Presentation: Revenue Recognition standards

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© 2015 Nakisa Inc. All rights reserved. New revenue recognition standards: What the rule changes mean for your business #NakisaF IN

Transcript of Presentation: Revenue Recognition standards

Page 1: Presentation: Revenue Recognition standards

© 2015 Nakisa Inc. All rights reserved.

New revenue recognition standards: What the rule changes mean for your business

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The new revenue recognition standards

Your roadmap to compliance

Technical assessment in practice: Nakisa internal use case

Key takeaways

Questions & Answers

Agenda

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The new revenue recognition standards

IFRS 15/ASC 606 are here

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New Revenue Recognition accounting & reporting affecting all revenue contracts with customers (IFRS 15, ASC 606)

• All companies (public and private) required to prepare their revenue contracts now to comply with this new regulation by 2018*

• Final standard published:May 2014

• Effective date latest: 2018* (early adoption possible for IFRS preparers)

U.S. GAAP IFRS

Public entities Annual reporting periods beginning December 15, 2017

Annual reporting periods beginning January 1, 2018

Nonpublic entities

Annual reporting periods beginning December 15, 2018

Annual reporting periods beginning January 1, 2018

“IFRS 15 sets out the requirements for recognising revenue that apply to all contracts with customers.IASB Project Update, March 2015

*On April 1st, FASB proposed deferral of effective date*On April 29st, IASB proposed deferral of effective date

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New 5-step process for recognizing revenue(IFRS 15, FAS 2014-09)

Identify the contract with the customer

Determine the transaction price

Allocate the transaction price to the separate performance obligations in the contract

Recognize revenue when (or as) a performance obligation is satisfied.

Identify the separate performance obligations in the contract

STEP 1 STEP 2 STEP 3 STEP 4 STEP 5

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Potential impactChanges will affect the entire organization

Source: Deloitte. Bringing clarity to an IFRS world. IFRS 15 – Revenue from Contracts with Customers. 2014

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Employees• Remuneration schemes• Training• Project Management

Stakeholders• Shareholders (expectation/outlook)• Financiers (loan covenants)• Regulators (disclosures)

Systems• Update IT systems, Business models,

Company practices, Accounting policies, Internal processes and controls

Contracts• Assess contracts• Update terms & conditions• Re-negotiate contracts in the long term

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Business pain points Revenue Recognition

• Geographically and departmentally dispersed revenue contract information, requiring manual processes for data management.

• Lack of visibility into sales contract data, due to large volume of complex contracts with customers.

• No ability to conform to the upcoming revenue recognition standards.

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Your roadmap to compliance

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Recommended implementation timeline

May 28, 2014:Regulation announced

Begin accounting and technical assessmentPrepare opening

balance sheet under IFRS rules

2014 2015 2016-2017 2018

Dual reporting period ends IFRS “go-live” date

Smooth transition &

implementation

Building a team & a plan Education Analyze

Technical assessment

IT systems, applications,

processes

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Recommended implementation timeline2015: Accounting & technical assessment

Smooth transition &

implementation

Building a team & a plan Education Analyze

Technical assessment

IT systems, applications,

processes

May 28, 2014:Regulation announced

Begin accounting and technical assessmentPrepare opening

balance sheet under IFRS rules

2014 2015 2016-2017 2018

Dual reporting period ends IFRS “go-live” date

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Accounting assessmentPlan, educate, analyze

• Team effort across many different corporate functions

• E.g. Finance, Sales, Legal, IT, Internal Auditors

PLAN

• Review final standard & implementation guidance

• Monitor Transition Resource Group deliberations & technical lines

EDUCATE• Review contracts and

understand effects of the standard

• Analyze current vs. proposed standard to identify changes

ANALYZE

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Technical assessment

Objective:• Understand impact for your

organization• Prepare for changes

1. Complete up-front or in advance of implementing the full system

2. Understand new standard and translate into technical and business requirements

3. Once requirements are gathered, redesign and/or optimize processes, policies and systems

An entity will need to consider whether its IT systems, data models and related enterprise resource planning (ERP) and legacy system applications are able to capture, track, compile and report information in accordance with the needs of the standard.

Source: Ey: A closer look at the new revenue recognition standard. June 2014

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IT system architecture for complianceData capture during technical assessment

SAP Lease Administration by Nakisa

Technical Accounting Assessment

Sub-set abstracted manually

SAP Revenue Accounting and Reporting Blueprint

Sales contracts, Orders, Bills, Invoices,…

Revenue Accounting and Reporting

Rules (BRF+)

ERP Financials

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Typically a one-time manual process

Automatic process after implementation of SAP Revenue Accounting and Reporting

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Recommended implementation timeline2016 - 2018: Preparing for and reporting under IFRS 15

May 28, 2014:Regulation announced

Begin accounting and technical assessmentPrepare opening

balance sheet under IFRS rules

2014 2015 2016-2017 2018

Dual reporting period ends IFRS “go-live” date

Smooth transition &

implementation

Building a team & a plan Education Analyze Technical

assessment

IT systems, applications,

processes

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IT system architecture for complianceData capture during technical assessment

Technical Accounting Assessment

Sub-set abstracted manually

SAP Revenue Accounting and Reporting Blueprint

New sales contracts, Orders, Bills, Invoices,…

Revenue Accounting and Reporting

Rules (BRF+)

#NakisaFIN

SAP Lease Administration by Nakisa

ERP Financials

Typically a one-time manual process

Automatic process after implementation of SAP Revenue Accounting and Reporting

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Abstraction of revenue contractsSolution capabilities

Increased visibility

Collection and Unification

Validation and Traceability

Collaboration

Collection & unification Designed to provide visibility into your lease

and revenue contract exposure Automated and effective data collection Unification of data in one single repository

Collaboration Open collaboration framework to engage and align

business decision-makers

Simulation capabilities to analyze best response to business changes

Efficiently evaluate lease vs. buy scenarios

Validation & traceability Validated true and useful data Efficient traceability for compliance Readiness for reporting requirements

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Transition & implementationFull vs. modified retrospective adoption

• Comparative not restated, but additional disclosures required

• Recognize the cumulative effect of initially applying the new standard as an adjustment to the opening balance of retained earnings in the year of initial application

• Entities electing have to calculate revenues they would have recognized for any open contract as if they had always applied IFRS or U.S. GAAP to determine the cumulative effect of adopting the new standard

• Restate two comparative years prior to the implementation date

• Useful to furnish investors a full understanding of trends and favored by many companies.

• Systems need to be ready to capture data to perform dual reporting as early as the beginning of 2016

Full retrospective adoption Modified retrospective adoption

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Key takeaways

Be prepared

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Key takeawaysBe prepared

• Revenue Accounting standards are here

• Ensure readiness for compliance with Revenue Accounting Standards

• Scalable & Efficient: Collect and centralize your revenue contracts

• Revenue Accounting will impact parallel reporting and the financial close

• Lease Accounting standards expected in 2015 (Webinar next week)

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Next steps

WHITEPAPERGetting smart about revenue recognition and lease accountingwww.nakisa.com/whitepapers-revenue-recognition-lease-accounting

WEBINARUpcoming changes in lease accounting standards: How technology can help with costs savings today and regulatory compliance tomorrowwww.nakisa.com/webinar-lease-accounting-standards

Contact us: [email protected]

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