Subscribed Sydney & Melbourne 2017: Unlocking the Value of Compliance
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The document discusses the new accounting standard AASB 15 Revenue from Contracts with Customers and its implications for businesses. It recommends a five-phase approach to implementation: 1) assess impact, 2) perform gap analysis, 3) define solutions, 4) design and develop changes, and 5) implement and monitor. Key decisions include choosing a transition method and addressing changes to processes, systems, policies, and disclosures. Proper implementation requires understanding revenue streams, contracts, and accounting impacts as well as anticipating challenges.
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Subscribed Sydney & Melbourne 2017: Unlocking the Value of Compliance
- 1. Headline Verdana Bold AASB 15 Revenue from Contracts with Customers What this means for business – Katelyn Bonato, Deloitte
- 2. 2 UNDERSTAND WHAT THIS MEANS FOR YOUR BUSINESS KEY DECISIONS TO BE MADE DO NOT UNDERESTIMATE THE MAGNITUDE OF THIS TRANSITION TO BUSINESS AS A WHOLE
- 3. 3 WHY?
- 6. 6 IMPROVE COMPARABILITY ELIMINATE INCONSISTENCIES AND WEAKNESSES MORE PRESCRIPTIVE GUIDANCE
- 7. 7 MORE PRESCRIPTIVE GUIDANCE ELIMINATE INCONSISTENCIES AND WEAKNESSES IMPROVE DISCLOSURES IMPROVE COMPARABILITY
- 8. Recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services
- 9. 9 THE FIVE STEP APPROACH
- 10. 10 IDENTIFY THE CONTRACT WITH THE CUSTOMER
- 11. 11 IDENTIFY THE CONTRACT WITH THE CUSTOMER IDENTIFY SEPARATE PERFORMANCE OBLIGATIONS IN THE CONTRACT
- 12. 12 IDENTIFY THE CONTRACT WITH THE CUSTOMER IDENTIFY SEPARATE PERFORMANCE OBLIGATIONS IN THE CONTRACT DETERMINE THE TRANSACTION PRICE
- 13. 13 IDENTIFY THE CONTRACT WITH THE CUSTOMER IDENTIFY SEPARATE PERFORMANCE OBLIGATIONS IN THE CONTRACT DETERMINE THE TRANSACTION PRICE ALLOCATE THE TRANSACTION PRICE TO SEPARATE PERFORMANCE OBLIGATIONS
- 14. 14 IDENTIFY THE CONTRACT WITH THE CUSTOMER IDENTIFY SEPARATE PERFORMANCE OBLIGATIONS IN THE CONTRACT DETERMINE THE TRANSACTION PRICE ALLOCATE THE TRANSACTION PRICE TO SEPARATE PERFORMANCE OBLIGATIONS RECOGNISE REVENUE WHEN EACH PERFORMANCE OBLIGATION IS SATISFIED
- 16. 16 DISCLOSURES
- 17. 17 Significant judgments applied Transaction price Allocation methods and assumptions Significant judgements
- 18. 18 Disaggregation of revenue Contract balances (including reconciliation) Information about performance obligations Remaining performance obligations Practical expedients Contracts with customers
- 19. 19 Policy decisions Cost to obtain a contract Costs to fulfil a contract Others
- 20. 20 TRANSITION APPROACH – CONSIDER THE OPTIONS
- 22. 22 DUAL RECORDS
- 23. 23 Year ended 30 June 2017 Year ended 30 June 2018 Year ended 30 June 2019 Retrospective Approach Dual Records Modified Approach AASB 15 Dual Records = Cut-off analysis required to be performed on open contracts AASB 111/AASB 118 AASB 111/AASB 118 AASB 15
- 26. 26 BREAK DOWN AND ANALYSE UNBUNDLE ALLOCATE TRANSACTION PRICE ‘STAND-READY’ STAND ALONE SELLING PRICE Low Volume Of Contracts Monitor SERIES OF DISTINCT PERFORMANCE OBLIGATIONS Provision Of Service Or Licence SUBSCRIPTION REVENUE CONSIDERATIONS
- 27. 27 Product pricing more transparent Assess: Accounting for contracts in scope Update: Terms and Conditions Impact: Long term contract negotiation REVIEW OF PRODUCTS & CONTRACTS
- 28. 28 Remuneration Schemes (KPI / Bonus Structures) Training Project Management EMPLOYEES
- 29. 29 Update: IT Systems, Business Models, Company Practices, Accounting Policies, Internal Process and Controls SYSTEM CHANGES
- 30. 30 • Shareholders (expectation / outlook) • Financiers (loan covenants) • Regulators (disclosures) MANAGING STAKEHOLDERS
- 32. 32 05 IMPLEMENT AND DELIVER • Delivery of implementation plan • Plan and execute final cut-over and go-live process • Monitor ongoing compliance and performance 04 DESIGN AND DEVELOP • Design, develop and test system and process solution • Test and migrate pilot data • Design controls and determine operational KPIs 03 DEFINE SOLUTIONS • Define new accounting policies • Finalise approach to address data and system gaps • Define training and communication approach 02 DETAILED GAP ANALYSIS • Perform detailed contract reviews • Assessment of current process and data gaps • Preliminary analysis of transition method and portfolio approach 01 IMPACT ASSESSMENT • Understand revenue streams and product lines most likely impacted • Understand which step of AASB 15 model could have material impact OUR SUGGESTED APPROACH INCLUDES FIVE PHASES AIMED AT SUCCESSFUL IMPLEMENTATION
- 33. 33 01 IMPACT ASSESSMENT • Understand revenue streams and product lines most likely impacted • Understand which step of AASB 15 model could have material impact
- 34. 34 02 DETAILED GAP ANALYSIS • Perform detailed contract reviews • Assessment of current process and data gaps • Preliminary analysis of transition method and portfolio approach
- 35. 35 03 DEFINE SOLUTIONS • Define new accounting policies • Finalise approach to address data and system gaps • Define training and communication approach
- 36. 36 04 DESIGN AND DEVELOP • Design, develop and test system and process solution • Test and migrate pilot data • Design controls and determine operational KPIs
