ASC606 Compliance - Dynamics GP

2.  30+ years progressive Business, Project and IT
Management, formal management and financial
training, technical and industry certifications
 Project management and technical leadership in
the delivery of IT and ERP implementations
 Resolution and consulting skills in applying best
practices and efficiency initiatives
Career History:
Solutions Consultant 2011 – Present
Dynamics GP Consultant 2007 – 2011
Mgr. IT and Process Improvements 1993 – 2007
Education:
• CPA (CertifiedProfessionalAccountant)
• CMA (CertifiedManagementAccountant)1994-
Present
• PMP (Project ManagementProfessional)
• MCSE (Microsoft CertifiedSystemEngineer)
• MCBMSP (Microsoft CertifiedBusiness
ManagementSolutionsProfessional)
NEIL MACDONALD CPA, CMA, PMP

3. OBJECTIVES – OR WHY ARE WE HERE?
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4. SESSION AGENDA
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• There’s the hard way!
• And the easy way!
• Software demo
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6. • FASB 2014-09 and IFRS 15
• Updated accounting standards to ensure revenue recognition was consistent across
industries, geographies, capital markets
• Applies to virtually all sectors where there are “contracts with customers” (exceptions include
leases, insurance and banking)
• Reduces number of requirements and expands disclosure
• Replaces EITF 08-1 / ASC 2009-13; EITF 09-3 / ASC 2014-09; SOP 97-2
• Removes reliance on VSOE, TPE, BESP, residual method, although elements of these still exist
• Adds new revenue recognition elements
• “Performance Obligations” rather than deliverables
• Requires “Distinct” identification of Performance Obligations
• Adds “Variable Consideration”
• Adds “Time Value of Money” for certain contracts
• Recognition depends on “transfer of control”

7. ASC 606 – Revenue From Contracts with
Customers
Today’s standards are RULES
based
New standard is PRINCIPLES
based
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8. 2. Identify Performance Obligations
1. Identify Contracts with Customers
3. Determine Transaction Prices
4. Allocate Revenue Based on SSP’s
5. Recognize Revenue Upon Satisfaction
ASC 606 – SUMMARY OF 5 STEPS

9. 1. Identify the
Contract

12. 2. Identify the
Performance
Obligations
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14. 3. Determine the
Transaction Price

17. 4. Allocate the
Transaction Price
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18. 4. ALLOCATE THE TRANSACTION PRICE

19. • SSP Computer $ 700
• SSP Monitor 300
• SSP Keyboard/mouse 100
• SSP Service Contract (deferred) 100
• Total value $1,200
Calculated as (Item SSP / Sum of all SSP) * Selling Price
• Computer $700/$1,200 * $1,000 = $583.34
• Monitor $300/$1,200 * $1,000 = $250.00
• Keyboard/mouse $100/$1,200 * $1,000 = $ 83.33
• Service Contract $100/$1,200 * $1,000 = $ 83.33
ALLOCATION OF PRICE WITH MULTIPLE PERFORMANCE OBLIGATIONS
NOTE: If these are not
“distinct performance
obligations” in the contract,
i.e. you sell a “system”, the
entire amount may need to
be deferred!!!

20. 21
5. Recognize
Revenue upon
Satisfaction

21. 5. RECOGNIZE REVENUE UPON SATISFACTION

22. 5. RECOGNIZE REVENUE UPON SATISFACTION CONT’D

23. 2. Identify Performance Obligations
1. Identify Contracts with Customers
3. Determine Transaction Prices
4. Allocate Revenue Based on SSP’s
5. Recognize Revenue Upon Satisfaction
ASC 606 – SUMMARY OF 5 STEPS

25. TOP 10 DIFFERENCES
KPMG has identified the 10 key differences between IFRS 15 and ASC 606 that they
believe are the most significant, based on the potential impact on earnings that these
differences may have, as well as the complexity they may create to comply with both
GAAPs.
They note that these differences may be challenging for companies that report under
both US GAAP and IFRS – e.g. a US subsidiary of a foreign multinational company that
uses IFRS for group reporting with local reporting under US GAAP, or vice versa.
(See next 10 slides for details)
For reference, these are taken from the KPMG IFRS Institute newsletter, IFRS Perspectives,
and can be found online here:
http://www.kpmg-institutes.com/institutes/ifrs-institute/articles/2017/01/top-10-differences-between-ifrs-15-and-asc-topic-606.html#bullet1

