IFRS 16 Seminar - KPMG · IFRS 16 Seminar Your next stop to accelerate your IFRS 16 implementation...
Transcript of IFRS 16 Seminar - KPMG · IFRS 16 Seminar Your next stop to accelerate your IFRS 16 implementation...
IFRS 16 Seminar
Your next stop to accelerate your IFRS 16 implementation
__________
6 October 2017
2© 2017 KPMG Advisory N.V., registered with the trade register in the Netherlands under number 33263682, is a member firm of the KPMG network of independent member firms affiliated with KPMG
International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
Introduction
One year ahead
Project Management
Project accelerator
Coffee Break
Tooling going forward
Transition Challenges
Tax perspective
Drinks
Agenda for today
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International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
Today’s presenters (1/2)
IFRS 16 – One
year ahead
Niels Ebbinkhuijsen
Project Accelerators
Janpiter NijpRuben Rog
Project
Management
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International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
Today’s presenters (2/2)
Tax perspective
Johan Swagers
Transition
challenges
Robert de Boer
Tooling Landscape
Gerben de Roest
Polling statements and questions
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International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
A few polling statements and questions to start…
— Please get your mobile phone
— Go to: www.menti.com
— Fill in the code: 42 60 89
— And lets get started!
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International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
8© 2017 KPMG Advisory N.V., registered with the trade register in the Netherlands under number 33263682, is a member firm of the KPMG network of independent member firms affiliated with KPMG
International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
9© 2017 KPMG Advisory N.V., registered with the trade register in the Netherlands under number 33263682, is a member firm of the KPMG network of independent member firms affiliated with KPMG
International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
10© 2017 KPMG Advisory N.V., registered with the trade register in the Netherlands under number 33263682, is a member firm of the KPMG network of independent member firms affiliated with KPMG
International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
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International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
One year ahead -what has happened so far?
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International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
PROJECT STATUS
― Early stages/impact assessment
― Few companies have made decision on
transition approach
― Not early adopting (generally)
― Limited disclosure in FY15 reporting cycle
ACCOUNTING JUDGEMENTS
— Revisiting assessment of “embedded leases”
— Inclusion of service related items in lease liability:
EBITDA boost!
— Challenges of determination of discount rate –
not seen any developed methodologies
— Use of Parent discount rate for subsidiaries
— Move to lease payments based on “usage”,
especially for internal leases usage
PRACTICAL CHALLENGES
— Data collection - who holds the info?
— Manual versus automated?
— Resourcing (needs sponsorship)
— System selection/database – early stages
— Project leadership & sponsorship is key – CFO
by-in ideal!
EXTERNAL
― Limited comment from the taxation authorities
― IASB - no current intention to permit a “lighter” approach
enabling restatement of comparatives!
IFRS 16: One year on … some observations from KPMG
COMMUNICATIONS
― Need to determine plan to communicate with investors
― Limited interest from analysts to date!
― Will there be any information content from adoption of
IFRS 16 – as no change in cash!
- How close will IFRS16 liabilities be to the disclosure in
the operating lease note?
- Improve note to avoid surprises?
TRANSITION
— Most companies would ideally go “fully retrospective”
— But frustrated at complexity of this approach
— Presentation of Non-GAAP measure for prior year + adopt
“modified retrospective”?
— Impact on distributable reserves important
Observations
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International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
Disclosure on IFRS 16 so far – a survey
59% of the companies expect IFRS 16 will
have a significant impact
In 38% of the financial statements no explicit
statement is made whether the impact will be
significant or not
The vast majority of the companies seems to
be still in progress of the impact assessment.
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International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
Disclosure on IFRS 16 so far – a survey
The amount of operational lease commitment
disclosure has increased on average with
8%.
We expect the operating lease commitment
to become more precise upcoming years in
order to prevent to explain a ‘gap’ in the year
of transition
Most companies report in their financial
statements; Just a few comments on the
impact in the Director’s report / risk
paragraph
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International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
— In 2016, ESMA issued guidance on their expected IFRS 15 impact disclosure in 2016
financial statements
— We expect similar guidance will be issued in the near future on IFRS 16
— This means Companies will need to quantify more clearly the expected impact of
IFRS 16
Disclosure prior to effective date & Our expectation
IAS 8.30 disclosure ― known/reasonably estimable possible impact of IFRSs issued but not yet
effective.
Considerations
— Pre-adoption disclosures progressing in level of detail as your application date
approaches?
— Pre-adoption disclosures meeting external stakeholder expectations?