- 37. 37 05 IMPLEMENT AND DELIVER • Delivery of implementation plan • Plan and execute final cut-over and go-live process • Monitor ongoing compliance and performance
- 38. 38 05 IMPLEMENT AND DELIVER • Delivery of implementation plan • Plan and execute final cut-over and go-live process • Monitor ongoing compliance and performance 04 DESIGN AND DEVELOP • Design, develop and test system and process solution • Test and migrate pilot data • Design controls and determine operational KPIs 03 DEFINE SOLUTIONS • Define new accounting policies • Finalise approach to address data and system gaps • Define training and communication approach 02 DETAILED GAP ANALYSIS • Perform detailed contract reviews • Assessment of current process and data gaps • Preliminary analysis of transition method and portfolio approach 01 IMPACT ASSESSMENT • Understand revenue streams and product lines most likely impacted • Understand which step of AASB 15 model could have material impact OUR SUGGESTED APPROACH INCLUDES FIVE PHASES AIMED AT SUCCESSFUL IMPLEMENTATION
- 39. 39 ANTICIPATE THE COMMON ROAD BLOCKS
- 40. 40 UNDERSTAND WHAT THIS MEANS FOR YOUR BUSINESS KEY DECISIONS TO BE MADE DO NOT UNDERESTIMATE THE MAGNITUDE OF THIS TRANSITION TO BUSINESS AS A WHOLE
- 41. For copy of these slides: https://www2.deloitte.com/au and search AASB 15 https://www2.deloitte.com/au KATELYN BONATO – kbonato@deloitte.com.au
Editor's Notes
- Living and breathing the revenue standard for 3 years Continues to surprise me – underestimating the AASB 15 Impact on SALES COMMISSION, GO-TO-MARKET STRATEGY, COMPENSATION PLANS, PRODUCT ROADMAPS, PROFITABILITY Aren’t just something that will impact Finance and Accounting Biggest change since IFRS What’s the best approach to transition? Effective date 1 Jan 2018 not much time Already in comparative period At Deloitte, many different approaches What went well, what didn’t go well and what are some of the key learning points?
- What I’m going to say is going to be fairly technical and quite frankly NOT OVERLY EXCITING Just remember 3 key messages
- Goal of FASB and IASB to improve convergence
- - More prescriptive guidance will STREAMLINE AND ENHANCE revenue recognition
- - Improve COMPARABILITY and CONSISTENCY in industry and globally
- DISCLOUSRES
- WHAT: In summary: Core principals Potentially change the pattern of revenue recognition Disclosures Market sensitive information Really subjective to highly prescriptive Huge room for error
- Let’s dive deeper into the technical before coming back to the practical implications… 5 STEPS – SUBSTANCE OF THE CONTRACT: WHAT HAVE I AGREED TO DO? WHAT AM I DELIVERING? HOW MUCH? HOW IS IT ALLOCATED? WHEN DO I BOOK IT?
- -> Will therefore change the pattern of revenue recognition from straight-line to potentially quite lumpy
- Long list of disclosures that I won’t go through, but in summary…
- Future performance obligations -> 2nd audit book
- How and when?? - 2 options for transition
- Retro: Restate comparatives Cumulative catch-up in equity at start of earliest COMPARATIVE Modified: No restatement Cumulative catch-up in equity at the start of the INITIAL APPLICATION Ignore contracts completed prior to transition date What this means is that there is one big consideration that many businesses didn’t realise…
- Let’s look at why…
- Stakeholder management- competitors Impact of the standard Access to historical data Systems CONSIDER WHICH APPROACH IS RIGHT FOR YOUR BUSINESS
- If we unpack all of this, what does it mean?
- Contracts broken down and analysted Potential unbundling of goods and services promised Q: What is the promised g/s in the SUBSCRIPTION? Q: Is the subscription a service or a licence? -> Microsoft Windows revenue up-front -> Right to use Q: Stand-ready? Q: Series? May be manageable for few contracts, but usually that’s not the case Pragmatic approach going forward
- Keeping all of this in mind: Not simply a case of handing over to finance What happens when revenue pricing structures are unpacked? True profitability of products Unbundling CROSS SUBSIDISATION, we see profitability of every single product becomes evident Transparency in profitability at a MICRO level -> Strategic objectives reassessed
- Remuneration Sales commission targets Impact strategic objectives
- Board ASIC Users Disclosures
- What have we seen in the market and how best to approach this? At Deloitte, we have seen varying size and complexity Global network, USA more advanced TRENDS!! Our typical approach looks like this…
- End-to-end
- Go well: Go wrong: Steering committee - Clients thinking there is no impact Wider change management process - Accounting treatment in isolation Standardisation of CoA - No involvement of wider business Acquisitions - Contract assembly with data requirements Retirement of legacy systems NEW LEASING STANDARD
- This project needs to be: Well planned and executed Appropriate accounting treatment AND leverage off wider change program Maximise efficiencies If you go back to the key take-aways that I hope I have shared with you today… A SUCCESSFUL TRANSITION TO AASB 15 IS GOING TO BENEFIT YOU ENORMOUSLY GOING FORWARD.