IFRS 15: Implementation challenges

Transcription

1 IFRS 15: Implementation challenges 29 Christoph Cruss Partner, Germany

2 Agenda Revenue Impacts the Entire Organization Impact Study of various Industries Key aspects to consider implementing IFRS 15 Slide 2

3 Revenue Impacts the Entire Organization Accounting is only the tip of the iceberg Slide 3

4 Revenue Impacts the Entire Organization Is it a main operational change Accounting & Reporting Changes to revenue model - Number of things to track - Allocation of revenue - Timing of recognition Changes beyond revenue - collectibility; time value of money; sales commissions Judgment & estimates Additional disclosures Transition considerations Process & Systems Impacts across quote-to-cash cycle Involvement of IT is paramount Likely to accelerate trend of revenue automation (replacing Excel and manual processes) Potentially IT 3-5 year roadmaps Significant Cost trigger Executive management Audit Committee Investor Relations Financial Planning & Analysis Sales Legal HR Tax Accounting and IT Functions Cross-functional Impacts Changing business models - Organic changes - M&A activity Opportunity to structure and go-to-market differently Pricing strategy Impact on compensation Executive communication and awarenes Business Changes Slide 4

5 Impact Study of various Industries It really depends on your business models Slide 5

6 Impact Study of various Industries It really depends on your business models Subsidized services/warranties Tooling and products Licenses Multiple element arrangements Variable consideration Subsidized services/products Licenses Milestone payments Multiple element arrangements Licenses Variable consideration Multiple element arrangements Subsidized hardware Variable consideration Automotive Software Healthcare & Pharma Media Energy Repurchase agreements Variable consideration Time value of money Contract costs Milestone payments Variable consideration Warranties, Time value of money Material rights (Gift cards) Right of return Combination of contracts Milestone payments Multiple element arrangements Collectability Contract cost Real Estate Construction/ Engineering Retail Transportation & Logistics Telecommuni cation Disclosures are affected Staff training and education needed Review of all contracts is required Assessment of collectability, time value of money, Slide 6

7 Key Aspects to consider implementing IFRS 15 Slide 7

8 Key Aspects to consider implementing IFRS 15 Overview Transition Implementation Rollout Strategy Organisational Scope Project Setup Full retroperspective Partially retroperspective Accounting options o Contract-by- Contract o Portfolio Approach IT aspects o Data Sources o Calculation Engine Pilot entity to confirm analysis and probe detailed approach Cluster option for entities Complexity driven by heterogeneity External Reporting Management Reporting / Controlling Future business models Extent and scope internal and external involvement Auditor s involvement o Interface to G/L Slide 8

9 Transition and implementation Transition timeline Effective date = 1 Jan Reliefs Option 1 Full retrospective (Apply IAS 8) NEW IFRS 15 Cumulative effect at 1 Jan 2016 NEW IFRS 15 For completed contracts: No adjustment for interims Hindsight allowed for variable consideration Option 2 Partially retrospective OLD GAAP Cumulative effect at 1 Jan 2017 NEW IFRS 15 Disclose OLD GAAP No reliefs It depends. Slide 9

10 Implementation methodology and timeline Have you started now? Exposure Draft Final Standard ( ) Effective date (2017) Phase I: Assessment Project plan & governance As-is analysis Cross functional impact assessment Training & education Determination of implementation approach and roadmap Phase II: Implementation Data gathering Accounting and IT concepts System changes and upgrades Adoption planning Phase III: Embedding Testing Go live & business as usual Training Reporting updates Disclosure modifications Stakeholder communication On-going monitoring Revenue recognition today Project management, communication, knowledge transfer & preparation Revenue recognition tomorrow Assess impact and determine strategy Establish policies and prepare result Embed the new standard Slide 10

11 Transition and implementation Implementation challenges and success factors Challenges Success factors Technical accounting application Increased management judgement Project management Maintaining dual GAAP Operational process and system changes Data gathering & analysis Communications Changing business models Start preparing now to figure out how the standard affects your financial picture, your investors, and the way you do business Develop an approach that effectively leverages the transition period measured approach Establish robust governance structure Agree project management and change management protocol Document as you go maintain an audit trail Slide 11

