EFRAG ADVISORY FORUM ON REVENUE RECOGNITION PREPARERS’ PERSPECTIVE

Slides:



Advertisements
Similar presentations
Revenue Recognition Construction-Type and Production –Type Contracts
Advertisements

©2006 EFRAG BRUSSELS 18. OCTOBER 2006 REVENUE RECOGNITION ADVISORY FORUM Stig Enevoldsen 18 October 2006.
Income Measurement and Profitablity Analysis
Fixed price contract: A contract that provides a price for each procurement item obtained under the contract.
Back-up October 2006 Deutsches Rechnungslegungs Standards German Accounting Standards Committee e. V. ® Re-thinking Revenue Recognition Liesel.
SUBSTANCE OVER FORM THE MAIN PROBLEMS Capitalisation of interest Capitalisation of brand names Leasing IAS 17 Discontinued operations Mergers Goodwill.
2005 CitiMortgage, Inc & PHH Mortgage Full Mortgage Choice Offers Benefits to Relocating Employees and the Government Presented to: Government Wide Relocation.
Foreign Currency Transactions and Hedging Foreign Exchange Risk
Chapter 21: Accounting for Leases
Chapter 18 Revenue Recognition ACCT Revenue Recognition Basic Concepts Definition of revenue (SFAC 6) ◦ Inflows or other enhancements of assets.
C H A P T E R 9 Evaluating Personnel and Divisions.
IAS 31 - Joint Ventures. Academic Resource Center Consolidations and joint ventures Page 2 Executive summary ► The accounting guidance for jointly controlled.
Objective Income is defined in the Framework for the Preparation and Presentation of Financial Statements as increases in economic benefits during accounting.
AS 9 Revenue Recognition CA. Anand Banka. Definition Revenue is the gross inflow of cash, receivables or other consideration arising in the course of.
McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 4 International Financial Reporting Standards (IFRSs)
EFRAG’s preliminary position on the IASB Supplementary Document Financial Instruments: Impairment Draft comment letter 28 February 2011.
Chapter 22: Accounting for Leases
Intermediate Accounting
A presentation by Pierre-hugues Bonnefoy 22 November 2005 International Financial Reporting Standards (IFRSs): What are the impacts for SICAFIs?
© The McGraw-Hill Companies, Inc., 2004 Slide 8-1 McGraw-Hill/Irwin Chapter Eight Segment and Interim Reporting.
INCOME MEASUREMENT AND PROFITABLITY ANALYSIS Chapter 5 © 2009 The McGraw-Hill Companies, Inc.
Federal Lab Consortium Regional Meeting Valuation of Intellectual Property Judy A. Byrd Mark J. Chandler September 21, 2006.
Connolly – International Financial Accounting and Reporting – 4 th Edition CHAPTER 12 CONSTRUCTION CONTRACTS.
1 Chapter 6: Revenue Analysis. 2 Revenue Recognition Criteria Both the criteria should be satisfied: Good and service has been delivered Cash is collected.
Construction Contracts
The Emergence of Solvency II – The GNAIE Perspective Group of North American Insurance Enterprises Jerry M. de St. Paer Senior Vice President, Finance,
Revenue Chapter 4 ACTG Objectives 1.Understand the definition of “income” under the Conceptual Framework 2.Distinguish between “income” and “revenue”
© 2007 Pearson Education Canada 1.1 Accounting and the Business Environment Chapter 1.
Operating Decisions and the Income Statement Chapter 3 McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies, Inc.
By Samuel Bediako & Mo Zhang IFRS for Small and Medium Entities(SME)
The views expressed in this presentation are those of the presenter, not necessarily those of the IASB or IFRS Foundation. International Financial Reporting.
STRUCTURE OF ACCOUNTING THEORY. ACCOUNTING THEORY -“A systematic statement of the rules or principles which underlie or govern a set of phenomena.” -“A.
Slide 4.1 Chapter 4 Annual Report: Additional Financial Statements.
Revenues & Expenses Asset accounting issues. 2007/01/19International Business Program Financial Accounting 1 Revenues Investors (and other Stakeholders)
Revise lecture IAS 18 Revenue 2 What is revenue? Revenue is the gross inflow of economic benefits during the period arising in the course of the.
© 2012 KPMG Global Services Private Limited, a company incorporated under the laws of India and a member firm of the KPMG network of independent member.
5-1 Topic 3 Revenue recognition and substance over form IAS 18 Revenue recognition Revenue is defined as the gross inflow of economic benefits (cash, receivables,
The financial reporting workshop REVENUE RECOGNITION (IAS 18)
IFRS 15 Revenue from Contracts with Customers Presented by CPA Peter Njuguna.
EFRAG’s preliminary position on the IASB Supplementary Document Financial Instruments: Impairment Draft comment letter 28 February 2011.
Product Classification and DPFs Session 6
REVENUE RECOGNITION ADVISORY FORUM Stig Enevoldsen 18 October 2006.
Revenue from Contracts with Customers
Allocation of Support Department Costs, Common Costs, and Revenues
Generally Accepted Accounting Principles (GAAP)
EFRAG’s views on ED Leases
Re-thinking Revenue Recognition
Financial Accounting Fundamentals
International Financial Reporting Standards Team Professional Times
Insurance IFRS Seminar December 2, 2016 Darryl Wagner Session 23
Ready Set Go! The New Revenue Recognition Rules
EFRAG’s preliminary position on the IASB Exposure Draft Hedging Accounting Draft comment letter 18 January 2011.
International Financial Reporting Standards (IFRSs)
Transfer Pricing Chapter 15
T N Manoharan President, ICAI
Chapter 24 Segment reporting.
F7:Financial Reporting (FR)
Annual Report: Additional Financial Statements
Understand that corporate-level strategies include decisions regarding diversification, international expansion, and vertical integration Describe the.
Prepared by: Keri Norrie, Camosun College
Impact of convergence on unlisted companies Richard Martin
Finland: Compiling merchanting according to BPM6
Chapter 21: Accounting for Leases
Accounting for regulated activities in IFRS standards Berlin IEAF meeting 29 November 2010 CENC.
EFRAG Advisory Forum on Revenue Recognition A regulators’s perspective
Treatment of inventories and development costs
Infosys Investor Relations © Infosys Technologies Limited
Invesco Trust Company Invesco Stable Asset Fund Fee Disclosure
IFRS 15 - Revenue from Contracts with Customers
Presentation transcript:

