Accounting rules and reporting issues for business and public sector 20162501

Standards for Business/Government Report – January 25, 2015Author: Paul Young, CGA Proven Practice Advisor Business Analytics IBM Canada Inc.

IBM Confidential – Internal Use Only

Agenda

• Project Plan• Major Standards• New SEC Filing• Annual Budgeting Cycle• Risk Management• Internal Audit• OECD – Tax Policies• PSAB/Canada• IPSAB/Global• GASB

Introduction: • IFRS is the International Financial Reporting Standards that being used

by over 100 countries. In addition IFRS has also undertaken joint projects with FASB (United States Financial Accounting Standards Board).

• The presentation will touch on the revised standards and discuss potential impact on IBM Cognos's Financial solution, including blueprints as well as the potential for services to be engaged with work via re-statement, reporting, models review, etc.

• Below tables show the major countries/regions and were they stand on IFRS

Work Plan included the Effective dates for the revised IFRS Standard

Work Plan included the Effective dates for the revised IFRS Standard (Implementation cont.)

Research Projects

Development Stage and Inactive Projects

Work Plan included the Effective dates for the revised IFRS Standard – Research Projects

Completed FASB Projects

FASB Completed Projects

SEC – United States

Revenue Recognition – IAS 18

This objective of this project is to develop a single conceptual model, and general principles, for determining when revenue should be recognized in the financial statements. This single conceptual model would apply to all industries and all types of revenue-generating transactions. Currently, IAS 18 provides guidance on revenue recognition. However, it provides little guidance on revenue transactions with multiple components (for example, sale of hardware combined with software, and sale of hardware combined with service). The new standard will address the components part of the contract.The second part of the standard deals with the performance obligation of the contract. Warranties will be broken down between product warranties and performance based warranties. Construction Contracts will also be impacted by the new approach, because the new standard will look at when ownership has transferred and this will determine how the revenue will be recorded. This could mean some projects could go from Percentage of completion to completed contract.What’s next? • Implementation 2018 – Companies need more time to prepare• Work is ongoing with source systems/reporting to meet the reporting

requirement.• 2017 likely will be the target date as companies like to have two years of data

as part of their reporting cycleOption:• New exhibits/notes will be required as part of disclosing the change and/or

details. The notes disclosure feeds into Cognos Disclosure Management as well as TM1. TM1 could be used for budgeting/re-statement

• A template could be included as part of the reporting requirement as way to build the exhibit/note into the 10K/10Q reporting

Leases – IAS 17

New Lease Proposal will make no distinction between Capital and Operating Leases. All leases with the exception of the following will be accounted for using the right-to-use model:• Mineral rights leases• Leases < 1 yearThe new proposal will required the lease to be set up as an asset with its corresponding liability. Balance SheetRight to Use – AssetLiability under right to useIncome StatementLease Expense – right to useFinancial Charge – LeaseWhat’s Next• IFRS has approved the new leasing standard. The effective date is 2019.

Earlier adopters can move up the date if they have already changed to the new revenue recognition standard for contracts

Options• Leasing is currently part of the notes/exhibit, but on annual basis. The new

standard will make the leasing reporting part of the 10Q as well as regular monthly reporting for business

• FASB (USA) will use a dual leasing model which could trigger FASB GAAP/ IFRS GAAP reconciliation

• Cognos Disclosure Management/TM1 could be used as part of the reporting requirement for Leases

Insurance Contracts – IAS 4The ED proposes a comprehensive measurement approach for all types of insurance contracts issued by entities (and reinsurance contracts held by entities), with a modified approach for some short-duration contracts. The approach is based on the principle that insurance contracts create a bundle of rights and obligations that work together to generate a package of cash inflows (premiums) and outflows (benefits and claims). An insurer would apply to that package of cash flows a measurement approach that uses the following building blocks: (a) a current estimate of the future cash flows;(b) a discount rate that adjusts those cash flows for the time value of money(c) an explicit risk adjustment(d) a residual margin.

What’s Next:• New IFRS in 2016. The effective date likely will be 2019, but push up earlier to

possibly 2017 or 2018• The financial statements will have to be re-built along with schedules to

support the new reporting. Cognos Disclosure Management can help with the new reporting requirement

Financial Instruments– IAS 39The hedge accounting project is Phase III of IFRS 9, the IASB’s project to replace IAS 39 Financial Instruments: Recognition and Measurement. The objective of this phase is to improve the usefulness of financial statements for users by fundamentally reconsidering the current hedge accounting requirements.

What’s Next:• IFRS has been completed and the effective date is 2018. Many companies will push up

the date to 2017• Cognos Disclosure Management and Algorithmics could be solution to handle the

disclosure as it relates to Financial Instruments

Joint Arrangements – IAS 11Under the new requirements the accounting for joint arrangements will be driven by a principle, namely that parties should recognise their rights and obligations arising from the arrangements.

What’s Next:• The new Joint Venture/Agreement standard is effective January 2016.• Cognos Controller can already handle the situation via the company

ownership rules

SEC Compensation Reporting

What’s Next:• This would be additional reporting requirement as part of 10K/10Q filing

• Cognos Disclosure Management/ICM/TM1 could be part of the solution. The recommendation could be creating a specific template that could be used as part of building the exhibits/notes

SEC Compensation Reporting

Key Comments on the budgeting Cycle – The article emphasizes more rolling forecast and/or different approach to budget cycle.

Risk Management

Internal Audit

PSAB/Canada

Accounting rules and reporting issues for business and public sector 20162501

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