26. STEP 2 – DISTINCT GOODS & SERVICES
SHIPPING AND HANDLING ACTIVITIES
IFRS 15 ASC 606 Consideration for preparers
No policy election. The company
determines if shipping and
handling are distinct
performance obligations.
May result in revenue allocation
and deferral for shipping and
handling activities
Allows a policy election to treat
shipping and handling as a
fulfillment activity when
undertaken after the customer
gains control.
Revenue and costs recognized
upon transfer of the goods to the
customer
When the customer obtains
control of the goods before
shipping, the shipping and
handling activities may be a
separate performance
obligation.
The US GAAP policy election
simplifies the accounting and
accelerates recognition of the
revenue and costs relating to the
shipping and handling activities
in comparison to IFRS.
Credit to KPMG – IFRS Perspectives: Update on IFRS Issues in the US – Revenue: Top 10 Differences between IFRS 15 and ASC 606

27. STEP 3 – TRANSACTION PRICE
MEASUREMENT DATE FOR NON-CASH CONSIDERATION
IFRS 15 ASC 606 Consideration for preparers
No measurement date specified;
could be contract inception date
or date received (or other
justifiable dates) if different
Measured at contract inception Both IFRS 15 and ASC 606
measure non-cash consideration
(shares, advertising, bartered
goods) at fair value; the
difference is the timing. ASC 606
specifies contract inception; IFRS
allows contract inception or other
dates
Credit to KPMG – IFRS Perspectives: Update on IFRS Issues in the US – Revenue: Top 10 Differences between IFRS 15 and ASC 606

28. STEP 3 – TRANSACTION PRICE
SALES TAX
IFRS 15 ASC 606 Consideration for preparers
No policy election. The company
evaluates whether sales and
similar taxes are collected on
behalf of a third party (e.g.
government) on a jurisdiction-by-
jurisdiction basis (i.e. a principal
vs. agent evaluation).
Policy election to present all sales
and similar taxes on a net basis
The US GAAP practical
expedient simplifies the
presentation of sales taxes, in
line with current US GAAP.
Current IFRS (IAS 18) already
requires a principal vs. agent
evaluation for sales tax
presentation. This may result in
some taxes being presented on a
net basis and others on a gross
basis under IFRS, with a different
presentation under US GAAP
when the policy is elected.
Credit to KPMG – IFRS Perspectives: Update on IFRS Issues in the US – Revenue: Top 10 Differences between IFRS 15 and ASC 606

29. CONTRACT COSTS -
REVERSAL OF PREVIOUSLY IMPAIRED CONTRACT ACQUISITION AND CONTRACT
FULFILLMENT COSTS
IFRS 15 ASC 606 Consideration for preparers
Required Prohibited Under IFRS, an entity recognizes
a reversal of an impairment loss
that has previously been
recognized when the impairment
conditions cease to exist. Any
reversal of the impairment loss is
limited to the carrying amount,
net of amortization, that would
have been determined if no
impairment loss had
been recognized.
Credit to KPMG – IFRS Perspectives: Update on IFRS Issues in the US – Revenue: Top 10 Differences between IFRS 15 and ASC 606

30. SALES OUTSIDE NORMAL ACTIVITIES
SALES OF IN-SUBSTANCE NONFINANCIAL ASSETS
IFRS 15 ASC 606 Consideration for preparers
Sales of nonfinancial assets, such as
property, plant and equipment (IAS
16), intangible assets (IAS 38) and
investment property (IAS 40), are
accounted for using the
measurement and derecognition
guidance of IFRS 15.
Sales of a subsidiary or equity
method investee continue to be
accounted for under the
deconsolidation guidance (IFRS 10
and IAS 28, respectively)
Sales of nonfinancial assets and in-substance
nonfinancial assets scoped in ASC 610-20 are
accounted for using the contract existence,
separation, measurement and derecognition
guidance in ASC 606.
Sales of a subsidiary that only has nonfinancial
assets and/or in-substance nonfinancial assets and is
not a business are scoped into ASC 610-20. This
includes partial sale transactions.
Sales of a subsidiary or group of assets that
constitutes a business or not-for-profit activity
continue to be accounted for under the
deconsolidation guidance (ASC 810).
Example, if a subsidiary that
has only a building and does
not represent a business is sold
for a fixed price plus a
contingent fee:
Under IFRS, the deconsolidation
guidance (IFRS 10) applies and
the gain or loss is measured
using the fair value of expected
proceeds.
Under US GAAP (ASC 610-20),
the company estimates the
transaction price following the
variable consideration guidance
that is subject to constraint.
Credit to KPMG – IFRS Perspectives: Update on IFRS Issues in the US – Revenue: Top 10 Differences between IFRS 15 and ASC 606

