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Copyright © 2015, Oracle and/or its affiliates. All rights reserved.
JD Edwards Summit
The New Global FASB/IASB Revenue Recognition Accounting Standard JD Edwards EnterpriseOne and World
Seamus Moran - Senior Director Oracle Financials Product Management David Scott – Senior Principal Product Manager JD Edwards Product Management Karen L. Brown – Senior Principal Product Manager JD Edwards Product Management
Copyright © 2015, Oracle and/or its affiliates. All rights reserved. |
Safe Harbor Statement
The following is intended to outline our general product direction. It is intended for information purposes only, and may not be incorporated into any contract. It is not a commitment to deliver any material, code, or functionality, and should not be relied upon in making purchasing decisions. The development, release, and timing of any features or functionality described for Oracle’s products remains at the sole discretion of Oracle.
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Copyright © 2015, Oracle and/or its affiliates. All rights reserved. |
Program Agenda
The Standard
Impacts to JD Edwards
JD Edwards Contracts and Job Cost
JD Edwards Accounts Receivable
Call to Action
Q&A
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2
3
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5
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The Standard Overview
Oracle Confidential – Internal/Restricted/Highly
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M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D
Accounting Standard Timeline
• The new Revenue standard became both US GAAP and IFRS on May 28th, 2014
– US GAAP Topic 606 published as ASU 2014-9
– IFRS 15
– Text is identical; references to GAAP and to IAS are different; minor difference to ensure identity of meaning by reference to different glossaries; differences in transition and take up options
• Implementation Timeline: – Effective date is set for first new fiscal after January 1, 2017
– 2 Options on Retroactive Reporting
Standard Final 5/28
Today January.
OOW 9/28
Reprocess data from here for comparatives 1/1/2015
OOW 2016
New Year 2016
All Companies
Live on New Rules + FRM
1/12017
2014
2046
2015 2017
OOW 2015
2015 2016
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Copyright © 2015, Oracle and/or its affiliates. All rights reserved. |
Oracle’s Product Response for Topic 606 & IFRS 15
Topic 606 and IFRS 15 Requirements & Software Objective
Transition Arrangements, what we need ASAP
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Applicability
• Industries
– All, except Insurance and Lease vendors
• GAAPs
– Changes to both US GAAP and IFRS
• Repeals (withdraws, cancels) the following US GAAP & IFRS statements – US GAAP (Codification):
Topics 340-20, 360-20, 430, 605-15, -20, -25, -28, -30, -35, -50, 908-605, 910-605, 912-210, 912-235, 912-605, 915-605, 920-310, 920-605, 920-845, 922-430, 926-430, 926-605, 926-845, 928-430, 928-305, 932-605, 940-605, 942-605, 948-605, 952-340, 952-720, 954-340, 970-605, 976-605, 978-605 and 985-605
– Amends many others.
– IFRS: IAS 11 and 18
Concept Applies to All Companies, All Industries, All Countries
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Revenue Standard
• All companies to identify Contracts – combinations of Customer Obligations that are related as a contract for accounting purposes. Example: Car + x years free service
• Must Recognize Revenue on performance obligations you have satisfied – a “positive” definition, as opposed to “what you have billed, less carve-outs” or “lifted contingencies”
• Recognize a monetary Customer Liability, “Performance Obligation”, (as opposed to deferring revenue) on performance obligations you have not satisfied but you do owe to customers
• Recognize a Receivable only on your right to receive cash where the only condition is the passing of time (e.g. 30 days)
• Recognize a Customer Asset, “Performance Asset”, on a conditional right to receive consideration for a satisfied obligation. A condition might be a requirement to complete satisfaction.
• An open order is a Performance Obligation but not a Performance Obligation liability (3 conditions)
• Value each obligation using “Observed Standalone” or “Estimated” Selling Prices apportioned to each element of the contract, by following four steps
• No longer amortize a sales invoice to the P&L; instead, track (recognize and value, list and audit) performance obligations to customers – “obligations times SSP or ESP”, not “invoice minus released”
“Performance Obligations” replace “Deferred Revenue”
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Today’s Old Rules: two extremes, difficult to compare industries, companies
Standard Compliance, IFRS 15 & Topic 606 All Industries
Identify Bundled services and goods Allocate deal prices to identify discounted goods/services
Revenue Recognition immediately on Performance Performance Obligation Accounting
Complex Compliance Specified industries: Software, Hi-tech, etc Bundled services and goods Variable Pricing Recognition when contingencies met Deferred Revenue Accounting
Non-complex Compliance All others
Possible unidentified bundles Standard Pricing
Recognition on delivery Sales Invoice Accounting
Tomorrow’s New Rules: extremes removed, easier to compare industries, companies
Applicable to all industries, & to all IFRS & US GAAP filers Move to the center, all use the same revenue recognition principles
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Understanding the Standard: Old versus New
Mandate: Don’t recognize Revenue until all delivered Mandate: Recognize Revenue once performed
Deferred Revenue is a sales invoice you are feeding to the P&L
Contract Liability is a performance obligation you have not delivered on
UBR are receivables
you haven’t billed yet
Contract Assets
are not Receivables,
and you might even
have billed
already
Revenue and Deferred
Revenue are valued at
invoice value Plus or minus Carve-ins and
carve outs
Revenue and Contract
Balances are valued at
Performance Obligation
value per Step Four
VSOE, TPE, Estimate = Fair Value OSSP, ESP = Expected Consideration
Multiple Element Arrangement
Contract With Customers
Elements Units of Account
Distinct Performance Obligations
The Constraint
Revenue Schedule
Performance Satisfaction
Specific USA Industries
All Commercial Customers
Bill, then defer Four steps to valuation, then book that
Follow the carve out
Follow Customer satisfaction
Revenue system functionality changes?
