Your SlideShare is downloading. ×
Full Migration of SAP's Financial Reporting from U.S. GAAP to IFR...
Full Migration of SAP's Financial Reporting from U.S. GAAP to IFR...
Full Migration of SAP's Financial Reporting from U.S. GAAP to IFR...
Full Migration of SAP's Financial Reporting from U.S. GAAP to IFR...
Full Migration of SAP's Financial Reporting from U.S. GAAP to IFR...
Full Migration of SAP's Financial Reporting from U.S. GAAP to IFR...
Full Migration of SAP's Financial Reporting from U.S. GAAP to IFR...
Full Migration of SAP's Financial Reporting from U.S. GAAP to IFR...
Full Migration of SAP's Financial Reporting from U.S. GAAP to IFR...
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×
Saving this for later? Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime – even offline.
Text the download link to your phone
Standard text messaging rates apply

Full Migration of SAP's Financial Reporting from U.S. GAAP to IFR...

1,885

Published on

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
1,885
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
97
Comments
0
Likes
0
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. Full Migration of SAP’s Financial Reporting from U.S. GAAP to IFRS Dr. Christoph Hütten Chief Accounting Officer SAP AG The History of SAP‘s Financial Reporting 1988: SAP starts to report consolidated financials under German GAAP (HGB) German requirement due to size and existence of subsidiaries 1999: SAP starts to report consolidated financials under U.S. GAAP Obligation due to U.S. listing Most major competitors located in the U.S. => U.S. GAAP as the accounting language of the industry IFRS (IAS) no alternative at that time 2002: European Union requires all publicly listed European companies to report under IFRS from 2005 onwards (U.S. listed companies to start 2007) 2004: SAP starts preparation for IFRS and defines reporting strategy for IFRS and U.S. GAAP based on investor & analyst feedback Focus of communication to capital markets continues to be on U.S. GAAP Continue to prepare and file U.S. GAAP financial statements until financial community understands comparability of SAP‘s IFRS reporting with competitors‘ U.S. GAAP reporting Prepare IFRS financial statements in accordance with legal requirements => no proactive communication beyond legal requirements No voluntary IFRS financial statements prior to 2007 No „independent“ IFRS accounting strategy. Goal: Minimize the U.S. GAAP / IFRS differences Internal Reporting continues to be based on U.S. GAAP © SAP 2008 / Page 2 2009
  • 2. The History of SAP‘s Financial Reporting (cont.) 2004- 2008: Increasing U.S. GAAP/IFRS convergence and increasing IFRS acceptance worldwide 2008: SAP issues first IFRS financials Minimal differences to U.S. GAAP financials No differences in revenue except for different classification of discontinued operations 2008: SEC accepts from foreign issuers IFRS financials without U.S. GAAP reconciliation 2008: SEC proposes roadmap to converge all U.S. issuers to IFRS until 2014 Final decision to be expected in 2009 Remarks of new SEC chairman Shapiro creates some confusion regarding SEC’s commitment G20 meeting in April 2009 mandates worldwide transition to one global accounting standard 2008: SAP collects feedback from investors regarding full conversion to IFRS Mixed feedback: Some investors stated that this is a wise move For some investors U.S. GAAP versus IFRS does not make a difference while Some investors indicated they may need to consider sale of their SAP stake Several investors asked for the migration not to be done short-term per end of 2008 but asked SAP to report U.S. GAAP and IFRS in parallel during 2009 To accustom the capital markets to IFRS@SAP To have one year of consistency in SAP‘s external reporting after the changes in 2008 © SAP 2008 / Page 3 2009 The Future of SAP‘s Financial Reporting 2009: SAP announces full migration to IFRS and discontinuance of U.S. GAAP reporting per January 1, 2010 2009 as the year of transition: Gradually shift the focus of SAP‘s financial communication from U.S. GAAP to IFRS to accustom the capital markets to SAP reporting under IFRS Increase the prominence of IFRS information in SAP‘s financial reports before full migration Explain relevant U.S. GAAP/IFRS differences and familiarize capital markets with Non- IFRS figures Prepare and communicate Non-IFRS numbers that will supersede the current Non-GAAP numbers Commitment to continuing minimization of IFRS/U.S. GAAP differences No accounting policy changes as a result of the full migration => The current “as close as possible to U.S. GAAP” IFRS accounting policies continue Executive Board resolution regarding migration states: “In its current and future IFRS accounting SAP will continue to apply U.S. GAAP revenue recognition rules unless specifically prohibited by IFRS and where following U.S. GAAP would result in a significant error” © SAP 2008 / Page 4 2009
