EFRAG Advisory Forum on Revenue Recognition A regulators’s perspective

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Presentation transcript:

EFRAG Advisory Forum on Revenue Recognition A regulators’s perspective Philippe DANJOU - Chief Accountant - AMF AMF - titre de la présentation 01/01/2019

Importance of Revenue data for investors OFTEN AN ELEMENT OF ENTITY’s MARKET CAPITALIZATION « ECONOMIC » (= MANAGED) vs ACCOUNTED REVENUE AMOUNT (e.g order backlog ) RISK THAT NON GAAP MEASURES BECOME PROMINENT ANALYTICAL APPROACH UNDERSTANDING THE BUSINESS FROM THE P/L STRUCTURE  MANAGEMENT’S VIEW IS ALSO IMPORTANT TO INVESTORS FORECASTING FUTURE PERFORMANCE IS ASSET / LIABILITY APPROACH THE MOST USEFUL ? PORTFOLIO ALLOCATION - COMPARABILITY AMONG LISTED COMPANIES AT WHICH LEVEL ? CROSS BORDER AT LARGE INDUSTRY SECTOR LEVEL ? BETWEEN DIFFERENT SECTORS ? AMF - titre de la présentation 01/01/2019

Regulators concerns (1) NEED FOR A COMMON SET OF PRINCIPLES THAT APPLY TO ALL LISTED COMPANIES HIGH LEVEL PROBABLY NOT SUFFICIENT TO GUARANTEE COMPARABILITY OF FINANCIAL STATEMENTS SOME ADDITIONAL GUIDANCE AT INDUSTRIES LEVEL MAY BE NEEDED SHOULD IT BE PART OF IFRS OR IFRIC ? PRINCIPLES MUST BE CLEAR AND COMPREHENSIVE ENOUGH TO BE ENFORCEABLE HOWEVER REGULATORS IN E.U HAVE NO APPETITE FOR DETAILED RULES FOR EACH INDUSTRY JUDGMENT AND BEST PRACTICES + TRANSPARENCY AMF - titre de la présentation 01/01/2019

Regulators concerns (2) COMPLEXITY ISSUES COMPONENTS OF MULTI ELEMENT REVENUE TRANSACTIONS (UNBUNDLING) ASSOCIATED COMMITMENTS AND COSTS TO COMPLETE TIMING OF RECOGNITION MEASUREMENT (FV ?) ENTITY IS SUPPOSED TO BE A GOING CONCERN ENTITY’S OWN COSTS RATHER THAN MARKET PRICE TO MEASURE THE COST OF DISCHARGING THE OBLIGATION ? CONSERVATISM / PRUDENCE IN MEASUREMENT ? SOME CONCERNS REGARDING « MARK TO MODEL PROFITS », DAY 0 / DAY 1 PROFITS.. AND EARNINGS MANIPULATION RELIABILITY vs FAITHFUL REPRESENTATION ? USEFULNESS OF A FAIR VALUE BASED MEASUREMENT OF REVENUES ? ACCOUNTING RECOGNITION OR FINANCIAL DISCLOSURES ? AMF - titre de la présentation 01/01/2019

Regulators concerns (3) TYPICALLY ENCOUNTERED REVENUE ACCOUNTING DIFFICULTIES Respective scopes (and clarity ?) of IAS 18 and 11 Gross amount of transactions versus net margin (pass through? Expenses vs revenue deductions ?) Service element (single or multiple) associated with sale of goods – unbundling and measurement of components ; application of IFRIC 4 Sale of license recognized with a different pattern of payments terms Customers loyalty programmes Timing of recognition for intangible services ( e.g software development) Timing of recognition for prepaid subscriptions – deferral ? Accrual for costs ? Sales with conditional clauses (Transfer of risks and rewards) Sale of extended warranties Timing of revenue recognition regarding claims in long term contracts (application of percentage of completion method) Sale with repurchase clause vs lease accounting Etc… AMF - titre de la présentation 01/01/2019