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I am working for a consultancy organization that is looking to enter into gain sharing agreement with clients. These agreements will be to share a percentage of cost savings at a pre-defined interval e.g. 10% of the 3 years savings etc. As the amount will be uncertain, depending on what savings are found, and the timing at which the savings will begin to materialize, how do we recognize the expenditure to match it to the revenue, given that most of the work on identifying the savings will be done up front.
I know these can be deferred, but would we go about matching these to the revenue, when the total revenue is not know, and we can't easily estimate a total percentage.
Also, to minimize the risk, we will ask for an element of fixed fee to cover costs. How will this element of revenue be treated?
This is the first time I have come across the accounting practicalities of this, so all advice is gratefully received.
I know these can be deferred, but would we go about matching these to the revenue, when the total revenue is not know, and we can't easily estimate a total percentage.
Also, to minimize the risk, we will ask for an element of fixed fee to cover costs. How will this element of revenue be treated?
This is the first time I have come across the accounting practicalities of this, so all advice is gratefully received.