Project Management
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International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
Illustrative time line
2017 2019
Effective date
1 January 2019
and
Go live date
2016
IFRS 16 issuedAnnual report
31 December 2019
Expected
Endorsement EU
2018
Complete data
collection
Lease tool
selection
Tool
implementation
Q1 Report
First results based
on IFRS 16
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International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
PMO
Scope and
assess
phase
Tool selection process
Lease accounting solution strategy
Dashboard from data to insight
Data extraction plan
Application of your decisions
Key accounting choices
Insight provided through the tools
Impact assessment
Lease accounting – impact assessment milestones
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International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
Supported by D&A capability
Compelling IFRS 16 tooling suite
TRUSTED ANALYTICS FOR LEASING
IMPACT
ASSESSMENT
DATA
REVIEW
DATA
EXTRACTION
ENABLING TOOLS
— Tools readily available
— Live demos in the
presentation
KLT
IMPLEMENTATION
INTEGRATION
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International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
IFRS 16 project considerations
IFRS 16
project
considerations
Systems
Leasing database
System solution
Finance
Transition options
Data collection
Tax
KPIs
Investor relations
Analyst queries
KPI’s (e.g. Operating profit)
Credit rating
Employee benefits
Management remuneration
KPI’s
Strategy
Real Estate
Lease vs buy
Lease structuring
Treasury
Covenants
Credit rating
Regulatory capital (banks)
Other
Procurement
Legal
…
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International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
Project Governance
Steering Committee – Decision making and
progress monitoring
Project Management – Day-to-day monitoring
of the project
Opco leads – Project management role and
team at Opco
Topic leads (design authority) – Ensure high
and consistent quality across all topics.
Involved as required
Project accelerators
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International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
Demo: Contract Validation Tool
• Validation of data obtained through the
automated text recognition process• Extraction of data points from contracts in PDF
• Full audit trail of the review process• Cloud based review solution accessible for users
around the world
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Demo: Impact assessment on Sofy
• Impact assessment for the entire
lease portfolio and individual
leases
• Supports IAS 17, and IFRS 16 -
Full retrospective, modified
retrospective option 1 and 2
• Interactive scenario analysis for
lease term and discount rates
• Cloud based solution accessible
for users around the world
Tooling in operations going forward
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International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
Supported by D&A capability
Compelling IFRS 16 tooling suite
TRUSTED ANALYTICS FOR LEASING
IMPACT
ASSESSMENT
DATA
REVIEW
DATA
EXTRACTION
ENABLING TOOLS
— Tools readily available
— Live demos in the
presentation
KLT
IMPLEMENTATION
INTEGRATION
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International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
Why tooling?
IFRS16 requires complex calculations
Tooling is available for both project
acceleration, as well as ongoing operations.
Ongoing operations require support on lease
management and lease accounting
As 1/1/2019 is rapidly approaching, we see
organizations tilting towards temporary
IFRS16-compliancy solutions
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International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
Considerations for your IFRS 16 solution
Considerations for IFRS 16 solutions
Data input/extraction
Data validation/identification
Contract management
Dual reporting (IFRS / USGAAP)
Audit trail
Internal controls
Data output/automated postings
Lessee / sub-lease / lessor accounting
Deployment (Cloud/SaaS vs. on premise)
Integration with existing systems
Support
Fit for the Future
Implementation effort
Cost (implementation and going forward)
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International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
Possible lease accounting solution roadmapA possible lease accounting solution roadmap is to (1) ensure IFRS16 compliancy in time, and (2) embed an end state solution that is in line with IT strategy. With this
approach: state 1 and 2 solutions are temporary, where state 3 is the end state solution. This can be achieved by a roadmap with 3 states as depicted below.
STATE 2: COMPLIANCE OVER TIMESTATE 1: INITIAL COMPLIANCE STATE 3: INTEGRATED SOLUTION
Legend: Flat file data transfer Integrated data transfer
— IFRS16-compliant reporting over time
— Flat file interfacing including manual upload of
journal entries, payment files, new contracts,
vendor MD
— IFRS16 compliant reporting based on the initial
data load
— Static reporting
— Key for change management
— End state solution in line with IT strategy
— Automated synchronization using APIs
General
ledger
Lease
accounting
ERP / Lease
administration
General
ledger
Lease
reporting
ERP / Lease
administration
Lease
accounting
ERP / Lease
administration
ERP system(s) ERP system(s) ERP system(s)
Interim
SaaS
solution
Interim
SaaS
solution
End state
embedded
solution
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International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
IFRS16 intermediate solution: integration is key
KLT / Lease Admin Integration
Process KLT Lease Changes
Reconcile Lease Admin and
KLT Leases
Reconcile Lease against Hash
Batch Validations
Pull Active Leases
Pull All KLT Leases
Notifications
Audit Reports
INP
UT
OU
TP
UT
KLT / Master Data Integration
Pull Master DataReconcile with KLT
Process KLT Master Data
Changes
Payment Reconciliation
Pull Payment Data
Reconcile with KLT
Process KLT Payment Changes
Lease Admin
system
IFRS GAAP
Dual reporting
STATE1
SFTP
Payment Integration
Push to AP Generate AP FileGenerate Audit
Report
Approve Audit Report
Journal Entry Integration
Push to GL Generate GL FileGenerate Audit
Report
Approve Audit Report
SFTP
SFTP
Dual reporting
STATE2
BI / Cons.
solution
AP
GLMaster
Data
ERP
systems
Transition challenges
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International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
Purpose of this session
— Highlight the 5 key accounting decisions every company must take on transition
to IFRS 16
— For each key decision, assess the pros and cons for:
– Financial reporting
– Data requirements
– Implementation
— Compare notes on the decisions you have already taken
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International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
Key transition questions – will you…?