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Understanding the Standard : Old versus New FASB IASB
Oracle Confidential – Internal/Restricted/Highly Restricted
Mandate: Don’t recognize Revenue until all delivered Mandate: Recognize Revenue once performed
Deferred Revenue is a sales invoice you are feeding to the P&L
Contract Liability is a performance obligation you have not delivered on
UBR are receivables
you haven’t billed yet
Contract Assets
are not Receivables,
and you might even
have billed
already
Revenue and Deferred
Revenue are valued at
invoice value Plus or minus Carve-ins and
carve outs
Revenue and Contract
Balances are valued at
Performance Obligation
value per Step Four
VSOE, TPE, Estimate = Fair Value OSSP, ESP = Expected Consideration
Multiple Element Arrangement
Contract With Customers
Elements Units of Account
Distinct Performance Obligations
The Constraint
Revenue Schedule
Performance Satisfaction
Specific USA Industries
All Commercial Customers
Bill, then defer Four steps to valuation, then book that
Follow the carve out
Follow Customer satisfaction
Repealed
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The 5 Steps are the Data Capture - Revenue Accounting is based on Performance Obligation ID & Valuation
Search through “order lines” from many
sources & Link
ID distinct performance
obligation from “order lines”
Establish linked transaction
price & constraint
Apply relative observed SSP
or ESP
Revenue Bookkeeping
Source Detail Contract
ID Performance
Obligation Amount To Bill
Revenue Amount
PO Xfr (from) / to
PA Performance obligation 1000 1000-10
- 4,000 (1,000)
OM Performance obligation 1000 5,000
Alien Performance obligation 1000 1000-20 1,000 2,000 1,000
OM Performance obligation 1100 1100-30 3,000 2,800 (200)
Excel Performance obligation 1100 1100-40 2,500 2,700 200
PA Performance obligation 1100 1100-50 2,350 2,350 -
OM Performance obligation 1200 1200-60 4,000 4,000 -
OM Performance obligation 1200 1200-70 1,800 1,800 -
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• Retrospective: Recalculate your opening balance sheet, replacing “deferred revenue liability” with “performance obligation liability”, offsetting equity
• Then Two Options:
– Option 1 = Restate the years BEFORE cutting over, e.g. from 1/1/2015 (already gone) • Two sub options: redo all transactions or redo only transactions open at year ends
– Option 2 = Disclose Deferred Revenue reconciliation for the years AFTER you cut over (ie, do old accounting through 2020 alongside new accounting)
• Both options require you study the impact ahead of time
– Dollar impact; Informed Decision; Model 2017; Data gathering
Retrospective Transition: Reprocess all/some transactions
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Model the Transition
• There are two transition options with certain sub-options; nine ways in total.
• In practice, you need to model them all (planning, guidance, taxation, etc.)
– There is a substantial dollar value difference between them * deferred revenue that may never be realized * performance obligations that are already satisfied
– You need to examine them to decide which you adopt: it isn’t an IT decision
• To model one option, you need to re-iterate with different performance obligation or different prices or different recognition rules: it will be reiterative
• We’re suggesting that:
1. Use your existing RR system to do “old rules”
2. Use your favorite tool to figure the difference between old and new for restatement purposes
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Transition Comparison: $ impact & Full/Partial Retrospective Model new rules, compare and iterate as needed, and cutover in CY 2016
Existing Revenue Recognition Process
Original Financial
Statements
FY 17 General Ledger
Content
Original Financial
Statements
Old Rules & Restatement until last balance sheet before adoption (2017) New Rules Apply
Cutover
FY 2017
Restated Financial
Statements
Reporting Tools
Iterative Modeling
FY 2016
Compare and Contrast Old and New
Reports
Reports
FY15, FY16 General Ledger
Content
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Next Steps “Don’t panic, do hurry up!”
