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IFRS 15 Benchmarking survey for financial services

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EY's IFRS 15 benchmarking survey for financial services provides a readiness benchmark and identifies trends developing in the implementation of the new revenue recognition standard.

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IFRS 15 Benchmarking survey for financial services

  1. 1. EY benchmarking survey for financial services IFRS 15 Revenue from Contracts with Customers January 2017
  2. 2. Page 1 Executive summary Participants profile ► 17 financial institutions (16 banks and 1 stock exchange) ► 16 participants in Europe and one in Japan which is implementing the project globally ► Revenues in scope: ► Less than £1bn: 4 participants ► £1bn – £5bn: 5 participants ► More than £5bn: 8 participants ► In July, 2016, the European Securities and Markets Authority (ESMA) issued a Public Statement (‘Issues for consideration in implementing IFRS 15: Revenue from Contracts with Customers’) in order to promote consistent application of IFRS 15 Revenue from Contracts with Customers in the European Union (EU). ► The Public Statement covers four broad topics: transparency on implementation and effects of IFRS 15; specific considerations; illustrative timeline and good practices of disclosures; and next steps. ► ESMA expects the Public Statement to be taken into account in the 2016 annual financial statements and beyond to enhance comparability of IFRS financial statements in the EU. ► In order to determine the consistency in the application of IFRS 15, EY conducted a benchmarking survey to understand what information financial institutions, and especially banks, are planning to disclose in their financial statements leading up to the implementation of the new standard, as well as the current status of their implementation projects. The survey ► Participants expressed a preference for the modified retrospective transition method, although some have not yet selected a transition method. ► All, but one, of the participants plans to adopt IFRS 15 for annual periods starting on or after 1 January 2018. One participant is considering early adoption in 2017. ► Most participants do not expect to provide quantitative disclosures on the estimated impact of IFRS 15 in their 2016 annual financial statements as they do not expect the impact to be material. ► Business lines and products where the impact is expected to be more significant include: ► Wealth and asset management (performance fees) ► Trade execution / broker services (including trail commissions) ► Engagement and communication with the audit committee and external auditors has been only partial so far and EY is expecting it to increase as the effective date of the new standard approaches. Overall state of readiness EY IFRS 15 benchmarking survey for financial services, January 2017
  3. 3. Page 2 Geographic representation of the survey participants EY IFRS 15 benchmarking survey for financial services, January 2017 UK, 10 Switzerland, 2 Spain, 1 France, 2 Germany, 1 Japan, 1
  4. 4. Page 3 Content 1 Transition 4 2 Governance 5-8 3 Implementation 9-11 4 Disclosures 12-15 EY IFRS 15 benchmarking survey for financial services, January 2017
  5. 5. Page 4 CommentaryData 1. Transition Adoption date and transition approach Almost all participants plan to adopt IFRS 15 as at the mandatory effective date ► All, but one, of the participants plans to adopt IFRS 15 for annual periods beginning on or after 1 January 2018. ► One participant has not yet decided on the date of adoption, but is considering early adoption in 2017. Participants are generally leaning towards use of the modified retrospective transition method ► Six participants have decided to apply the modified retrospective transition method. ► 11 participants have yet to decide on the transition method. ► Many of those that are undecided are currently thinking of selecting the modified retrospective transition method. ► Some participants have indicated that one of the key elements delaying the selection of a transition method is to better understand the investors’ needs regarding comparative information. 16 1 Annual period beginning on or after 1 January, 2018 Early adoption Not yet decided but considering early adoption Adoption date of IFRS 15 6 0 11 Modified retrospective Full retrospective Not decided yet Transition method EY IFRS 15 benchmarking survey for financial services, January 2017
  6. 6. Page 5 CommentaryData 2. Governance Discussion with the audit committee and external auditors Implementation of IFRS 15 has not been widely discussed with internal and external stakeholders ► Participants are in the early stages of discussion with both the audit committee and external auditors. Most plan to discuss their implementation with the audit committee and external auditors by the end of the year. EY expects that the discussion with the audit committee and external auditors will play a key role in the implementation ► The audit committee will provide necessary oversight and discuss complex accounting estimates and management judgements in the implementation of the new standard. Their inclusion early on in the project will provide clearer guidance to management and assist management in focusing on areas of concern. ► External auditors will be interested in understanding the transition and implementation plan set up by management to ensure compliance with the new accounting standard. Timely feedback from external auditors will help management determine the effort and resources required to implement the accounting changes and meet the disclosure requirements. 4 1 5 2 5 Discussed with external auditors Discussed with audit committee Discussed with both Not planning to discuss in 2016 Planning to discuss by the end of 2016 Discussion of implementation and impact of IFRS 15 with the audit committee or external auditors EY IFRS 15 benchmarking survey for financial services, January 2017
