PwC
Agenda
Revenue Impacts the Entire Organization
Impact Study of various Industries
Key aspects to consider implementing IFRS 15
Slide 2
July 2014 IFRS 15 Revenue Recognition - Implementation Challenges
PwC
Revenue Impacts the Entire Organization
Accounting is only the tip of the iceberg
Slide 3
July 2014 IFRS 15 Revenue Recognition - Implementation Challenges
PwC
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
Cross-functional Impacts Business Changes
Revenue Impacts the Entire Organization Is it a main operational change
• Executive management
• Audit Committee
• Investor Relations
• Financial Planning & Analysis
• Sales
• Legal
• HR
• Tax
• Accounting and IT Functions
• 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
Slide 4
July 2014 IFRS 15 Revenue Recognition - Implementation Challenges
PwC
Impact Study of various Industries
It really depends on your business models
Slide 5
July 2014 IFRS 15 Revenue Recognition - Implementation Challenges
PwC
Impact Study of various Industries It really depends on your business models
Review of all contracts is required
Disclosures are affected
Staff training and education
needed
Assessment of collectability, time value of money, …
•Subsidized services/warranties
•Tooling and products
Automotive
• Licenses
• Multiple element arrangements
• Variable consideration
Software
•Subsidized services/products
•Licenses
•Milestone payments
•Multiple element arrangements
Healthcare & Pharma
•Licenses
•Variable consideration
•Multiple element arrangements
•Subsidized hardware
Media
• Variable consideration
Energy
• Multiple element arrangements
• Collectability • Contract cost
Telecommunication
•Repurchase agreements
•Variable consideration
•Time value of money •Contract costs
Real Estate
•Milestone payments
•Variable consideration
•Warranties, •Time value of money
Construction/ Engineering
• Material rights (Gift cards)
• Right of return
Retail
• Combination of contracts
• Milestone payments
Transportation & Logistics
Slide 6
July 2014 IFRS 15 Revenue Recognition - Implementation Challenges
PwC
Key Aspects to consider implementing IFRS 15
Slide 7
July 2014 IFRS 15 Revenue Recognition - Implementation Challenges
PwC
Key Aspects to consider implementing IFRS 15 Overview
• Full retro-perspective
• Partially retro-perspective
• Accounting options
o Contract-by-Contract
o Portfolio Approach
• IT aspects
o Data Sources
o Calculation Engine
o Interface to G/L
• 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
Organi-sational
Scope Transition
Imple-mentation
Project Setup
Rollout Strategy
Slide 8
July 2014 IFRS 15 Revenue Recognition - Implementation Challenges
PwC
2016 2017
Effective date = 1 Jan 2017
Option 1 – Full
retrospective (Apply IAS 8)
NEW IFRS 15
NEW IFRS 15
Cumulative effect at 1 Jan 2016
Reliefs
For completed contracts: • No adjustment for interims • Hindsight allowed for variable
consideration
Option 2– Partially
retrospective
OLD GAAP NEW
IFRS 15
Cumulative effect at 1 Jan 2017
No reliefs
Disclose OLD GAAP
It depends.
Transition and implementation Transition timeline
Slide 9
July 2014 IFRS 15 Revenue Recognition - Implementation Challenges
PwC
Exposure Draft Final Standard (28.05.14) Effective date (2017)
Phase I: Assessment
Phase II: Implementation
Phase III: Embedding
• Project plan & governance • As-is analysis • Cross functional impact
assessment • Training & education • Determination of implementation
approach and roadmap
• Data gathering • Accounting and IT concepts • System changes and upgrades • Adoption planning
• Testing • Go live & business as usual • Training • Reporting updates • Disclosure modifications • Stakeholder communication • On-going monitoring
Assess impact and determine strategy
Establish policies and prepare result
Embed the new standard
Implementation methodology and timeline
Have you started now?
Revenue recognition tomorrow
Revenue recognition
today Project management, communication, knowledge transfer &
preparation
Slide 10
July 2014 IFRS 15 Revenue Recognition - Implementation Challenges
PwC
Transition and implementation Implementation challenges and success factors
Challenges
• Technical accounting
application • Increased management
judgement • Project management • Maintaining dual GAAP • Operational process and
system changes • Data gathering & analysis • Communications • Changing business models
Success factors
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
July 2014 IFRS 15 Revenue Recognition - Implementation Challenges
PwC
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
July 2014 IFRS 15 Revenue Recognition - Implementation Challenges
PwC
Transition and implementation Contract-by-contract approach vs. portfolio approach
With Contract-by-Contract Approach With Portfolio Approach
iPhone 500 € 5483
S4 450 € 5484
HTC One 400 € 5485
… … …
System 1 Hardware
5484 Tariff1 20 € p.m.
5483 Tariff1 20 € p.m.
5485 Tariff2 40 € p.m.
… … …
System 2 Services
iPhone 500 €
S4 450 €
HTC One 400 €
… …
System 1 Hardware
Tariff1 20 € p.m.
Tariff1 20 € p.m.
Tariff2 40 € p.m.
… …
System 2 Services
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
𝐻𝑎𝑟𝑑𝑤𝑎𝑟𝑒 15 𝑀𝑖𝑜 € 𝑆𝑒𝑟𝑣𝑖𝑐𝑒 5 𝑀𝑖𝑜 €
≙
Contract 1: iPhone Tariff 1 Hardware 500€ Service: 480€
Contract 2: HTC One Tariff 2 Hardware 400€ Service 960 €
Slide 13
July 2014 IFRS 15 Revenue Recognition - Implementation Challenges
PwC
Imp
lem
en
tio
n c
os
t
Cost savings
potential
through
portfolio
approach
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)
Portfolios
Contract-
by-contract
Number of portfolios
Transition and implementation Portfolio approach may reduce your implementation cost
Slide 14
July 2014 IFRS 15 Revenue Recognition - Implementation Challenges
PwC
Rollout Strategy Pilot Project and Cluster Option
Cluster 3
Cluster 2
Cluster 1
Pilot Project
Project phases
Clu
ste
rs
January 2015
January 2016
December 2016
Impact Study and Analysis
Preparation & Decision IT Project
IT Realization Planning Phase
September 2014
Slide 15
July 2014 IFRS 15 Revenue Recognition - Implementation Challenges
PwC
Project Setup PwC project approach
Impact study and analysis
Implementation Preparation and decision
• 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.)
• 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
• 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
July 2014 IFRS 15 Revenue Recognition - Implementation Challenges
PwC
Project Setup Summary of points to consider
Implementation Options
Contract by contract versus portfolio approach
Options for IT Solution
Technical consulting independent of solution design
PwC implementation concept
Proven milestone concept
Scope of work
Previous Pre-project
Professional Services
IT Tech
nical
con
sultin
g
Pre-project
Pilot
Contract by contract
Rev Rec
Rev Rec
1 2 3
1 2 3 Own
Portfolio approach
Slide 17
July 2014 IFRS 15 Revenue Recognition - Implementation Challenges
PwC
Question for voting
IFRS 15, Revenue from Contracts with Customers, will be mandatory for annual periods starting on 1 January 2017. When do you plan to assess the impact of the new standard on your company?
2
1. In 2017
2. In 2016
3. “Today", as we may need to adjust business processes and/or IT systems
Thank you!
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