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

2. (*) application management in SI
Atos Origin profile
Revenue 2005: € 5.6 Bn
Number of People : (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)

3. 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…

4. 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?

5. 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)

6. 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

7. 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 : an analysis in substance, taken into account criteria such as choice of supplier, value-added, credit risk, delivery risk, pricing of the transaction…

8. 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