  7. 7. Page 6 CommentaryData 2. Governance Implementation project setup 1 6 9 1 1 Finance Accounting Policy Both Finance and Accounting Policy Other Not decided yet IFRS 15 implementation project lead Involvement of Accounting Policy personnel is important in project implementation ► Accounting Policy personnel are generally performing contract analyses and assessments, with significant inputs from Finance. ► Finance personnel are leading the work on the disclosure requirements and implementing changes to the reporting processes and information technology (IT). The accounting change project will require the input of multiple stakeholders ► Accounting Policy and Finance are leading the implementation effort, but will require inputs from Operations and Product Control. ► Business Groups will need to provide details and explanatory guidance on contracts to ensure that the analysis is based on how the contracts are practically applied. ► IT and infrastructure teams will need to provide insights into the level of recalibration of systems and data points required. ► Additional success factors in project implementation include the integration of interactions with other functional units, such as Operations, IT and affected business units. EY IFRS 15 benchmarking survey for financial services, January 2017
  8. 8. Page 7 CommentaryData 2. Governance Implementation project setup (continued) 7 3 2 5 Dedicated accounting change management programme Part of a broader accounting change management project with dedicated project manager Part of a broader accounting change management project with no dedicated project manager Other Structure of the IFRS 15 project The structure of the implementation programme could indicate the level of effort and resources directed towards IFRS 15: ► Four out of five participants that selected “other”, while noting that there is no separate accounting change project, have indicated that the project is being run within Finance or Accounting Policy. IFRS 15 will have a broad impact on existing governance arrangements: ► Interactions between Finance, Accounting Policy, IT and Operations will need to be managed. ► A structured governance framework will allow for a stronger link between all stakeholders. EY IFRS 15 benchmarking survey for financial services, January 2017
  9. 9. Page 8 CommentaryData 2. Governance Multiple locations 1 0 4 5 1 1 5 Exclusively centralised implementation Exclusively decentralised implementation Centralised implementation with a few exceptions depending on revenue streams and systems Centralised guidelines and coordination; decentralised implementation Other Not decided yet Not applicable Multiple locations – Implementation approach Centralised implementation efforts ► Project governance is generally aligned with the geographical complexity of the organisation, with five participants applying a significantly centralised or exclusively centralised approach. ► Five participants are expecting to implement a decentralised approach due to their complex regional operations and rely on established and mature Accounting Policy or Finance teams. ► Participants still expect to centrally provide and manage guidelines covering: ► Strong governance ► Standardised assessment of products and business units to ensure consistency of documentation and quality ► Controls, processes and IT system implementation ► Coordination with other stakeholders (e.g. IT and Operations, where applicable) EY IFRS 15 benchmarking survey for financial services, January 2017
  10. 10. Page 9 CommentaryData 3. Implementation Current status of project Scoping of revenue streams and high-level impact assessment: ► All participants have started and many have completed the scoping of revenue streams, but three have not yet set up governance. ► All participants but one have started the high-level impact assessment and nine participants have completed it. Setting up governance and scoping will provide the required framework for implementation: ► Having clearly established governance will assist decision making on key approach steps and assumptions. ► Comprehensive scoping of revenue steams will be critical for an effective and efficient implementation and provide disclosures consistent with ESMA’s guidance. Participants have focused less on data, systems, operating models and control frameworks: ► Most participants are still in the process of performing a detailed assessment of revenues and plan to focus on data and systems infrastructure requirements thereafter. ► Identifying additional data needed in order to comply with the new disclosure requirements will be an area of focus for most participants, even if they do not expect a significant impact on their financial statements. 6 15 5 7 7 1 3 10 2 8 5 6 4 6 4 1 3 4 3 3 3 3 1 1 1 9 8 7 Reporting & disclosures Implement IT changes Policy decisions Contract reviews Detailed impact assessment High level impact assessment Scoping of revenue streams Set up governance Current status of IFRS 15 implementation project Not Started In process: early stages In process: advanced stages Completed EY IFRS 15 benchmarking survey for financial services, January 2017