EFRAG ADVISORY FORUM ON REVENUE RECOGNITION PREPARERS’ PERSPECTIVE October 18, 2006 Bertrand Boisselier Group Senior Vice President Finance

(*) application management in SI Atos Origin profile Revenue 2005: € 5.6 Bn Number of People : 50 000 (proforma) Countries of operations: 40 Listed on Euronext BUSINESS MIX GEOGRAPHY INDUSTRY France 28% 26% (*) application management in SI (*) including Transport Optional chapter number (Arial 10 plain)

Preparers’ issues facing IFRS and responses from the European IT Industry Standards based on principles, and: Principles may not be always easily understandable… No past experience in the interpretation of standards… Some inconsistencies between IFRS texts… Difficulties related to industry specificities… Preparers are quite “alone” Comparability between preparers (American and European) is key: competitive advantage in bids could be jeopardized !! Responses from European IT industry: 2005 : Syntec (Atos Origin, Cap Gemini, Steria, Unilog, IBM France, Accenture France, CS, …) 2006 : European Forum (Syntec + Getronics, Tietoenator, Logica, Indra, T-Systems France) Share of view for IT industry specificities and IFRS translations, But also : US GAAP rules when IFRS are not specific enough…

Practical revenue recognition issues for IT industry (1/4) Transition costs and associated revenue in outsourcing contracts What is transition? Operational phase incurred at the beginning of an outsourcing contract: transfer of assets, know-how, sub-contractors contracts, … Transition costs may represent up to 10-15% of total contracts costs, and maybe or not negotiated and billed to the client Issues raised : Construction contracts (IAS 11) versus long term service contract (IAS 18)? Segmenting or combining the transition with the run phase? Capitalization of transition costs? Revenue from transition based on contractual term? US Gaap versus IFRS?

Examples of multiple-elements contracts Practical revenue recognition issues for IT industry (2/4) Multiple-elements contracts Examples of multiple-elements contracts Design, build and run contracts : Consulting, System Integration and Managed services contracts Build contracts, with services and sale of hardware / software Managed service contracts, with multi-countries deliverables A very common situation for IT industry Issues raised: Segmenting / combining is addressed through IAS 11 only Segmenting / combining principles less precise than US GAAP (i.e: stand alone value, margin allocation) and based partially on form (separate negotiation and proposals) Some inconsistencies with other IFRS rules (i.e : IFRIC 4, whether an arrangement contains a lease)

Why IFRIC 4 may impact the outsourcing industry? Practical revenue recognition issues for IT industry (3/4) IFRIC 4 : embedded lease Why IFRIC 4 may impact the outsourcing industry? Potential transfer of assets up-front Utilization of assets to render services that can be dedicated to the client Potential transfer back to clients of assets dedicated to the contract at the end of it Price paid maybe based on a unit base or be a fixed price for the whole contract Issues raised: Segmenting the accounting for embedded lease even though one single negotiation, with one overall margin? Complex text for local application => need of further interpretation for each company Interpretation of IFRIC 4 for IT industry where means of production are mostly standard (servers, PC, …) IFRIC 4 very similar to US GAAP. No significant impact in IT industry when EITF01-8 became applicable

Common situation in IT industry : SI and outsourcing contracts Practical revenue recognition issues for IT industry (4/4) Reporting revenue gross or net? Common situation in IT industry : SI and outsourcing contracts One unique contractor and utilization of sub-contractors (software licence, hardware, network, …) Significant impact on sales and profitability Issues raised: IFRS principle (IAS 18.8): very “synthetic”. No Basis for Conclusion nor Appendix or Example to assist the preparer in his analysis Additional guidance needed => US GAAP with EITF 99-19 : an analysis in substance, taken into account criteria such as choice of supplier, value-added, credit risk, delivery risk, pricing of the transaction…

Conclusion : Preparers’ concerns Principles are good, theory is satisfactory… BUT Need of pragmatic approaches for daily transactions that may be also unique, incurred and accounted for throughout the world: Reliability Rules and guidance As much as possible simple Stable … The Best may be the enemy of the good