31. ONEROUS CONTRACTS:
DETERMINATION OF PROVISIONS FOR LOSS-MAKING AND ONEROUS CONTRACTS
IFRS 15 ASC 606 Consideration for preparers
Onerous revenue contracts are
accounted for under IAS 37,
Provisions, Contingent Liabilities and
Contingent Assets. A provision is
recognized when the unavoidable
costs of meeting the obligations under
a contract exceed the economic
benefits to be received.
US GAAP has no general guidance for
recognizing a provision for onerous
contracts, but instead focuses either on types
of contracts or on industry-specific
arrangements.
Current guidance is unchanged except for
losses on long-term construction- and
production-type contracts, where an entity is
allowed to determine the provision for
losses at either the contract level or the
performance obligation level.
IFRS and US GAAP are likely
to remain unaligned for the
foreseeable future.
Credit to KPMG – IFRS Perspectives: Update on IFRS Issues in the US – Revenue: Top 10 Differences between IFRS 15 and ASC 606

32. TRANSITION:
EFFECTIVE DATE FOR NONPUBLIC COMPANIES
IFRS 15 ASC 606 Consideration for preparers
Annual periods beginning on or
after January, 2018
Annual periods beginning after
December,2017 (public business
entities and certain not-for-
profits) or after December, 2018
(other entities).
Nonpublic business entities that
have an IFRS parent may need to
adopt the revenue standard one
year earlier compared to what
would be required for US stand-
alone financial statements.
Credit to KPMG – IFRS Perspectives: Update on IFRS Issues in the US – Revenue: Top 10 Differences between IFRS 15 and ASC 606

33. TRANSITION:
DEFINITION OF 'COMPLETED CONTRACT'
IFRS 15 ASC 606 Consideration for preparers
Completed contract for the purposes of
transition is a contract for which the
company has transferred all of the
goods or services identified under
legacy IFRS, regardless of whether all
of the revenue has been recognized.
Legacy IFRS revenue guidance
continues to apply to revenue or
adjustments to revenue arising from
completed contracts after the transition
date.
Completed contract for the
purposes of transition is a
contract for which all (or
substantially all) of the revenue
was recognized under legacy
GAAP
In an effort to simplify the transition, both
GAAPs permit not applying the new
requirements to completed contracts. Because
the definition of a completed contract differs
and US GAAP permits entities to apply the
new standard either just to open contracts or
to both open and completed contracts, the
population of contracts to analyze may differ.
Overall, transition options are slightly
different between the two GAAPs, so that
opening numbers may not be similar under
IFRS and US GAAP.
Credit to KPMG – IFRS Perspectives: Update on IFRS Issues in the US – Revenue: Top 10 Differences between IFRS 15 and ASC 606

34. DISCLOSURES:
REMAINING PERFORMANCE OBLIGATIONS
IFRS 15 ASC 606 Consideration for preparers
Disclosure relief in two situations. An
entity needs to disclose the aggregate
amount of the transaction price
allocated to unsatisfied or partially
satisfied performance obligations and
when it expects to recognize this amount
as revenue, unless:
– the contract is one year or less; or
– the entity qualifies for the practical
expedient to recognize revenue in the
amount that is has the right to invoice.
Additional to the two exceptions under
IFRS 15, ASC 606 permits not including
variable consideration in the disclosure
of remaining performance obligations
when variable consideration:
– is a sales- or usage-based royalty
for a license of intellectual property; or
– meets the criteria to be allocated
entirely to a wholly unsatisfied
performance obligation, or to a wholly
unsatisfied distinct good or service that
is part of a single performance
obligation under the series guidance.
Under IFRS 15, the entity needs to
estimate certain variable consideration
for disclosure purposes only, even when
those estimates are not needed for the
recognition of revenue.
Credit to KPMG – IFRS Perspectives: Update on IFRS Issues in the US – Revenue: Top 10 Differences between IFRS 15 and ASC 606

35. DISCLOSURES:
INTERIM DISCLOSURES
IFRS 15 ASC 606 Consideration for preparers
Disclosure of disaggregated revenue Similar to annual disclosures -- e.g.
disaggregated revenue, contract
balances and remaining performance
obligations
IFRS 15 has fewer disclosure
requirements for interim financial
reporting than ASC 606.
Credit to KPMG – IFRS Perspectives: Update on IFRS Issues in the US – Revenue: Top 10 Differences between IFRS 15 and ASC 606

