Dual Acct IFRA presentation

OAUG GL SIG Webinar Series
• OAUG GL SIG is a global community of
financial management and control users with
focus on Record to Report (RTR) processes.
• We continue our 2010 webinar series with a
very interesting, informative and timely
presentation on preparing for IFRS transition.
• A copy of the presentation will be available on
the GL SIG website at http://glsig.oaug.org
www.esolutionsGroup.com

R12 Global Financials

Leveraging a Dual Accounting GL Baseline
Managing the IFRS Vs USGAAP Transition


Fiscal Landscape - IFRS
America Vs World - Reporting Standards Challenges

Federal America IFRS Europe / World
• US General Accepted • International Financial Reporting
Accounting Standards (GAAP) Standards – #102 FRS Currently
• 163 Current FAS Statements • EU 8th Company Law Directive +
• Member State based Annual
• Harmonized Annual Accounts Accounts reporting Standards
Reporting Standards • Proscribed Reporting Chart of
Accounts in some Member States
• FAS Regulations • Proscribed Depreciation Methods
in some Member States/Nations
• Variable State based Taxation • Variable Nation based Taxation
• Multi Currencies
• National Language/Cultural


Global Accounting Standards
FAS Vs IFRS Convergence

IFRS Vs FAS
GAAP Differentials
 Leasing
 Finance Charges
 Pension Fund
 Amortisation
 Inventory Valuation
 Forex Gains/Losses
 Revenue Recognition

Countries that require or permit IFRSs for Public Company filing
Countries seeking convergence with the IASB or pursuing adoption of IFRSs


Impact on US Companies
Proposed implementation timeline from the SEC

2009: Limited group of 2014: Large 2016: Non-
large US firms are accelerated accelerated
permitted to use IFRS filers begin filers begin
on an optional basis for filing in filing in IFRS
fiscal periods ending on IFRS
or after Dec 15, 2009

2009 2010 2011 2012 2013 2014 2015 2016

2011: SEC evaluates
achievement of
roadmap milestones 2015:
and decides whether to Accelerated
adopt a mandatory filers to begin
approach for IFRS filing in IFRS

Source: SEC Announcement, Aug 2008


IFRS Compliance
R12 IFRS Footprint – Financial Ledgers
IFRS Financial Requirements – US and rest of the World
 IFRS 1 Format standard based filings for P&L and Balance Sheet
 Proscribed National Account Segment & Language Reporting => Proscribed Account values
 Proscribed National Account ranges in France, Belgium, Spain, Italy, Hungary, Japan etc
 Source transactions need to be IFRS compliant => Need to refurbish R12 COA
 Different IFRS COA Account values Vs USGAAP for reporting => Need to refurbish R12 COA
 Local Reporting requirements – Corporate and Local Taxes
 Different formats for IFRS Countries and European States => IFRS S/L Baseline required?
 Additional Globalization requirements for each country [Subledgers & GL]
 Withholding Tax (DAS2 France and Netherlands)
 Document Sequencing
 VAT Specific reporting requirements
 Different formats for each European State
 Statistical globalisations for Payables, Receivables and General Ledger => SIC Codes
 Asset Treatments and Reporting vary by country
 Movement Reports
 Proscribed Depreciation Methods and term basis


Achieving IFRS Compliance
US GAAP Vs IFRS GAAP Ledger Solutions

Solution Options – Evaluate, Discuss and Strategise …

1) Establish a second Legal Entity with a Local Chart of Accounts
Full copy of all transactions to replicate ledger and top-side adjustments to
achieve IFRS reporting [Stand-Alone Ledger = IFRS Full Filing]

2) Establish an IFRS Adjustment book to achieve Local compliance
Adjustment company only features compensating entries to achieve IFRS
compliance [Corporate Book + Adjustment Book = IFRS full filing]

3) Establish a Dependant Local Account segment to achieve IFRS and
USGAAP dual compliance (Solution Option 3 – inclusion ; time permitting)
Mapping global corporate(s) accounts to a local IFRS account equivalent [thereby
automating two reporting disciplines within the same prime ledger and
transaction set]