  • 3. SAP‘s IFRS Roadmap Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 2010 et seq. Press U.S. U.S. U.S. U.S. U.S. U.S. U.S. U.S. Release GAAP GAAP GAAP GAAP GAAP GAAP GAAP GAAP & IFRS1 & IFRS1 & IFRS1 & IFRS1 & IFRS1 Quarterly U.S. IFRS & U.S. n.a. IFRS & IFRS & IFRS & n.a. IFRS Report GAAP U.S. GAAP U.S. U.S. U.S. GAAP2 GAAP2 GAAP2 GAAP2 Annual n.a. n.a. n.a. IFRS & n.a. n.a. n.a. IFRS Share- U.S. holders GAAP3 Report Form 20-F n.a. n.a. n.a. U.S. n.a. n.a. n.a. IFRS GAAP Guidance Non-GAAP, derived from U.S. GAAP Non- IFRS4 1 IFRS: only balance sheet & income statement plus comments on major U.S. GAAP/IFRS differences 2 Full IFRS statements (incl. notes) plus U.S. GAAP-data from press release 3 Full IFRS statements (incl. notes) plus U.S. GAAP short version (balance sheet, income statement, cash flow statement) with reference to Form 20F 4 Derived from IFRS © SAP 2008 / Page 5 Benefits and Risks of Full IFRS Migration Benefits Risks Communication to capital markets based Concern that SAP‘s financials change on single accounting regime eliminates significantly confusion that reporting under multiple Concern that comparability to GAAPs creates U.S. competitors is impaired Use of a global accounting standards fits IFRS revenue recognition rules provide better to SAP as global company more flexibility IFRS is increasingly applied as local GAAP Differences in U.S. GAAP and IFRS across the world => Reduction in local rules regarding non-revenue GAAPs to be applied by SAP subsidiaries transactions IFRS as a principle based standard is less strict © SAP 2008 / Page 6
  • 4. Benefits and Risks of Full IFRS Migration Risks Mitigation Measures Risks Resolution of SAP Executive Board to to Concern that SAP‘s financials change apply U.S. GAAP revenue recognition rules significantly unless specifically prohibited by IFRS Concern that comparability to Reference to application of U.S. GAAP U.S. competitors is impaired revenue recognition rules in the notes to the IFRS revenue recognition rules provide financials => to be audited by KPMG more flexibility Three years (2006-2009) of parallel U.S. Differences in U.S. GAAP and IFRS GAAP and IFRS reporting to evidence rules regarding non-revenue insignificance of differences transactions IFRS requirement to consistently apply IFRS as a principle based standard is accounting policies => obligation to continue less strict current U.S. GAAP-like accounting policies Strong support for convergence IFRS/U.S. GAAP efforts Training and information material for financial community Further reduce differences on Non-GAAP and Non-IFRS level © SAP 2008 / Page 7 Classification of Differences Between U.S. GAAP and IFRS Differences between IFRS and U.S. GAAP Avoidable differences Unavoidable differences Avoided via accounting policy choice „as close as Differences Differences possible to U.S. GAAP“ or not relevant to SAP relevant to SAP Accepted in exceptional cases at IFRS introduction (Pensions, CTA) Insignificant Significant differences differences Includes non-software R&D expenses – the most important difference for many other who migrated from U.S. GAAP to IFRS Closely monitored but not most differences re. financial considered as long as instruments that are currently clearly inconsequential debated worldwide © SAP 2008 / Page 8
  • 5. Revenue Recognition IFRS versus U.S. GAAP IFRS revenue recognition (IAS 11, IAS 18) IFRS revenue recognition rules are rather broad U.S. GAAP revenue => most U.S. GAAP practices recognition (SOP 97-2) are in compliance with IFRS Potential Unavoidable Differences Multi Element Arrangements where Vendor Specific Evidence of Fair Value (VSOE) does not exist for elements other than software (Deferral under U.S. GAAP but possibly not under IFRS) SAP has VSOE for all services VSOE requirement may fall soon under U.S. GAAP Custom Development and Consulting Arrangements where reliable estimates cannot be made (Zero Profit Margin under IFRS, Completed Contract Method under U.S. GAAP) SAP has a long history of custom development and consulting arrangements SAP has hardly ever encountered Completed Contract Method scenarios under U.S. GAAP Software contracts with payment terms > 12 months but high probability of payment SAP very rarely has software contracts with payment terms > 12 months © SAP 2008 / Page 9 IFRS – U.S. GAAP Recognition and Valuation Differences of (Potential) Relevance and Significance Provisions Probability threshold for recording provisions (50% under IFRS, 75% under U.S. GAAP) Provisions (e.g. for litigations) may be recorded under IFRS that are not recorded under U.S. GAAP Termination benefits/Restructuring: (Recognition of provision upon SAP plan commitment under IFRS, upon communication to employees under U.S. GAAP) Provisions may be recorded earlier under IFRS than under U.S. GAAP Pensions Recognition of actuarial gains and losses: Under IFRS directly in equity when they occur Business Combinations Acquisition-related charges Differ ences elimin Restructurings in business combinations recognized in income 2 ated f via co 009 et seq or under IFRS, in goodwill under U.S. GAAP nverg . ed ne w rule Acquired research & development projects capitalized s and amortized over useful lifetime under IFRS written off upon acquisition under U.S. GAAP Deferred Taxes Differences wherever U.S. GAAP – IFRS differences are temporary differences © SAP 2008 / Page 10