  11. 11. Page 10 CommentaryData 3. Implementation Financial statement impact ► Although a majority of the participants do not expect a significant impact overall, six participants have identified business lines or products that may be significantly affected by the new standard. ► Some of the participants noted that, even though there may be no material impact for group reporting, subsidiaries could be significantly affected. ► Business lines and products expected to be significantly affected include: ► Wealth and asset management (performance fees) ► Trade execution/broker services (including trail commissions) ► Participants are expending significant efforts to perform detailed analyses before disclosing whether or not IFRS 15 will have a significant impact on the financial statements. ► Participants will have to assess if additional disclosure requirements will increase the operational complexity for financial reporting, considering IT, processes and systems challenges. ► Participants not expecting a significant impact will still need to analyse material revenues steams to demonstrate and document their conclusions. 0 3 1 2 1 1 0 0 2 10 Credit Cards Wealth and asset management Investment banking Trade execution/broker services Cash management and… Advisory services Trade finance Retail banking Other None (do not expect a… Significant areas of impact 1 13 3 Yes No Not decided yet Significant impact of IFRS 15 on financial statements EY IFRS 15 benchmarking survey for financial services, January 2017
  12. 12. Page 11 CommentaryData 3. Implementation Processes, controls, and IT systems impact ► 10 participants indicated that they do not expect IFRS 15 to have a significant effect on their processes, controls, and IT systems. ► Seven participants have not determined if there will be a significant effect and expect there will be some impact related to specific business units or products. ► Participants noted potential impact to the following areas: ► Wealth and asset management ► Investment banking ► Trade execution and broker services ► Cash management and processing services ► Advisory services ► Participants who selected “other” areas of impact noted that the new disclosure requirements will have an effect. However, they have not completed a detailed assessment to determine the impact. ► Participants will have to reassess their processes and controls for data quality and data availability with respect to disclosures, in line with ESMA’s expectations of providing relevant and transparent financial information to users. 0 3 1 2 1 1 0 0 3 8 Credit Cards Wealth and asset management Investment banking Trade execution/broker services Cash management and payment… Advisory services Trade finance Retail banking Other None (do not expect a significant… Significant areas of impact 0 10 7 Yes No Not decided yet Significant impact of IFRS 15 on processes, controls, and IT systems EY IFRS 15 benchmarking survey for financial services, January 2017
  13. 13. Page 12 CommentaryData 4. Disclosures 1 2 2 2 2 8 2016 Q1 or Q2 2017 Q3 2017 2017 annual report 2018 Not decided yet Timing of disclosure of specific quantitative information ► Eight participants are undecided on the timing of public disclosure of quantitative information in their financial statements. ► Participants are still in the early stages of analysing the level of quantitative disclosure required based on the outcome of their detailed impact assessment. ► One of the drivers of the timing of the disclosures is the availability of resources, which may be concurrently busy with the preparation of the 2016 annual report. The need to focus on other accounting changes, such as IFRS 9 Financial Instruments, is also a key factor. ► Participants that do not expect a significant impact from the adoption of IFRS 15 will still have to provide disclosures based on the requirements of the standard. Participants may also need to consider local regulators’ expectations, such as the guidance from ESMA on providing relevant and transparent financial information to users. EY IFRS 15 benchmarking survey for financial services, January 2017
  14. 14. Page 13 CommentaryData 4. Disclosures (continued) 2 1 2 3 6 12 11 8 6 9 5 5 7 8 d. When the quantitative information is not disclosed because it is unknown or not reasonably estimable, additional qualitative information enabling users to understand the magnitude of the expected impact on the financial statements of the issuer ii. Per revenue stream (segments/products/operations most impacted) i. Total c. Quantification of the possible impact of the application of IFRS 15 (if known or estimable) b. Explanation of the timeline for implementing IFRS 15, including expected use of any of the transition practical expedients (such as modified/full retrospective application and the practical expedient for completed contracts a. Detailed description and explanation on how key IFRS 15 concepts will be implemented along the different revenue streams ESMA good practice of disclosures - when expecting a significant impact for 2016 annual reporting To disclose Not to disclose Not decided yet ► Participants are still in the early stages of analysing the level of disclosures required in 2016, including establishing the information they would expect to be useful to users. ► One of the drivers on the expected timing of disclosures is linked to the resources that will be available, which may also be involved in the current preparation of the 2016 annual report, as well as other accounting change projects, such as IFRS 9. ► While participants are aware of ESMA’s guidance on relevant disclosures to be made, starting in the 2016 financial statements, a key driver of such disclosures is whether IFRS 15 is expected to have a significant impact. Generally, participants are of the view that this accounting change would not have a significant impact. Therefore, they do not expect to make such disclosures in 2016, although most participants have yet completed the impact assessment. ► Six participants are currently considering not to provide any qualitative information or quantitative information. However, It is expected that these participants will at least disclose that they do not expect IFRS 15 to have a significant impact to their financial statements. EY IFRS 15 benchmarking survey for financial services, January 2017
