Implementing IFRS 15 Revenue from Contracts with Customers

Transcription

1 Implementing IFRS 15 Revenue from Contracts with Customers Panel Discussion hosted by Accounting Standards Board (AcSB) Toronto, 14 October 2016 The views expressed in this presentation are those of the presenters, not necessarily those of the International Accounting Standards Board (IASB), the IFRS Foundation, the Accounting Standards Board (AcSB) or Chartered Professional Accountants of Canada. This presentation contains the copyright material of the IFRS Foundation

2 Your panel 2 Chair: Gary Kabureck (IASB member) Karen Higgins (Vice-Chair, AcSB and Partner, Deloitte) Karyn Brooks (Retired Senior Vice President and Controller, Bell Canada and member of the Transition Resource Group for Revenue Recognition) Cameron McInnis (Chief Accountant, Ontario Securities Commission) Allison McManus (Partner, KPMG and former IASB staff)

3 Top Sectors - Toronto Stock Exchange (TSX) 3 Sector Market cap (CAD millions) % of total market cap Financial Services $ 684,704 32% Diversified Industries 410,954 19% Oil & Gas 225,032 10% Utilities & Pipelines 163,583 8% Comm & Media 161,526 7% Mining 159,294 7% Exchange Traded Products 89,446 4% Technology 75,491 4% Real Estate 68,538 3% Life Sciences 58,556 3% Clean Technology 25,510 1% Forest Products & Paper 24,245 1% Closed-End Funds 22,501 1% Special Purpose Acquisition Corporation 1,070 0% Total $ 2,170, % Comm & Media 7% Mining 7% Utilities & Pipelines 8% Oil & Gas 10% Data based on TSX end of day values on December 31, Data provided by the TMX Group. AcSB staff calculated market cap by summing all Canadian incorporated entities on the TSX. Financial Services 32% Diversified Industries 19%

4 Top Sectors TSX Venture 4 Sector Market cap (CAD millions) % of total market cap Mining $ 7,196 34% Financial Services 3,562 17% Oil & Gas 2,579 12% Technology 1,717 8% Diversified Industries 1,657 8% Life Sciences 1,620 8% Real Estate 967 5% Comm & Media 922 4% Clean Technology 660 4% Utilities & Pipelines 57 0% Capital Pool Company 17 0% Forest Products & Paper 15 0% Diversified Industries 8% Technology 8% Life Sciences 8% Oil & Gas 12% Total $ 20, % Data based on TSX Venture end of day values on December 31, Data provided by the TMX Group. AcSB staff calculated market cap by summing all Canadian incorporated entities on the TSX Venture. Mining 34% Financial Services 17%

5 Publicly Accountable Enterprises in Canada 5 About 3,600 entities listed on Canadian stock exchanges Over 90% are only listed in Canada and use IFRS Foreign Private Issuers (FPIs) filing with the SEC Canada leads by wide margin As of December 31, 2015 there are 923 FPIs filing with the SEC 292 Canada (32%) 119 Cayman Islands (13%) 127 European Economic Area 39 United Kingdom (4%) and 24 Netherlands (3%) 87 Israel (9%) Note: Canadian stock exchanges include the Toronto Stock Exchange, TSX Venture Exchange and the Canadian Securities Exchange.

6 Market Capitalization ($CAD Billions) Publicly Accountable Enterprises in Canada 6 At December 31, 2015, total market capitalization of 281 of the 292 FPIs domiciled in Canada is $1.4 trillion 63% of the total domestic market 70% of companies apply IFRS and 30% apply US GAAP Total Market Capitalization of FPIs Domiciled in Canada 1,200 1,000 $1.0 trillion (200) $363 billion (79) IFRS-IASB US GAAP Note: Of the 292 FPIs in Canada, only 281 had a market cap reported by the TMX and YCharts as at December 31, Two companies of the 281 were excluded as they did not file annual reports. This data was compiled by AcSB staff based on publicly available information.

7 IFRS 15 implementation timeline 7 Joint IASB/FASB TRG discussions until Nov 2015 FASB continues US-only TRG discussions IFRS 15 issued Clarifications to IFRS 15 Full retrospective transition Modified retrospective transition May Jan 2016 April 2016 (if one year comparative) 1 Jan 2017 (no restatement) 1 Jan 2018 IAS 8 disclosures on possible impact of application of IFRS 15

8 Question 1 8 Do you plan to apply IFRS 15 in:

9 Some implementation issues This presentation contains the copyright material of the IFRS Foundation

10 Joint TRG activities (until Nov 2015) 10 submissions discussed by TRG No further action Clarifications considered by the Boards Clarifications Practical expedients Practical expedients

11 Where are the challenges? 11 1 Identify the contract(s) with a customer 5 2 Identify the performance obligations in the contract 18 3 Determine the transaction price 14 4 Allocate the transaction price to the performance obligations 1 Recognise revenue when (or as) the entity 5 satisfies a performance obligation 5

12 Some implementation issues 12 Distinct within the context of the contract Principal versus agent considerations Licence of intellectual property (IP) Sales-based or usage-based royalties for licence of IP Stand-ready obligations Contract costs

13 Distinct within the context of the contract 13 Significant integration 1 Modification or customisation 1+1 Highly interdependent or highly interrelated 2 Transfer individually

14 Example 10 Case B Contract to provide service of producing devices 14 Facts Analysis Conclusions Multiple units of a highly complex, specialised device unique to the customer Required to establish a customised manufacturing process Responsible for overall contract management including integration of various activities Each unit CAPABLE of being distinct Significant integration service provided Promised activities highly interdependent and highly interrelated Promised goods and services a single performance obligation units not distinct within the context of the contract Recognise revenue over time as services provided