Bridging the GAAP’s
USGAAP Vs IFRS/Local GAAP Ledger Usual Solution

Create a Local IFRS /Country based COA and 2nd Local Ledger

• Used in countries with proscribed chart of accounts and significant US GAAP
to IFRS differentials
• Primary Ledger currency in USD, secondary Ledger in Local currency (EURO)
• Transactions replicated from Primary to Secondary via GCS feature
• Triangulate exchange rate VAT from USD to Local currency

Pro’s and Cons
• Solves the issue! --- At what cost?
• Multiple chart of accounts created and maintained
• High degree of manual intervention and maintenance
• Reconciliation overhead – prime transaction audit trail possibly compromised
• Different versions of the truth >> Corporate Vs Statutory
• Replication of entire GL transaction base from Corporate to Local Ledger


IFRS Vs USGAAP Solutions
US Parent consolidation with Foreign Subsidiaries
Option 1 – Most Common Solution adopted Solution

 Local or US Currency
R12 Local Corporate
 US GAAP
Set of Books GCS Consolidated
 Corporate Chart of Accounts
Corporate Book
Baseline
 Copy Again
R12 Subledgers 100% Replication of
transactions Transaction Baseline
[via Subledger
Accounting module]
GCS

 Enter Compensating US
 100% Replication of GAAP Adjustments
Transaction Baseline  Eliminate Interco Profits
 Now Local COA

 Translation Result: Costly!
R12 Local Set
 Local Proscribed COA of Books 200% transaction
 or IFRS based COA Local COA Replication
 Local Currency Local Currency Multiple replicated Ledgers to Manage
 Local IFRS Adjustments


Corporate Vs Local IFRS Ledger Solutions
Solution Option 1 – Most Common Solution adopted
Method - 100% Ledger Replication and Top-Side adjustments

Ledger 1 -------copy ------> Ledger 2 Replicate Ledger 2 Journal Ledger 2 Final Totals

US GAAP IFRS IFRS IFRS
US Dollars Prime Ledger Journal Ledger
Debit Credit Debit Credit Debit Credit Debit Credit
Profit and Loss

Revenue 2,000,000 2,000,000 2,000,000
Cost of Sales 1,000,000 1,000,000 25,000 975,000

R&D Expense 200,000 200,000 200,000
Sales & Marketing 250,000 250,000 250,000
G&A Expense 200,000 200,000 200,000
Other Income 150,000 150,000 150,000

Balance Sheet

Cash 1,000 1,000 1,000
Receivables 500,000 500,000 500,000
Inventory 450,000 450,000 25,000 475,000

Fixed Assets 200,000 200,000 200,000
Accumulated Depreciation 100,000 100,000 100,000

Payables Control 150,000 150,000 150,000
Accrued Expenses 100,000 100,000 100,000
Tax provisions 100,000 100,000 100,000

Capital 1,000 1,000 1,000
Retained Earnings 500,000 500,000 500,000

TB Totals 2,951,000 2,951,000 2,951,000 2,951,000 25,000 25,000 2,951,000 2,951,000

