XT-303: IFRS Impact onGovernment ContractorsPresented by: William Choi, PWC
Current status of IFRS in the USRegulatory updateAssuming that the SEC determines in 2011 to incorporate IFRS into the USd...
Current status of IFRS in the USSEC reaffirmed support for single set of global standards – IFRS asbest optionUpdates from...
Current status of IFRS in the USSEC reaffirmed support for single set of global standards – IFRS asbest option (continued)...
Current status of IFRS in the USWhere we stand now– The pressure is on for the FASB and IASB to finalize projects that wil...
Current status of IFRS in the USGlobal accounting landscape                   US GAAP                     – The planned co...
Current status of IFRS in the USMajor projects on the horizon*These projects are IASB projects that have the potential to ...
Current status of IFRS in the USHow IFRS may impact US companies                                          Customers       ...
Current status of IFRS in the USWhat other companies are doingStaying close to the standard setting process– Monitoring ex...
Current status of IFRS in the USWhat other companies are doing (continued)Assessing and recruiting IFRS talent– Assessing ...
US GAAP – IFRS DifferencesPrinciples vs. rules: Key differences between IFRS and US GAAP                                  ...
US GAAP – IFRS DifferencesKey differences between IFRS and US GAAP - Revenue      Area                     IFRS           ...
US GAAP – IFRS DifferencesIASB / FASB joint project on revenue recognition– Discussion paper published on  December 19, 20...
US GAAP – IFRS DifferencesKey differences between IFRS and US GAAP – Stock-basedcompensation    Area                      ...
US GAAP – IFRS DifferencesKey differences between IFRS and US GAAP – Research anddevelopment     Area                     ...
US GAAP – IFRS DifferencesKey differences between IFRS and US GAAP – Nonfinancial assets     Area                        I...
US GAAP – IFRS DifferencesIASB / FASB joint project on leases– Discussion paper published on  March 19, 2009– The aim of t...
US GAAP – IFRS DifferencesKey differences between IFRS and US GAAP – Income taxes    Area                         IFRS    ...
US GAAP – IFRS DifferencesKey differences between IFRS and US GAAP – Provisions /Contingencies       Area                 ...
US GAAP – IFRS DifferencesKey differences between IFRS and US GAAP – Consolidation and jointventures       Area           ...
US GAAP – IFRS DifferencesKey differences between IFRS and US GAAP – Impairment    Area                             IFRS  ...
US GAAP – IFRS DifferencesKey differences between IFRS and US GAAP – Inventory      Area                         IFRS     ...
Where to go for more informationAdditional tools and templatesThe following tools are also available for use with our clie...
Where to go for more informationAdditional tools and templates (continued)Stay informed: visit www.pwc.com/usifrs.• Extens...
Where to go for more informationRecent IFRS publicationsIFRS readiness series:• IFRS and US GAAP: similarities and differe...
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Deltek Insight 2010: IFRS Impact on Government Contractors

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Deltek Insight 2010: IFRS Impact on Government Contractors

  1. 1. XT-303: IFRS Impact onGovernment ContractorsPresented by: William Choi, PWC
  2. 2. Current status of IFRS in the USRegulatory updateAssuming that the SEC determines in 2011 to incorporate IFRS into the USdomestic reporting system, the first time US issuers would report under such asystem would be approximately 2015 or 2016. The timeline will be evaluatedas part of the Work Plan.Expected Timeline2011Possible SEC decision on the incorporationof FRS into US financial reporting systemMid-2011 2012 – 2014Completion of convergence agenda based Expected effective dates of convergedon current FASB/IASB timeline standards 2011 2013 2015 2010 2012 2014 2016 2010-2011 2012-2016 SEC Staff executes Work Plan US IFRS transition period •Assumes earliest date of adoption as December 31, 2015 •2 Years of comparative information •Possible optional adoption period Slide 2
  3. 3. Current status of IFRS in the USSEC reaffirmed support for single set of global standards – IFRS asbest optionUpdates from the SEC‘s open meeting on February 24, 2010 :– Agreed to publish a statement of support for a single set of high-quality global accounting standards. And acknowledged that IFRS is best option– Expects to make a determination on whether or not to further move towards IFRS between now and 2011 with issues that need to be further analyzed, and the events that must occur in this timeframe– Reiterated its commitment to addressing comment letters on the proposed roadmap, and also to basing any move to IFRS on the best interests of investors and the US capital markets– Emphasized that ongoing FASB/IASB convergence projects must be successfully completed before any conversion to IFRS Slide 3