• Review your Quote to Revenue cycle
– Indentify obligation & contract possibilities
– Identify customer satisfaction patterns
– Identify data gaps
• Identify process gaps – where you do not think you do not have MEAs today, but might have contracts & obligations tomorrow
• Model the impact of addressing that on a big bang basis or standard revised trend basis
• Monitor our blog for updates
• Upgrade to the 9s
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Questions and Answers
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Impacts to JD Edwards
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What will our customers expect?
• Accounts Receivable:
– Ability to Recognize Revenue for invoices generated from Accounts Receivable, Sales, Contract and Service Billing, and other methods without the need to purchase and use the Contracts module
– Ability to research prices to determine the “stand alone price”
– Ability to make the Revenue Recognition process transparent to current users of the Accounts Receivable Invoice process
• Contracts:
– Additional flexibility of tying work to specific performance obligations
– Flexibility to track how change orders affect existing performance obligations
– Simplify the control of how invoicing affects GL date revenue recognition adjustments
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JD Edwards Contracts and Job Cost Approach
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• Ability to manage multiple performance obligations in a single project/job
• Additional capabilities to tie detailed project costs to contract performance obligations
• Flexibility to track contract change orders and existing performance obligations in different ways
• More control of invoicing that affect revenue recognition
Contracts and Job Cost Revenue Recognition
New Flexibility
Contract Entered
•Identify performance obligations (billing lines)
•Trace project tasks to performance obligations
Project Executed
•Accumulation of costs
•Contract invoices created
Manage changes to contract
•Add new performance obligations
•Disposition existing performance obligations
Revenue Recognized
•Performed independently from contract invoicing
•Specified for each performance obligation
•Revenue Booked in G/L
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What Needs to Change to Allow Compliance
• Invoicing with a contract:
– Job Cost • Identify multiple performance obligations within a single project/job
• Ability to make adjustments (revenue, cost, and % complete) by performance obligation
• Ability to run Profit Recognition process by performance obligation
– Ability to summarize Unit Price and Lump Sum contract billing transactions by subledger
– Ability to enter change requests for Time & Material and Fee billing lines
– Reporting changes • Track contract amounts (e.g., Schedule of Values) related to change orders
• Detailed revenue recognition posting report
• Performance Liability Account amounts visible in Contract Status Inquiry application
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Impacted Modules
• Contract and Service Billing
• Advanced Contract Billing
• Job Cost (aka Project Costing)
• Change Management
Contracts and Job Cost Revenue Recognition
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JD Edwards Accounts Receivable Approach
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• New feature to support recognition of revenue for invoices without a contract
• Performance Liability Accounting
• Recognize all, none, less than, or more than the invoice amount
• Performance obligation completion is determined by a process defined by the organization utilizing the system
• Audit trail of all revenue recognition activity
• Reconciliation and Integrity tools
Accounts Receivable Revenue Recognition
New Features
Invoice Entered
•A/R Invoice
•Sales Order
•Contract Billing
•Service Billing
Invoice to Revenue Recognition Process
•Trigger processing from source invoice entry process
Performance Liability Booked in G/L
Performance obligation complete
•Determined by customer business process
Revenue Recognized
•Performance Liability Cleared from G/L
•Revenue Booked in G/L
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What Needs to Change to Allow Compliance
• Invoicing without a contract:
– The current invoice process will recognize revenue at the time an invoice is posted
– Due to the new standard we must provide processes to allow our customers to: • Place the revenue into a Performance Liability Account for invoices that require revenue recognition
at a later date than invoice posting
– When revenue is considered a Performance Liability for a sales order, its cost of goods sold must also be treated as such
• Recognize the revenue upon the completion of the performance obligation
– Recognize the cost of goods sold when the revenue is recognized for a sales order
• Ensure the integrity of the information in the new process
• Ensure the audit-ability of the process
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Impact to Current Functionality
• New feature to recognize revenue
• Impacts:
– Invoice Creation/Maintenance (interactive, batch, and from other methods)
• Determine if invoice is to go through the new process
• Book Revenue amounts to Performance Liability accounts
– Recognize Revenue
• Clear the Performance Liability accounts
• Book amounts to the Revenue Accounts
– Book any differences to Performance Liability Adjustment Accounts
Accounts Receivable Revenue Recognition
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Impacted Modules
• Accounts Receivable
• Sales Order Management
• Contract and Service Billing
• Service Management
Accounts Receivable Revenue Recognition
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Call to Action
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Call to Action
• Encourage customers to upgrade to the 9s to get enhancements
• Opportunity to sell robust functionality related to revenue recognition
– Contract and Service Billing
– Advanced Contract Billing
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Questions and Answers
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