US GAAP Profit/Loss = 200,000 IFRS Profit/Loss = 225,000


IFRS Compliance Controlling Factors
General Ledger Chart of Accounts Design Challenges – Single or Multiple COA’s?
• Design Challenge – Solution for Management, Fiscal & Statutory Reporting Disciplines
• Design Challenge - R12 new features, Business Intelligence analyses capability and
Subledger constraints
• Design Challenge - Proscribed reporting European/SE Asian Chart of Accounts in France,
Spain, Belgium, Hungary, Japan etc. (National GAAP Rules)
• Design for future R12 eBusiness Suite tax engine requirements
• Design for downstream Analyses – Discoverer slice/dice – BI Dimensional
– Design for multiple segment compensating and combination analyses
Proscribed Local Chart of accounts Design Challenge – Replicate or Compensate?
• Possible Solution - Use a dependant local segment mapped to the main corporate natural
account segment – Many Corporate values to one proscribed statutory equivalent or
Replicate entire GL transaction base in an additional local ledger
• Dual Use Solution - Use the Corporate to Local account mapping to resolve USGAAP to
IFRS accounting treatments automatically as a transition option (Solution Option 3)
General Ledger Chart of Accounts Design considerations – Refurbish Vs Clean Sheet?
• Different GL Accounting treatments at transaction Level USGAAP Vs IFRS – Mitigation by
Design; Add to existing Corporate Account segment values or
• Redesign Natural Account Segment Values to streamline prime IFRS reporting baseline.
• Serialised Journal numbering and assurance of Subledger’s prime audit trail

Why bother with a Prototype?
R11i Vs R12 Analyses
Technology Changes – R12
• New Database Engine to support OLTP and BI
• New Data Model for application schemas
• New Application technology layer – Forms, Reports, OA Framework (No Mod PL/SQL)
• New Application Integration Architecture ;Fusion Middleware – Verticals, SOA, API’s
• New Discoverer BI version
• eBusiness Suite now 45% bigger – Can consume 50% more Server resources
Functionality Enhancements – Finance – R12
• Redesign of GL – Data Access Sets, Ledger Sets, Intercompany, Mass Allocations
• Subledger Accounting Module introduction
• Payables – Multi-Org Access Control (MOAC)
• eBusiness Suite Tax Engine – VAT, Corporation, Social Taxes Centralized
– Setup by Country, Tax Regime, Jurisdiction, Legal Entity/Global
• Ledger Design now Legal Entity centric to support Interco, Tax, allocations
R11i.10 to R12 Upgrade cycle
• What survives from R11i baseline? – Only your core transactional data; nothing else
• How easy is the upgrade process – complex, time consuming and fraught
• How expensive is the upgrade process – can 25% to 33% of original implementation cost
(Approx)


Designing the Prototype
Prototype Scope – Rapid Upgrade or re-implement?

Install Base - Prototype for Upgrade or re-implementation scenario
• RapidInstall new installation for both scenarios
• Building stage area – 4 Hours – Installation on 4 processor machine 3 hours
• Install Vision 12.04 and Fresh Database x2 – 8 hours
Configuration – Modules
• Analyse Supplier, Customer Base, Assets and GL Ledgers by Legal Entity/Organization
 Load 20 Representative Suppliers (by Goods, Services)
 Load 20 Customers (by Transaction type)
 Load 100 Assets (by several Categories)
 Configure GL Ledgers by Legal Entity Intercompany trading and Allocation requirements
 Load 2 Months previous years Trial Balance summaries by month (Reporting Budgeting etc)
• GL multi-currency Design and Configure (4 Ledgers Multi Currency)
 Value Sets /COA Upload - 2 Day
 Tax/VAT – 2 Day
 Intercompany Matrix, Mass Allocations – 3 days
• Multi-Currency Subledgers
 Configure Purchasing/iProc – 3 Days
 Configure Payables/iExpenses/Banks/MOAC – 4 Day
 Configure Receivables – 2 Days
 Configure Assets – 2 Days


Prototyping R12 Features and Solutions
The Prototype Strategy & Audience
Release 12 – Prototype Purpose
• To inform future corporate strategy and integration within the current IT estate prior to
upgrading to R12 in a co-operative workshop environment.
• To determine IFRS transition /option strategy
• To determine IFRS and USGAAP dual reporting options during transition period.
• To rationalise the IT best of breed estate
• Early prototyping reduces costs in the upgrade lifecycle by a significant factor
• To inform, demonstrate and educate stakeholders, Key Users and Executives of key features
(existing or new!) and standard functionality of eBusiness Suite 12

