critical audit!