#4 & #5 – modified retrospective approach only
Early adopt? 11
Grandfather the assessment of which contracts are leases? 22
Use a retrospective or modified retrospective approach?33
Measure ROU assets equal to the lease liability? 44
Use any of the practical expedients?55
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International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
Retrospective vs modified retrospective
Full
retrospective
Approach 2018 2019 Date of equity adjustment
IFRS 1611 January
2018IFRS 16
IAS 172
Modified
retrospective
1 January
20193IFRS 16IAS 17
(1) Comparatives in 2019 annual report will reflect balances under IFRS 16
(2) The 2018 Annual Report will reflect balances under IAS 17
(3) The 2019 annual report will include an explanation of the differences between the balances recognised on transition to IFRS 16 and previously disclosed operating lease commitments
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International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
Modified retrospective – lease liability
Present value of
payments at end of
lease
Present value of
remaining rentals +=Lease liability
Discount at lessee’s incremental
borrowing rate at date of initial
application
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Modified retrospective – ROU asset
Measurement
options for ROU
asset
Measure retrospectively using
transition discount rate
Lease liability
+/- prepaid/accrued payments
Apply this option on a lease-by-lease basis
No historical information needed
Key benefit for high volume, low
value leases
‘Correct’ P&L
Key benefit for individually
significant leases
Option 1 Option 2
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Key transition questions – will you…?
#4 & #5 – modified retrospective approach only
Early adopt? 11
Grandfather the assessment of which contracts are leases? 22
Use a retrospective or modified retrospective approach?33
Measure ROU assets equal to the lease liability? 44
Use any of the practical expedients?55
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International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
PE#3
Optional practical expedients
Lease liability
Account for leases expiring within 12 months as
short term leases.
PE#2Apply single discount rate to
similar leases.
Use of hindsight e.g. determining
lease term.
PE#4Exclude initial direct costs from
ROU asset.
PE#5Onerous contracts – adjust
ROU asset.
ROU asset
PE#1
*Modified retrospective approach only
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International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
Choosing a transition method
Significance of
change in accounting
Availability of
historical information
Comparability of
information and
investor perceptions
Systems and
processes
Disclosure
requirements
Contract structure
and volume of
contracts
Costs Future profit trends
Tax perspective
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International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
Generally European countries are using local GAAP accounts as the starting point for the computation
of taxable income and will continue to do so – but exceptions may exist!
Local GAAP remains leading for tax
Tax rules
(if unchanged)
Local GAAP
(if unchanged)Tax Return
Qualification of lease for tax purposes is based on commercial accounting concepts
Public consultation - HMRC to consult further in autumn 2017 earliest
Changes being made to US GAAP
Potential impact on federal and state tax positions
No changes expected or announced
“Leasebesluit” continues to be in place
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Deferred tax
Tax
(if unchanged)
Local GAAP
(if unchanged)
IFRS 16
(new)
No impact
expected
Temporary
differences
Front loaded effect =
net deferred tax asset
during the lease
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International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
Tax accounting take awaysIFRS 16 – Potential Tax impacts
make sure that your tax department / tax accounting is involved in your
IFRS 16 implementation project
jurisdiction by jurisdiction review to determine any local changes to tax
rules and/or local GAAPs
1.
2.
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Other potential tax impacts IFRS 16 – Potential Tax impacts
Non-deductibility and / or withholding tax on interest component in the lease payment
Existing (tax) lease structures to be tested for continued working as intended
Transfer pricing and valuation models relying on EBITDA should be revisited. Benchmarking more
complex
Wage tax impact for incentive plans based on EBITDA metrics
Country by Country reporting: differences between IFRS and Tax books may raise questions
1.
2.
3.
4.
5.
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Some relevant tax terms….
2019
European Anti Tax Avoidance Directive
ATAD
Interest
limitation
GAARExit tax
CFC
Hybrids
2022
!
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International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
Impact on interest deductions
— IFRS 16 impact: more assets but also more debt; what is impact on escape #1? Positive impact when tax
payer’s equity:assets ratio increases compared to the same ratio of the group to which it belongs.
— IFRS 16 impact: group EBITDA increases, but also the net interest expense, net impact for escape #2?
— Unclear whether interest element in an operational lease payment is included in the tax definition of interest
— Similar interest limitation rules already exist in Germany, Spain, Italy, Finland.
European Anti Tax Avoidance Directive – Interest Limitation Rule
Main rule: Net interest expenses will be deductible only up to 30% of the tax payer’s EBITDA (based on tax
books).
Escapes: Excess interest may still be deductible on the basis of one of two group escapes:
1. Compare tax payer’s equity : assets ratio with the same ratio of the group; or
2. If the group’s net interest expense : group EBITDA is higher than 30%, otherwise main rule is more
favourable.
Escapes rules are based on IFRS books!
Q & A
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What Questions Do You Have?
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Resources
First Impressions Transition Options
IFRS 16 Webinar
(Podcast)
Lease Definition Discount Rates
IFRS 16 Leases
website
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although
we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or
that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough
examination of the particular situation.
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