Release 12 – Prototype Method
1) Conduct a strategic study of current IT estate; Determine cost and efficiency improvements
that can be realised with R12 features.
2) Conduct a IFRS Vs USGAAP differential analyses to determine filing exposure and strategise.
3) Determine how the Subledgers and General Ledger design will be effected by IFRS adoption.
4) Present impact analyses, options and recommended strategy to project board and executives.
5) Agree/Decide whether to baseline the ledgers in IFRS and adjust to USGAAP or vice-versa
6) Agree scope of upgrade/implementation vision with Executives and Project board
7) Build and populate the Discovery Prototype to strategic vision presented
8) Present Prototype (P2P, Order to Cash, Assets, GL, Interco, Allocations, Consolidatation etc) to
executives in co-operative workshop sessions to finalise scope and baseline by consensus.
9) When overall scope and strategy determined by project board – Schedule workshops with
stakeholders and representative user communities to fine tune scope
10) Document the finalised scope and the prototype configuration build


Designing the Prototype
Corporate Vs Local GAAP Ledger Alternative Solutions

The objectives – Solutions Architect approach (5 Year Horizon ROI)

• Think Global – Design Local !! - Design from the end game backwards
• Many new features of R12 will be unavailable without a Global COA => Data Access & Ledger Sets
• Design a global chart of accounts that addresses IFRS, US and Local GAAP differentials.
• Design a Ledger structure that supports local statutory reporting and DUAL Corporate reporting
without replicating the GL transaction base
• Design a efficient ledger structure that reduces or eliminates human intervention
• Design your ledger solutions to leverage R12 new features [MOAC, Data Access & Ledger Sets]
• Reduce the options of miscoding manual Journal transactions
• Design cost effective solutions and avoid customisations
• Design for existing downstream systems and future reporting capabilities – 5 Year Plan
• Avoid compromising the prime drilldown audit trail – minimise the use of the Subledger
Accounting Module [all accounting methods builder rule(s) will require a custom report build]
• Centralised Solution Design and deployment for R12 implementation.
• Develop a Corporate Mandate for harmonised Business Processes & Reporting
– Rationalise and standardise all user and control documentation and procedures on the 90/10% exception
rule [Cost Savings for SOX and EC Directive compliance]


Prototyping - Bridging the GAAP’s
IFRS Controlling Factors
General Ledger Design Considerations – One Global Chart of Accounts
• Leverage Statutory, Fiscal and Management reporting Dimensions within
the same Prime Transaction set
• Avoid Replication with a 3 Way Chart of Accounts within the same set of
books
Function Entity Cost Corporate Local Stat Intercompany Project Product Analysis
Centre Account Account
Statutory
 
Corporate
Fiscal    
Corporate
Management       

STATUTORY & EXTERNAL CORPORATE FISCAL REPORTING MANAGEMENT REPORTING
REPORTING Cost Centre & Contribution Analyses, Who, Why What, When and Where ?
Annual Financial Statement Intercompany trading, Inventory Control Full Operational detailed analyses
Balance Sheet & Notes Group Accounts – Operating Statements
Profit and Loss Account Cashflow, Balance Sheet NO MANAGEMENT SEGMENTS =>
Source and Application of Internal Control Landscape  No downstream Summary Reporting
Funds  No BI/OLAP Cube analyses available
VAT and Tax Reporting  No Revenue Vs Cost Analyses


Dual Corporate USGAAP and IFRS Ledger Solution
Using an Adjustment Company for IFRS mapping
• Refurbish your Chart of Accounts to accommodate IFRS prime entries
• Create an adjustment ledger within the same ledger set as the Prime ledger
• Pass adjustment journal into this ledger to transition ledger entries to IFRS compliance
• Using Data Access Sets you can control all data input and transparent reporting options
[USGAAP Ledger Access or IFRS Adjustment Ledger or both for natural IFRS reports ]
• In adjustment Ledger – IFRS entries passed to same account segment combinations to assure
transparency and audit provenance
Pro’s and Cons
• Solves the issue!; - no transaction replication only compensating entries passed
• Chart of Accounts is both US GAAP and IFRS compliant
• High degree of automation opportunities to streamline close (Automate journals, mass
allocations etc to either prime or adjustment ledger)
• Resultant reconciliation overhead minimal – prime transaction audit trail demonstrable and
not compromised
• Single version of the truth >> Local Ledger + Adjustment Ledger = Corporate Ledger
OR >> US Corporate Ledger+ Adjust Ledger = IFRS Filing Ledger

• Prime transaction SOX Audit trails not compromised and IFRS entries clearly demonstrable
across multiple ledgers
• Introduce a Global Consolidation Adjustment Ledger => Instant Consolidation option – DAILY!