  4. 4. Current status of IFRS in the USSEC reaffirmed support for single set of global standards – IFRS asbest option (continued)– To develop a work plan to evaluate the impact of using IFRS on the securities markets focusing on the following areas: • Sufficient development of IFRS for use in the US domestic reporting system • Independence of standard setters • Investor understanding of IFRS • Impact on the US regulatory environment • Impact on large and small issuers • Human capital readiness • Evaluation of the scope and timeline for further incorporating IFRS into the US reporting system– Expects to provide public progress reports on the work plan beginning in October 2010 Slide 4
  5. 5. Current status of IFRS in the USWhere we stand now– The pressure is on for the FASB and IASB to finalize projects that will likely impact almost all aspects of financial accounting and reporting – all within the next 18 months– SEC will assess what convergence and other preparations are needed, before setting a mandatory IFRS adoption date– Once the SEC does decide to move forward and establishes a mandatory date, we expect a broad option for early adoption might be put in place– Regardless of the final adoption date, in the near-term we see continued convergence between US GAAP and IFRS, followed by ultimate conversion. The complexity and significance of these sweeping changes greatly exceeds that of traditional revisions to existing US GAAP– Continued global adoption impacts US businesses today as countries adopt IFRS for statutory reporting purposes Slide 5
  6. 6. Current status of IFRS in the USGlobal accounting landscape US GAAP – The planned convergence of US GAAP and IFRS will result in a significant number of new US GAAP standards between now and 2014 which will be significantly influenced by IFRS – Outside the US a growing number of countries require IFRS or an IFRS equivalent for private statutory reporting GAAP GAP Convergence Conversion – Even after completion of the convergence project between the IASB and the FASB many differences will remain – The challenge for US companies is to manage non-US conversions, address convergence changes, and anticipate the implication of IFRS conversion changes for those areas that will 2009 2011 - 2014 Adoption not fully converge Slide 6
  7. 7. Current status of IFRS in the USMajor projects on the horizon*These projects are IASB projects that have the potential to impact the views of the FASB as it evaluates existing US GAAP in these areas. Slide 7
  8. 8. Current status of IFRS in the USHow IFRS may impact US companies Customers Adoption: and vendors: Manage non-US Know how IFRS subsidiaries‘ influences non-US ongoing adoption counterparties‘ of IFRS negotiation biases M & A: Cost savings: Understand the Streamline non-US implications of subsidiaries‘ IFRS reporting by financial reporting non-US targets via shared services and acquirers Contracts: Convergence Consider how System upgrades: Anticipate IFRS IFRS affects the impact on new structure of long- company-wide and term contracts subsidiary and financial IT systems US reporting: agreements Tax strategies: Plan for business Prepare for IFRS implications driven effects on tax rate by accounting and cash flow. changes Slide 8
  9. 9. Current status of IFRS in the USWhat other companies are doingStaying close to the standard setting process– Monitoring exposure drafts and providing comments to standard settersAssessing IFRS impacts particularly those beyond accounting– Assessing changes as a result of convergence and adoption that impact the whole organization such as impacts on people, systems and processesExercising corporate oversight on their non-US subsidiaries– Influencing transition timing, strategies and policy decisions of non-US subsidiaries as they adopt IFRSDeveloping project plans– Identifying areas that are most impacted– Assessing the time line for implementation– Establishing teams to focus on these areas– Establishing a governance structure to facilitate decision making Slide 9
  10. 10. Current status of IFRS in the USWhat other companies are doing (continued)Assessing and recruiting IFRS talent– Assessing IFRS knowledge existing within their organization– Starting to hire IFRS resourcesDetermining the training strategy for the organization– Determining what the training needs in the organization are– Starting to train appropriate people at the right time and keep them currentAssessing areas that are most complicated– Determining areas that have the most impact or are most difficult to address– Conducting a deep dive in these areasStarting to operate in a dual GAAP environment– Assessing current longer term contracts, transactions and projects not just under US GAAP but also assessing impact of convergence including eventual IFRS adoption Slide 10
  11. 11. US GAAP – IFRS DifferencesPrinciples vs. rules: Key differences between IFRS and US GAAP – IFRS standards are set by the International Accounting Standards Board – Both frameworks follow similar conceptual underpinnings – IFRS differs from US GAAP in many US GAAP 25,000 pages different ways from an accounting IFRS 2,500 pages and disclosure standpoint – US GAAP is more detailed and prescriptive, addressing specific industries and types of transactions in many areas Slide 11
