Contract Modifications

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Contract Modifications

Zuora RevPro provides visibility throughout the lifecycle of a revenue contract from the initial contract through any contract modifications that occur to the contract. Companies enter into Revenue Contracts with customers to deliver goods and services (performance obligations) for a fee (consideration). Sometimes the performance obligations are satisfied as they are originally agreed to at the outset of a contract. However, sometimes changes occur to a contract that results in changing the price and scope of the contract.

For example, the following operations might change the contract price and scope:

  • Add performance obligations to a contract.
  • Remove performance obligations from a contract in a future period during a contract’s revision timelines.
  • Modify existing performance obligations within a contract during a contract's revision timeline.

The following sections are part of the contract modifications:

Examples Of Contract Modifications

It is important to note that contract modifications occur when there are changes to performance obligations (POBs) after contract creation (formation). For example, either price changes to performance obligations and scope changes to performance obligations result in contract modifications. Contract modifications may also be the addition of new POBs to a contract and subtraction of existing POBs within a contract. Highlighted below are examples of contract changes that result in contract modifications (assuming that the changes were made to the contract after the contract’s Initial Contract Timeline Period has elapsed). Examples of changes to a contract during a contract’s Revision Timeline that result in (trigger) contract modifications:

  • Contract Additions
  • Contract Cancelation
  • Contract change (upsell / down sell)
  • Merging contracts        
  • Price adjustments         
  • Price concessions          
  • Price modifications         
  • Returns

Within RevPro, POB is used as both an abbreviation and as a vocabulary term for a performance obligation, which often appears within the ASC 606 guidance. The vocabulary term POB does not appear in ASC 606.

Reporting Contract Modifications

ASC 606 requires the identification and reporting of contract modifications. Zuora RevPro manages contract modifications on a contract-by-contract basis for revenue books in Zuora RevPro that adhere to ASC 606 guidance. RevPro’s contract modification policies as determined by the accounting and operational policies of the company apply contract modification rules to new and updated transaction lines in a revenue contract during a revision timeline to drive how to adjust revenue allocations (the allocation of the transaction price across performance obligations) and revenue management (the timing of the release of revenue) when there are price and scope changes to a contract.

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