General Ledger Design
IFRS Vs USGAAP Ledger Solutions
Solution Option 2 - Using a compensating Adjustment Ledger
Method - No Ledger Replication and Top-Side adjustments ONLY in an Adjustment Ledger; same Global Chart of Accounts structure

Ledger 1 Prime Adj Ledger Journal Ledger + Adj Final

SUM of Prime
US GAAP
US Dollars Prime IFRS Journal IFRS Ledger
Debit Credit Debit Credit Debit Credit Ledger plus
Profit and Loss
Adjustment
Revenue
Cost of Sales 1,000,000
2,000,000
25,000 975,000
2,000,000 Ledger
generates IFRS
R&D Expense
Sales & Marketing
200,000
250,000
200,000
250,000
reporting
G&A Expense 200,000 200,000
Other Income 150,000 150,000

Balance Sheet

Cash 1,000 1,000 R12 Design - All
Receivables
Inventory
500,000
450,000 25,000
500,000
475,000 adjustments can
be fully automated
Fixed Assets 200,000 200,000
Accumulated Depreciation 100,000 100,000 using Allocation
/Recurring or
Payables Control 150,000 150,000
Accrued Expenses 100,000 100,000 Skeleton Journals
Tax provisions 100,000 100,000
across ledgers and
Capital 1,000 1,000 Entities
Retained Earnings 500,000 500,000

TB Totals 2,951,000 2,951,000 25,000 25,000 2,951,000 2,951,000



IFRS Compliance Reporting
Consolidation to a single currency baseline
Ledger Reporting - Design Consideration Options
• Use of second R12 Reporting currency option USD ? – General Ledger / All Sub-Ledgers
• General Ledger 3 Way Reporting capability retained – Management, Financial and Statutory
• Transaction Replication only on Consolidation [Option 1] or NOT [Option 2]
• FSG /Discoverer/Cognos Aggregation in Consolidation Currency with drilldown maintained

1 2 All Local USGAAP or
Sets of IFRS
EUR-US Books Adjustment
GAAP YEN
Adjustment
EURO Group-Wide Consol
Corporate Adjusts &
All Local Eliminations
GCS Consolidated
Sets of
Book
Books
All Local Euro
Sets of US Dollars
 Translation
Books  Revaluation  Full Consolidation USD
EURO  Corporate COA All Local  via FSG
Sets of  or Discoverer
 Local Currency Books R12/R12i
 Local Statutory GAAP GBP Oracle Data Integrator
 Same Global Chart of Accounts for OLAP Cube/
 Proscribed reporting segment as required OBIEE / Cognos

Designing the R12 Prototype
Intercompany Matrix
Intercompany Trading - Design Considerations
• Trading relationships can now be defined precisely; By Interco Debtor and Creditor
• Intercompany Relationships can be restricted (Debtor/Creditor/Both) between legal entities
• Extended to Subledger transactions (Payables/Receivables) in addition to GL
• May need to design a Chart of Accounts structure to maximise efficiency & Control
• Most assured way is to use a dependant segment (Automatic summary to B/S Interco Accts)

Balance Sheet Natural Account
Intercompany Segment
Segment
[dependent to Natural Account segment]
[Independent]

61000 1007
Intercompany France LE
Debtor 1009
Net Accounts
Allowed Trading Spain LE 1010
Balance =
Summary
Relationships – Mirrored in UK LE
Intercompany Ledger Setup
Interco
Position 81000 1020
Intercompany Germany LE
Creditor 1009
Italy LE 1010
UK LE


Q&A
Presented by:

Alex Somers – Solution Architect
asomers@esolutionsgroup.com/alex.somers@apps360.com
Contact:

Marc Downes – US Sales Manager
mdownes@esolutionsgroup.com
For IFRS updates, future webinars or a copy of this presentation.