12 Transition and implementation Portfolio approach may be an option Generally the contract-by-contract approach shall be applied In general IFRS 15 specifies the accounting for an individual contract with a customer. However, as a practical expedient, an entity may apply this Standard to a portfolio of contracts (or performance obligations) with similar characteristics if the entity reasonably expects that the effects on the financial statements of applying this Standard to the portfolio would not differ materially from applying this Standard to the individual contracts (or performance obligations) within that portfolio. Slide 12

13 Transition and implementation Contract-by-contract approach vs. portfolio approach With Contract-by-Contract Approach With Portfolio Approach System 1 Hardware System 2 Services System 1 Hardware System 2 Services iphone Tariff1 20 p.m. iphone 500 Tariff1 20 p.m. S Tariff1 20 p.m. S4 450 Tariff1 20 p.m. HTC One Tariff2 40 p.m. HTC One 400 Tariff2 40 p.m. Link between different systems necessary to identify performance obligation on a contract by contract basis: Unique ID over system borders necessary, Data granularity in different systems must match. Key Figure Selection Criteria: - sold with service - minimum contract term: 24 month - month: February - new contract Key Figure Selection Criteria: - sold with hardware - minimum contract term: 24 month - month: February - new contract Contract 1: iphone Tariff 1 Hardware 500 Service: 480 Contract 2: HTC One Tariff 2 Hardware 400 Service 960 Hardware 15 Mio Service 5 Mio Slide 13

14 Implemention cost Transition and implementation Portfolio approach may reduce your implementation cost Cost savings potential through portfolio approach Portfolios Contractby-contract Number of portfolios Company A: Implementation of a contract-by-contract approach Company B: Portfolio approach including controlling requirements Company C: Lean portfolio approach (satisfy compliance requirements only) Slide 14

15 Clusters Rollout Strategy Pilot Project and Cluster Option Pilot Project Cluster 1 Cluster 2 Cluster 3 September 2014 January 2015 Project phases January 2016 December 2016 Planning Phase Impact Study and Analysis Preparation & Decision IT Project IT Realization Slide 15

16 Project Setup project approach Impact study and analysis Analysis of processes and systems used Analysis of contracts, business models and products Definition of technical requirements as well as system requirements Identification of interfaces Preparation and performance of workshops involving different departments (accounting, controlling, sales, business development, etc.) Preparation and decision Design of future revenue recognition process Identification of data gaps Assure accordance with future compliance requirements Decision on appropriate software solution Adjustment of internal & external reporting Consolidation and prioritization of requirements of different departments Implementation Data collection and migration of current data Implementation, customization, testing and Integration of software solution into the existing systems Accounting policies & reporting updates Roll-out & communication Coaching and support during the period of familiarization Project management, communication and knowledge transfer Slide 16

17 Project Setup Summary of points to consider Implementation Options Options for IT Solution Rev Rec Contract by contract Portfolio approach Professional Services Technical consulting IT Own Contract by contract versus portfolio approach Technical consulting independent of solution design implementation concept Scope of work Pre-project Rev Rec Pilot Proven milestone concept Previous Pre-project Slide 17

18 Question for voting 2 IFRS 15, Revenue from Contracts with Customers, will be mandatory for annual periods starting on 1 January When do you plan to assess the impact of the new standard on your company? 1. In In Today", as we may need to adjust business processes and/or IT systems

19 Thank you! This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, [insert legal name of the firm], its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. Russia ( provides industry-focused assurance, tax, legal and advisory services. Over 2,600 professionals working in offices in Moscow, St Petersburg, Ekaterinburg, Kazan, Novosibirsk, Rostov-on-Don, Krasnodar, Voronezh, Yuzhno- Sakhalinsk and Vladikavkaz share their thinking, experience and solutions to develop fresh perspectives and practical advice for our clients. The global network of firms brings together more than 184,000 people in 157 countries. * refers to PricewaterhouseCoopers Russia B.V. or, as the context requires, other member firms of PricewaterhouseCoopers International Limited, each of which is a separate legal entity PricewaterhouseCoopers Russia B.V. All rights reserved.