  • 6. IFRS – U.S. GAAP Classification Differences of (Potential) Relevance and Significance Income Statement Classification Differences Discontinued operations Classification as discontinued operations under IFRS only for Differ e disap nce likely significant components, under U.S. GAAP also for insignificant future pear in to via co the n components nverg ear ed rule – Results of insignificant disposed components are included s in ordinary earnings under IFRS while reported as discontinued operations under U.S. GAAP Balance Sheet Classification Differences Certain items are classified differently under IFRS and U.S. GAAP Certain items are classified as „Financial assets/Financial liabilities“ under IFRS while as „Other assets/Other liabilities“ under U.S. GAAP Income tax assets & liabilities to be shown separately on the face of the balance sheet under IFRS while part of Other Assets/Other Liabilities under U.S. GAAP Deferred taxes under IFRS always to be classified as non-current Differ e while under U.S. GAAP they follow the classification for the disap nce likely respective underlying balance sheet item future pear in the to via co ne n verge ar d rule s © SAP 2008 / Page 11 Reconciling U.S. GAAP to IFRS Operating Income for HY1 2009 (€ millions) Classification Valuation difference differences Discontinued -31 operations Acquisition re- lated charges Restructuring -6 -12 Other -8 -6 U.S. GAAP IFRS operating operating income income 979 948 © SAP 2008 / Page 12 Differences may exist due to rounding
  • 7. Non-IFRS Measures Present: Non-GAAP Currently, SAP provides guidance and reports performance against guidance based on Non-GAAP measures – in line with performance measures used internally These Non-GAAP numbers differ from the respective U.S. GAAP numbers due to adjustments for Deferred revenue writedown (from Business Objects acquisition) Acquisition related charges Future: Non-IFRS Upon full migration to IFRS SAP will provide guidance and report performance against guidance based on Non-IFRS measures – internal performance measures will be aligned These Non-IFRS numbers differ from the respective IFRS numbers due to adjustments for Deferred revenue writedown (from Business Objects acquisition) – identical to Non-GAAP adjustment Acquisition related charges – different from Non-GAAP adjustment due to (former) U.S. GAAP/IFRS differences in accounting for business combinations Discontinued operations – to eliminate U.S. GAAP/IFRS difference in accounting for discontinued operations © SAP 2008 / Page 13 U.S. GAAP to Non-GAAP versus IFRS to Non-IFRS - HY1 2009 (€ millions) n/a -19 +11 +133 Non-GAAP Non-GAAP operating U.S. GAAP operating operating income at income constant income 1,124 979 currencies 1,106 Deferred Acquisition Discontinued Currency maintenance related operations adjustment writedown charges +6 -19 +11 +141 Non-IFRS Non-IFRS operating IFRS operating income at operating income constant income 1,106 currencies 948 1,088 © SAP 2008 / Page 14 Differences may exist due to rounding
  • 8. U.S. GAAP to IFRS versus Non-GAAP to Non-IFRS - Q1 2009 (€ millions) -6 -8 U.S. GAAP -12 -6 operating IFRS income operating 979 income 948 Acquisition Discontinued related Restructuring Other operations charges n/a n/a -12 Non-GAAP -6 operating Non-IFRS income operating 1,124 income 1,106 © SAP 2008 / Page 15 Differences may exist due to rounding U.S. GAAP/Non-GAAP versus IFRS/Non-IFRS – HY1 2009 Total Revenue (€ mill.) Operating Income (€ mill.) / Operating Margin 1,124 1,124 948 1,106 1,106 979 979 948 4,974 4,974 4,985 4,985 4,974 4,974 4,985 4,985 22.6% 22.6% 19.1% 22.2% 22.2% 19.7% 19.7% 19.1% U.S. GAAP Non-GAAP IFRS Non-IFRS U.S. GAAP Non-GAAP IFRS Non-IFRS Net Income to SAP AG Shareholders (€ Equity (€ mill.) mill.) / EPS 735 735 735 735 626 626 621 621 €0.62 €0.62 €0.62 €0.62 7,341 7,341 7,272 7,272 €0.53 €0.53 €0.52 €0.52 U.S. GAAP Non-GAAP IFRS Non-IFRS U.S. GAAP IFRS © SAP 2008 / Page 16
  • 9. Comparison of U.S. GAAP- and IFRS-Cash Flow – HY1 2009 (€ millions) U.S. IFRS GAAP Operating Net income 627 622 cash flow + Net loss from discontinued operations 13 0 = Income from continuing operations 640 622 + Non-cash relevant changes in balance sheet items 1,193 1,201 = Net cash provided by operating activities 1,833 1,823 from continuing operations Investing Net cash provided by investing activities from continuing -479 -479 cash flow operations Financing Net cash provided by financing activities from continuing 121 121 cash flow operations Net cash used in operating activities from discontinued operations -10 0 Effects of foreign exchange rates on cash and cash equivalents -25 -25 Cash and cash equivalents at the beginning of the period 1,277 1,277 Cash and cash equivalents at the end of the period 2,717 2,717 © SAP 2008 / Page 17 Differences may exist due to rounding Thank you!

×