  15. 15. Page 14 CommentaryData 4. Disclosures (continued) 7 1 1 7 4 5 8 4 6 11 8 6 c. Provide a statement that the adoption of the standard is not expected to have a significant impact ii. You are able to provide significantly more specific information in the 2017 interim financial statements compared to the information provided previously i. You expect a significant impact from IFRS 15 but are unable to provide reliable information on it in the 2016 annual report and reliable quantitative information on the impact becomes available before publication of the 2017 interim financial statement b. Provide quantitative information on the impact of the transition to IFRS 15 on interim financial statements, if: a. Provide an update on information provided in the 2016 annual financial statements (if applicable and if information provided in 2016) ESMA good practice of disclosures: when expecting a significant impact during 2017 interim reporting To disclose Not to disclose Not decided yet ► Participants’ responses reflect the early stages of the implementation of the standard, as indicated in the previous section. ► Seven participants are expecting to provide, in their 2017 interim financial statements, an update of the information provided in their 2016 financial statements. We would expect that the other participants will re-evaluate the need to provide an update based on the progress and outcome of their implementation assessments. ► A majority of participants do not expect to provide any additional quantitative information because they do not expect IFRS 15 to have a significant impact (eight participants) or have not established yet whether there will be an impact (eight participants). ► Six participants do not expect to even state that IFRS 15 will not have a significant impact. Entities will need to consider whether such an approach is consistent with the requirements of paragraph 30 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. ► Although the impact may not be significant for many participants, certain details related to the implementation (such as transition options and significant judgements) would be expected to be disclosed as participants reach decisions. EY IFRS 15 benchmarking survey for financial services, January 2017
  16. 16. Page 15 CommentaryData 4. Disclosures (continued) 5 2 5 4 3 2 8 12 10 c. Information provided in previous financial statements is further developed and elaborated taking into account the actual implementation of IFRS 15 b. Provide the quantitative impact of the application of IFRS 15 and explain the changes to the amounts reported under IAS 11 and/or IAS 18, disaggregated as appropriate a. Provide a quantitative assessment of the impact of IFRS 15 on their financial statements as of 1 January 2018 ESMA good practice of disclosures: when expecting a significant impact during 2017 annual reporting To disclose Not to disclose Not decided yet ► Participants’ responses reflect the early stages of the implementation of the standard, as indicated in the previous section. ► As for the 2017 disclosures, participants generally are of the view that this accounting change will not have a significant impact and, therefore, do not expect a need to make such disclosures in 2017, although most participants have yet to complete their impact assessments. ► Participants that do not expect a material impact will still have to disclose the information required by IAS 8. Participants may also need to consider local regulators’ expectations, such as the guidance from ESMA on providing relevant and transparent financial information to users. ► Despite any accounting impact, participants are expected to comply with quantitative and qualitative disclosure requirements of IFRS 15 in the year of adoption and on an ongoing basis. EY IFRS 15 benchmarking survey for financial services, January 2017
  17. 17. Page 16 EY survey contacts and EY regional contacts for IFRS 15 for banking Fabio Fabiani ffabiani@uk.ey.com Mobile: +44 7788 368 770 Muzi Ghanchi mghanchi@uk.ey.com Mobile: +44 2079 511 822 EY survey contacts EY regional contacts France Sophie Ganter +33 1 46 93 47 97 sophie.ganter@fr.ey.com Belgium Emmanuel Villaire +32 474 845 067 emmanuel.villaire@be.ey.com Germany Jana Währisch +49 160 939 23072 jana.waehrisch@de.ey.com United Kingdom Fabio Fabiani +44 7788 368 770 ffabiani@uk.ey.com Switzerland Natalia Dembek-Slusarczynska +41 58 286 4421 natalia.dembek-slusarczynska@ch.ey.com Netherlands Siobhan Tipping +31 88 40 72039 siobhan.tipping@nl.ey.com Spain Randolf Niedermeyer +34 618 479 168 randolf.niedermeyer@es.ey.com Italy Francesca Amatimaggio +39 3387 857 277 francesca.amatimaggio@it.ey.com EY IFRS 15 benchmarking survey for financial services, January 2017 Japan Toyohiro Fukata +81 3 3503 1100 fukata-tyhra@shinnihon.or.jp
  18. 18. EY | Assurance | Tax | Transactions | Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. © 2017 EYGM Limited. All Rights Reserved. EYG no. 00218-173Gbl ED None This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice. ey.com

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