37. TIMING
Effective for fiscal periods beginning after December 15, 2017 for public companies
and NFP
Effective for fiscal periods beginning after December 15, 2018 for private
companies
Everyone can early adopt as of fiscal periods beginning after December 15, 2016

38. SELLING “SOLUTIONS” VS PRODUCTS
Beware of items that are not “distinct” in terms of the contract and the associated
revenue.
Items sold as part of a solution may need to be deferred for the life of the contract
Example: A “solution” that includes hardware, software and a three year service
contract. If not “distinct”, entire amount needs to be deferred.

39. MATERIALITY
Even if an item is distinct in terms of the contract, if it is “immaterial” you can elect to
combine it with an associated performance obligation
Example: $1,000,000 contract contains a performance deliverable of $50,000. No
need to account for it separately

40. LICENSING
ASC 606 has an extensive section regarding licensing
Licenses might be:
“Right to use” or “functional IP” – Recognize at a point in time
Software, drug formula, completed media content
Or
“Right to access” or “symbolic IP” – Recognize over time
Brands, team/trade names, logos, franchise rights
Change for Software industry: Software revenue will be recognized at inception of license, not
over the term of the license!

41. CONTRACT REVIEWS
Contracts must be reviewed, individually or by portfolio, for each reporting period to
determine if they still fit the definition of a contract, collectability
Performance obligations need to be reviewed periodically for pricing or other
changes to ensure proper treatment
Contract changes might trigger a new contract, or may require a true up – either
positive or negative – to conform with the revised contract terms

43. HOW CAN YOU BE COMPLIANT IN DYNAMICS AX / D365?
You can’t! Unless….
You use Excel or use a third party (ISV) application
Let’s investigate the options…

44. OPTION 1: USE EXCEL
Build a complex spreadsheet to do SSP and reallocation of revenue calculations,
then manually JE back to your ERP.
Time consuming
Complex
Not a good use of time if more than a handful of contracts

45. OPTION 1: EXCEL - EXAMPLE
Initial Contract:
Item Ext. Price Type Contract Value SSP Contract SSP
Reallocated
Contract
Revenue Period Revenue
HW 15,000.00 One time 15,000.00 17,000.00 17,000.00 15,095.44 15,095.44
Setup Fee 5,000.00 One time 5,000.00 5,000.00 5,000.00 4,439.83 4,439.83
SAAS SW 7,000.00 Monthly 168,000.00 8,000.00 192,000.00 170,489.63 7,103.73
SW Annual Maint. 12,000.00 Def. 12 mo 24,000.00 12,000.00 24,000.00 21,311.20 10,655.60
Prof Services 3,000.00 Def event based 3,000.00 3,000.00 3,000.00 2,663.90 2,663.90
Discount - 1,000.00
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1,000.00 - - -
41,000.00 214,000.00 45,000.00 241,000.00 214,000.00 39,958.50
Remember the formula: (Item SSP / Sum of SSPs) * Contract Value
Example: SAAS SW: (192,000 / 241,000) * 214,000 = 170,489.63
Jan 2016 Invoice:
Item Ext Price Revenue Distribution
HW 15,000.00 15,095.44 AR 41,000.00
Setup Fee 5,000.00 4,439.83 Sales HW 15,095.44
SAAS SW 7,000.00 7,103.73 Sales Setup 4,439.83
SW Annual Maint. 12,000.00 10,655.60 Sales SW 7,103.73
Prof Services 3,000.00 2,663.90 Deferred Rev Maint 10,655.60
Discount - 1,000.00 - Sales Prof Serv 2,663.90
41,000.00 39,958.50 Contr.Rev.Clearing 1,041.50
41,000.00 41,000.00

46. OPTION 2: ISV SOLUTIONS
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• Line level billing – scheduled or milestone/event
• Line level deferrals – straight-line or milestone/event/percentage of completion
• Allocation of revenue based on Standalone Selling Price – Stored Amount / Invoiced Amount / List Price /
Percentage of Other Item(s)
• For more information: www.binarystream.com

47. OPTION 2: ISV SOLUTIONS CONT’D
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48. OPTION 2: ISV SOLUTIONS CONT‘D
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49. OTHER FEATURES
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50. SUMMARY / CONTACT US
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• Excel
• ISV Solutions – ARED, ARCB, MERA
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neil@binarystream.com
www.binarystream.com