  12. 12. US GAAP – IFRS DifferencesKey differences between IFRS and US GAAP - Revenue Area IFRS US GAAP ImplicationsRevenue Recognized on a percent Recognized based on specific guidance, Timing of service revenue may potentiallyServices completion basis which if not applicable, defaults to be different under IFRS depending on the general criteria. US GAAP prohibits the stage of deliverable at the reporting date. use of the cost-to-cost percentage-of- completion methodConstruction The guidance applies to The guidance applies to accounting for Differences ranging from the transactionsContracts construction contracts for performance of contracts for which scoped into the construction contract the construction of a single specifications are provided by customer accounting guidance in both frameworks to asset or a combination of for the construction of facilities or the actual application of models may result assets that are interrelated production of goods or the provision of in significant impacts. or interdependent. related services. The completed contract While the percentage of completion method is prohibited. method is preferred, the completed- contract method is required in certain situations. Combining and segmenting Combining and segmenting contracts is contracts is required when permitted provided certain criteria are certain criteria are met. met, but is not required. Systems Considerations• System‘s impact could range from a minor change in workflow or business to a major system configuration effort (e.g., automating the percentage of completion calculation in the systems may be a significant effort)• For service contracts currently accounted for under proportionate performance model may require a detailed and controlled tracking mechanism to be in place to monitor the accumulation of costs incurred for cost-to-cost percentage-of-completion method Slide 12
  13. 13. US GAAP – IFRS DifferencesIASB / FASB joint project on revenue recognition– Discussion paper published on December 19, 2008– High priority – new standard expected by end of 2011– Contract based revenue recognition model– Focus on asset or liability that arises from a contract– Asset if remaining rights exceed remaining performance obligations– Revenue recognized as performance obligations are met/delivered Slide 13
  14. 14. US GAAP – IFRS DifferencesKey differences between IFRS and US GAAP – Stock-basedcompensation Area IFRS US GAAP ImplicationsStock-based Each traunche in a graded vesting An accounting policy choice for a graded Reassessment of stockCompensation scheme is valued and recognized vesting scheme is recognized either on a compensation plans to apply separately straight line basis or treat each criteria under IFRS. installment separately Assessment of internal control Deferred tax is revalued based on Deferred tax is not revalued at each structure and systems intrinsic value at each reporting date reporting date. requirements in order to comply with IFRS requirements. Payroll taxes and social charges are Payroll taxes and social charges are recorded in each period recorded upon the triggering event Systems Considerations• Need to ensure the company or the third party service provider (if applicable) has systems that can adopt any required changes for IFRS (e.g., ensure the systems are capable of periodic calculation of payroll taxes, deferred taxes, social charges, etc. and how this can be accomplished to accommodate the company‘s close process) Slide 14
  15. 15. US GAAP – IFRS DifferencesKey differences between IFRS and US GAAP – Research anddevelopment Area IFRS US GAAP ImplicationsResearch and Allows for capitalization of Largely follow the existing Companies may potentially be able toDevelopment development expenses upon guidance that allowed an element capitalize and amortize a portion of achieving specific criteria. of software and software related R&D expenses. The amount of 1. technical feasibility for use or sale (e.g. website development, or capitalized development costs could be 2. intention to complete and use or modifying an ERP system for different. sell internal use) development costs to be capitalized while all of their 3. ability to use or sell other spend on R&D activities are 4. how probable future economic required to be expensed as benefits will be generated incurred 5. availability of technical, financial and other recourses to complete development and use or sell 6. ability to measure expenditure reliability during development Systems Considerations • May have to implement or change project accounting system, accumulating the detailed costs and cost allocations • May have to implement a general ledger/system that can receive the automated postings from the project accounting and fixed asset systems, and has the ability to track and report project costs, intangible assets and amortization • May have to establish processes and procedures to capture expenditures by project rather than by business unit or cost center, which is usually done through time tracking and financial accounting software systems Slide 15