+1 800 505 ESOL (3765) or 212-230-1155 ext 105


Global Controlling Factors – Solution Architect Design
Transition IFRS Reporting Option – Incorporating a Local segment into your Global COA
• Use the Subledger accounting module features to augment GL detail (Supplier Name etc) [

[rather than using it for replicating transactions into a secondary reporting COA and Ledger]
• Introduce a dependant Local Account segment to report in proscribed account format
• Map US corporate natural account to Local statutory account on a many-to-one basis
• Only Legal Entities requiring Statutory Reporting Account will require proscribed account
• Local/IFRS equivalent statutory account controlled by Security or Cross-Validation rule
• Only setup mapping once; All transactions Locally compliant; No Replication, No Human Intervenion

Segment Statutory Local Segment
[Independent/Parent] [dependent / Child to Account segment]

Account:1000
Product F702000 (Ventes de produits)
Revenue France LE
Auto-
population
Account:1010 Controlled E60009 (Rédito Producto)
Contracts by Legal Spain LE
Revenue Entity based
security rule

Many Natural Accounts 0 (No Statutory Mapping)
values to One Local
Segment value
UK LE
[mapping basis ]


IFRS Vs USGAAP Solutions

Scenario: US Parent with Foreign Subsidiaries
Option 3 – No Transaction Replication and Integrated IFRS Compliance

The Solution Architect’s approach …. Using the Local Segment to Bridge
USGAAP to IFRS => dual reporting automated baseline
Local Statutory Segment
Segment
[dependent to Natural Account segment]
[Independent]

61000 Leasing
US GAAP
Net Accounts Debtor IFRS
Balance = F206000 (Droit au Bail) Nett
50,000 Account Bal Dr 100,000 France LE Lease O/S =
o/s Lease 50,000
Liability
81000 Leasing
Creditor
Account Bal Cr 50,000

Account Bal Cr 150,000


Corporate Vs Local IFRS Ledger Solutions
Solution Option 3 – Using an Integrated Local Segment
Method - Using a Local Dependant Segment for IFRS mapping

Corporate Segment IFRS Local Segment
Ledger 1 Prime Ledger 1 IFRS Ledger1 Final

US GAAP SOLUTION ADVANTAGE
US Dollars Prime
Debit Credit
IFRS Journal
Debit Credit
IFRS Reporting
Debit Credit
Full Flexibility
Profit and Loss Report in IFRS or
Revenue 2,000,000 2,000,000 USGAAP simultaneously
Cost of Sales 1,000,000 25,000 975,000 Facilitates a non-human
R&D Expense 200,000 200,000 dependant SOFT and
Sales & Marketing
G&A Expense
250,000
200,000
250,000
200,000
HARD Month-end CLOSE
Other Income 150,000 150,000 Procedure
Inventory valuation (Gain) 25,000
Inventory valuation (Loss) 25,000
Balance Sheet

Cash 1,000 1,000
Receivables 500,000 500,000 NO TOP-SIDE
ADJUSTMENTS REQUIRED
Inventory 450,000 25,000 475,000

Fixed Assets 200,000 200,000 Once relationship set
between Corporate
Accumulated Depreciation 100,000 100,000

Payables Control 150,000 150,000 Account and Local IFRS
Accrued Expenses 100,000 100,000
Tax provisions 100,000 100,000 Account ONCE - all
Capital 1,000 1,000
transitions are
Retained Earnings 500,000 500,000 automatically journalled
TB Totals 2,976,000 2,976,000 25,000 25,000 2,951,000 2,951,000 to correct USGAAP and
IFRS destinations


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