15 Principal versus agent 15 Who are you? I am a principal. I control the good or service before the customer gets it. My performance obligation is to provide the good or service Who are you? I am an agent. I don t control the good or service before the customer gets it. My performance obligation is to arrange for the good or service to be provided Another party End customer Another party End customer

16 Licence of intellectual property 16 Right to use IP Does the licenced IP change? Right to access IP IP has significant standalone functionality Change in form or functionality of IP Benefits substantially derived/dependent on licensor s activities Revenue at point in time Revenue over time

17 Sales-based or usage-based royalties for licence of IP 17 License of IP AND IF Consideration is sales or usage based Recognise at LATER of - Sale/usage - Satisfaction of PO Exception applies if: Royalty relates only to a licence or Licence is the predominant item

18 Question 2 18 Will IFRS 15 change how you analyse: 1. Identifying performance obligations 2. Principal versus agent considerations 3. Licensing 4. No change 5. Do not know yet / To be determined

19 Stand-ready obligations 19 Whether the entity s promise is to stand-ready depends upon facts and circumstances Contract to remove snow from runway Contract to provide when-and-if needed maintenance Contract to make an asset available (i.e. health club) Satisfaction of stand-ready obligation not necessarily straight-line

20 Costs to obtain contract 20 Contract costs Acquire a contract Set-up costs Fulfilment costs Might be capitalised No revenue recognition No WIP if PO satisfied over time

21 Project management including external communications This presentation contains the copyright material of the IFRS Foundation

22 Cumulative catch-up Cumulative catch-up Transition 22 PY (2017) CY (2018) CY Notes Full retrospective Contracts under new standard Contracts restated Modified retrospective Contracts not restated Contracts under new standard Contracts presented under legacy IFRS Optional reliefs include Completed contracts Modified contracts

23 Question 3 23 Which transition method will you use: 1. Full retrospective transition method 2. Modified retrospective transition method

24 Transition focus on disclosures 24 Full retrospective transition (if one year comparative) Modified retrospective transition (no restatement) 1 Jan Jan Jan 2018 IAS 8 disclosures on possible impact of application of IFRS 15

25 Disclosure requirements 25 To enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers Revenue Disaggregation of revenue Amounts recognized relating to performance in previous periods Contracts Information about contract balances and changes Information about performance obligations Amounts allocated to remaining performance obligations Significant judgments Timing of and methods for recognizing revenue Determining the transaction price and amounts allocated to performance obligations

26 Securities Regulator s Perspective Effective Implementation 26 Audit Committee NI Management Implementation Plan NI NI Auditors IAS

27 Securities Regulator s Perspective Effective Disclosure 27 Qualitative Quantitative IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.31 known or reasonably estimable information relevant to assessing the possible impact that application of the new IFRS will have on the entity s financial statements Issuers should not be reluctant to disclose quantitative estimates Expect more detailed and entity specific disclosure as issuers make progress in implementation No Surprises! Financial Statements

28 Securities Regulator s Perspective Illustration of Effective Disclosure 28 Future changes to accounting standards The following new or amended standards issued by the IASB have an effective date after December 31, 2016 and have not yet been adopted by the Company IFRS 15 Revenue from Contracts with Customers The Company will not be early adopting IFRS 15...The Company has elected to adopt IFRS 15 using the modified retrospective approach. Under this approach the Company will recognise transitional adjustments in retained earnings on the date of initial application (January 1, 2018), without restating We expect the application of IFRS 15 will significantly affect our financial statements, especially with regards to the timing of recognition, classification of revenue, and treatment of costs incurred in acquiring customer contracts. We anticipate this will most significantly affect our Segment A and Segment B that bundle equipment and service together into monthly service fees, which will result in an increase to equipment revenue recognized at contract inception and a decrease to service revenue recognized over the course of the contracts The acceleration of the recognition of contract revenue relative to the associated cash inflows will also result in the recognition of an amount reflecting the resulting difference as an asset The treatment of costs incurred in acquiring customer contracts will be impacted as IFRS 15 requires certain contract acquisition costs (e.g., sales commissions) to be recorded as an asset and amortized into expenses over time. Currently, such costs are expensed as incurred Although we have made progress in our implementation of IFRS 15, it is not yet possible to make a reliable estimate of the impact of the new standard on our financial statements as we are required to implement significant changes to our systems and processes across the organization in order to collect the new data requirements, as well as compile historical comparatives...we expect to report more detailed information, including estimated quantitative financial effects, in our 2017 financial statements

29 Securities Regulator s Perspective Effective Continuous Disclosure 29 NI Continuous Disclosure Obligations Form F1 Section Changes in Accounting Policies including Initial Adoption Section 1.5 Summary of Quarterly Results Discuss and analyze changes to accounting policies, financial statements, business practices etc. Full retrospective transitional approach affects summary of quarterly results in MD&A No Surprises! Management Discussion & Analysis

30 Implementation support by the IASB 30 IFRS 15 Implementation page go.ifrs.org/ifrs15-implementation TRG Submissions log

31 The AcSB s IFRS Discussion Group 31 Purpose Raise awareness of Canadian application issues Recommend to AcSB issues to refer to IASB or IFRS IC Public meetings Submit issues confidentially Searchable Database of past topics discussed About the Group for further info

32 The AcSB s IFRS Discussion Group 32 Canadian implementation of new standards New focus as major projects completed Ready to discuss issues on new standards Preparers encouraged to start on implementation early to identify issues

33 This presentation contains the copyright material of the IFRS Foundation Questions?

34 Key messages is closer than you think Tap available resources (TRG, IDG, industry groups ) Fresh look under the new 5-step framework Disclosures: Entity-specific and business model-specific

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