  16. 16. US GAAP – IFRS DifferencesKey differences between IFRS and US GAAP – Nonfinancial assets Area IFRS US GAAP ImplicationsFixed Asset Policy decision allows for an option Fixed assets recorded at cost Companies with a large quantity of fixedAccounting to revalue fixed assets assets may have the option to fair value fixed assets as a matter of policy. Fixed assets with distinguishable Fixed assets with distinguishable attributes attributes are to be depreciated (manufacturing elements, plant & fixtures) are separately (componentization) to be assessed and depreciated separately. Tax records may be a reasonable ―starting point‖ for that information. Requires the residual value, useful life, and depreciation method May need to design and implement year-end applied to an asset be reviewed at procedures to review potential changes to least each financial year-end residual value, asset lives and depreciation methodsFixed Asset Classification of leases between Classification of leases between Companies would need to reassess theAccounting operating and finance is based on operating and finance is based classification of leases based upon the IFRS(Leases) a ―risk and rewards‖ model on prescriptive, rules based model criteria Systems Considerations• Restructuring of fixed assets modules and sub-ledger master records to break apart certain assets. Also requires data conversion effort to restructure fixed asset and accumulated depreciation balances Slide 16
  17. 17. US GAAP – IFRS DifferencesIASB / FASB joint project on leases– Discussion paper published on March 19, 2009– The aim of this joint project is to develop a new common approach to lease accounting that would ensure that all assets and liabilities arising under lease contracts are recognized on the balance sheet– The boards plan to issue an exposure draft of a new lease accounting standard in the second quarter of 2010– The current project plan envisages that a final standard will be issued in the second quarter of 2011 Slide 17
  18. 18. US GAAP – IFRS DifferencesKey differences between IFRS and US GAAP – Income taxes Area IFRS US GAAP ImplicationsIncome Taxes Uncertain tax positions based on an ASC 740-10 (FIN 48) is prescriptive and Companies would need to expected value approach as opposed requires all uncertain tax positions to be reevaluate provisions related to to a cumulative probability analysis measured using the cumulative uncertain tax positions. probability methodology. The resulting tax liability may not be the amount that management actually expects to pay. Extensive disclosure is also required. Presented ―net‖ as one item on B/S. Presented ―net‖ in 2 categories – current and non-current Systems Considerations• May require system configuration effort depending on the ultimate impact from identified GAAP differences Slide 18
  19. 19. US GAAP – IFRS DifferencesKey differences between IFRS and US GAAP – Provisions /Contingencies Area IFRS US GAAP ImplicationsProvisions/ Under IFRS, the recognition criteria Higher recognition threshold under Companies would need to reassessContingencies for provisions is more likely than US GAAP for provisions, generally recognition criteria of provisions in not which is considered as a 75% or over accordance with the IFRS model probability of greater than 50%. If a range of estimates is present in In such a case, US GAAP requires Potential for increased values of measuring a provision, IFRS use of the lowest point in the range. provisions if estimated ranges are requires use of the mid-point of the considered range. Systems Considerations• Due to manual nature of transaction processing and reporting activities in this particular area, no major system impact expected butchanges to manual processes likely. Slide 19
  20. 20. US GAAP – IFRS DifferencesKey differences between IFRS and US GAAP – Consolidation and jointventures Area IFRS US GAAP ImplicationsConsolidation - Control is defined as the power A bipolar consolidation model is Companies would have to re-assess theControl to govern the financial and used, which distinguishes between a definition of control within the IFRS operating policies of the entity variable interest model and a voting framework. so as to obtain benefits from its interest model. Under the voting activities Control is presumed interest model, control can be direct to exist when parent owns more or indirect and may exist with less than one half of an entity‘s than 50% ownership. ‗Effective voting power. Control also control‘, which is a similar notion to exists when the parent owns de facto control under IFRS, is very half or less of the voting power rare if ever employed in practice. but has legal rights to control, or de facto control. The existence of currently exercisable potential voting rights is also taken into consideration.Associates / Joint Requires the accounting No specific requirement to synergize Companies are required to conformVenture polices policies of associates / joint the accounting policies of associates accounting policies of associates / joint ventures to conform with the / joint ventures. ventures with the company. company. Systems Considerations• Consolidation software might require amendments to include entities that fall within the new definition of control• Effects of chart of accounts restructuring should be implemented in consolidation software Slide 20
  21. 21. US GAAP – IFRS DifferencesKey differences between IFRS and US GAAP – Impairment Area IFRS US GAAP ImplicationsImpairment Single impairment model for goodwill, Separate impairment models for Companies are required to apply the amortizable assets and indefinite goodwill, amortizable assets and IFRS model to assess impairment of lived intangibles. indefinite lived intangibles. assets and goodwill. • Impairment model based on • Impairment model generally based Impairments often recognized sooner ―Cash Generating Unit‖ (CGU), upon cash flows of ASC 280-10 under IFRS due to one-step approach. one level below a FAS 131 (FAS 131) segments segment • Two step approach • One Step approach based on • Indefinite lived intangibles tested discounted cash flows separately • Indefinite lived intangibles • Reversals are not permitted included within CGU • Cash flows – undiscounted • Reversals are permitted • Cash flows – discounted Systems Considerations• Possible restructuring of fixed asset registers to group assets in logical CGUs to facilitate and streamline the impairment process and evaluation of Goodwill Slide 21
  22. 22. US GAAP – IFRS DifferencesKey differences between IFRS and US GAAP – Inventory Area IFRS US GAAP ImplicationInventory Use of LIFO is not allowed LIFO is an acceptable method of Requires changes in inventory valuing inventory accounting if LIFO is used Valued at the lower of cost or net Value at the lower of cost or market Differences could arise where the realizable value (net realizable (market is defined as current current replacement cost is below net value is defined as estimated selling replacement cost subject to an upper realizable value price less estimated selling limit of net realizable value (i.e., expenses) estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal) and a lower limit of net realizable value less a normal profit margin Reversals of obsolescence Reversals of obsolescence IFRS may introduce volatility within provisions are allowed provisions are allowed the income statement in the event that obsolescence provisions are reversed. Systems Considerations• Re-configuration and modification of existing systems to capture IFRS valuation methodology (e.g., cost versus net realizable value) might be required• Changes might be required to chart of accounts capture the differences in accounting and reporting purposes• Systems need to be adjusted to not allow the valuation of inventory at the LIFO method Slide 22
  23. 23. Where to go for more informationAdditional tools and templatesThe following tools are also available for use with our clients: U.S. GAAP—IFRS diagnostic questionnaires A tool that includes a set of leading practice questions to facilitate the identification of differences between U.S. GAAP and IFRS that can be tailored and used to efficiently involve the subsidiaries in the IFRS conversion process IFRS disclosure checklist A financial statement disclosure checklist for IFRS Illustrative consolidated financial statements Sample IFRS consolidated financial statements Illustrative interim consolidated financial statements for first-time adopters Sample IFRS interim financial statements, including all IFRS 1 disclosures Financial statement mapping tools A tool to identify gaps between data and information required to prepare IFRS financial statements and the data and information that is currently available IFRS adoption by country map Summarizes our understanding of the use of IFRS by domestic listed and unlisted companies in over 100 countries and territories.We will also provide you with generic, leading practice templates for high level projectplans, internal newsletters, external stakeholder communication, and other projectdeliverables. Slide 23
  24. 24. Where to go for more informationAdditional tools and templates (continued)Stay informed: visit www.pwc.com/usifrs.• Extensive library of publications• Video Learning Center• Monthly webcast series• Interactive demonstrations, and more.IFRS First updates newsletter• Timely, easily digestible updates on the US IFRS conversion process as well as announcements of new PwC publications, webcasts or events.• Be among the first to know when new IFRS resources are available for your use. Register today at www.pwc.com/usifrs. Slide 24
  25. 25. Where to go for more informationRecent IFRS publicationsIFRS readiness series:• IFRS and US GAAP: similarities and differences (September 2009)• Complying with International Financial Reporting Standards: Getting your systems ready to meet financial consolidation and reporting requirements10Minutes series:• 10Minutes on Transitioning to IFRS• 10Minutes on International Financial Reporting Standards in the USTax IFRS readiness series:• IFRS, US GAAP, and US tax accounting methods (a comparison)• The uncertain future of LIFO• Transfer pricing and IFRS: Implications of IFRS on cost sharing arrangementsOther recent IFRS publications• IFRS for SMEs: How does this affect US companies?• 2010 IFRS manual of accounting• IFRS pocket guide• IFRS perspectives: An executive survey• Series of IFRS industry-specific publications Slide 25

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