The New Global FASB/IASB Revenue Recognition Accounting Standard JD Edwards EnterpriseOne and World

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2 JD Edwards Summit The New Global FASB/IASB Revenue Recognition Accounting Standard JD Edwards EnterpriseOne and World Seamus Moran - Senior Director Oracle Financials Product Management David Scott Senior Principal Product Manager JD Edwards Product Management Karen L. Brown Senior Principal Product Manager JD Edwards Product Management Copyright 2015, Oracle and/or its affiliates. All rights reserved.

3 Safe Harbor Statement The following is intended to outline our general product direction. It is intended for information purposes only, and may not be incorporated into any contract. It is not a commitment to deliver any material, code, or functionality, and should not be relied upon in making purchasing decisions. The development, release, and timing of any features or functionality described for Oracle s products remains at the sole discretion of Oracle. 3

4 Program Agenda The Standard Impacts to JD Edwards JD Edwards Contracts and Job Cost JD Edwards Accounts Receivable Call to Action Q&A 4

5 The Standard Overview Oracle Confidential 5

6 Accounting Standard Timeline Standard Final 5/28 The new Revenue standard became both US GAAP and IFRS on May 28 th, 2014 US GAAP Topic 606 published as ASU IFRS 15 Text is identical; references to GAAP and to IAS are different; minor difference to ensure identity of meaning by reference to different glossaries; differences in transition and take up options Implementation Timeline: Effective date is set for first new fiscal after January 1, Options on Retroactive Reporting OOW 9/28 Reprocess data from here for comparatives 1/1/2015 Today January. New Year 2016 M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D 2014 OOW All Companies Live on New Rules + FRM OOW 1/

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8 Oracle s Product Response for Topic 606 & IFRS Topic 606 and IFRS 15 Requirements & Software Objective Transition Arrangements, what we need ASAP

9 Applicability Concept Applies to All Companies, All Industries, All Countries Industries All, except Insurance and Lease vendors GAAPs Changes to both US GAAP and IFRS Repeals (withdraws, cancels) the following US GAAP & IFRS statements US GAAP (Codification): Topics , , 430, , -20, -25, -28, -30, -35, -50, , , , , , , , , , , , , , , , , , , , , , , , , and Amends many others. IFRS: IAS 11 and 18

10 Revenue Standard Performance Obligations replace Deferred Revenue All companies to identify Contracts combinations of Customer Obligations that are related as a contract for accounting purposes. Example: Car + x years free service Must Recognize Revenue on performance obligations you have satisfied a positive definition, as opposed to what you have billed, less carve-outs or lifted contingencies Recognize a monetary Customer Liability, Performance Obligation, (as opposed to deferring revenue) on performance obligations you have not satisfied but you do owe to customers Recognize a Receivable only on your right to receive cash where the only condition is the passing of time (e.g. 30 days) Recognize a Customer Asset, Performance Asset, on a conditional right to receive consideration for a satisfied obligation. A condition might be a requirement to complete satisfaction. An open order is a Performance Obligation but not a Performance Obligation liability (3 conditions) Value each obligation using Observed Standalone or Estimated Selling Prices apportioned to each element of the contract, by following four steps No longer amortize a sales invoice to the P&L; instead, track (recognize and value, list and audit) performance obligations to customers obligations times SSP or ESP, not invoice minus released

11 Applicable to all industries, & to all IFRS & US GAAP filers Move to the center, all use the same revenue recognition principles Today s Old Rules: two extremes, difficult to compare industries, companies Complex Compliance Specified industries: Software, Hi-tech, etc Bundled services and goods Variable Pricing Recognition when contingencies met Deferred Revenue Accounting Non-complex Compliance All others Possible unidentified bundles Standard Pricing Recognition on delivery Sales Invoice Accounting Tomorrow s New Rules: extremes removed, easier to compare industries, companies Standard Compliance, IFRS 15 & Topic 606 All Industries Identify Bundled services and goods Allocate deal prices to identify discounted goods/services Revenue Recognition immediately on Performance Performance Obligation Accounting

12 Understanding the Standard: Old versus New Revenue system functionality changes? Bill, then defer Mandate: Don t recognize Revenue until all delivered VSOE, TPE, Estimate = Fair Value Deferred Revenue is a sales invoice you are feeding to the P&L Multiple Element Arrangement Specific USA Industries Elements Units of Account UBR are receivables you haven t billed yet Revenue Schedule Revenue and Deferred Revenue are valued at invoice value Plus or minus Carve-ins and carve outs Follow the carve out Four steps to valuation, then book that Mandate: Recognize Revenue once performed OSSP, ESP = Expected Consideration Contract Liability is a performance obligation you have not delivered on Contract With Customers All Commercial Customers The Constraint Distinct Performance Obligations Contract Assets are not Receivables, and you might even have billed already Performance Satisfaction Revenue and Contract Balances are valued at Performance Obligation value per Step Four Follow Customer satisfaction

13 Understanding the Standard FASB : Old versus New IASB Bill, then defer Mandate: Don t recognize Revenue until all delivered VSOE, TPE, Estimate = Fair Value Deferred Revenue is a sales invoice you are feeding to the P&L Multiple Element Arrangement Specific USA Industries UBR are receivables you haven t billed yet Repealed Elements Units of Account Revenue Schedule Revenue and Deferred Revenue are valued at invoice value Plus or minus Carve-ins and carve outs Follow the carve out Four steps to valuation, then book that Mandate: Recognize Revenue once performed OSSP, ESP = Expected Consideration Contract Liability is a performance obligation you have not delivered on Contract With Customers All Commercial Customers The Constraint Distinct Performance Obligations Contract Assets are not Receivables, and you might even have billed already Performance Satisfaction Revenue and Contract Balances are valued at Performance Obligation value per Step Four Follow Customer satisfaction Oracle Confidential Internal/Restricted/Highly Restricted

14 The 5 Steps are the Data Capture - Revenue Accounting is based on Performance Obligation ID & Valuation Search through order lines from many sources & Link ID distinct performance obligation from order lines Establish linked transaction price & constraint Apply relative observed SSP or ESP Source Detail Contract ID Performance Obligation Amount To Bill PA Performance obligation OM Performance obligation ,000 Revenue Bookkeeping Revenue Amount PO Xfr (from) / to 4,000 (1,000) Alien Performance obligation ,000 2,000 1,000 OM Performance obligation ,000 2,800 (200) Excel Performance obligation ,500 2, PA Performance obligation ,350 2,350 - OM Performance obligation ,000 4,000 - OM Performance obligation ,800 1,800 -

15 Retrospective Transition: Reprocess all/some transactions Retrospective: Recalculate your opening balance sheet, replacing deferred revenue liability with performance obligation liability, offsetting equity Then Two Options: Option 1 = Restate the years BEFORE cutting over, e.g. from 1/1/2015 (already gone) Two sub options: redo all transactions or redo only transactions open at year ends Option 2 = Disclose Deferred Revenue reconciliation for the years AFTER you cut over (ie, do old accounting through 2020 alongside new accounting) Both options require you study the impact ahead of time Dollar impact; Informed Decision; Model 2017; Data gathering

16 Model the Transition There are two transition options with certain sub-options; nine ways in total. In practice, you need to model them all (planning, guidance, taxation, etc.) There is a substantial dollar value difference between them * deferred revenue that may never be realized * performance obligations that are already satisfied You need to examine them to decide which you adopt: it isn t an IT decision To model one option, you need to re-iterate with different performance obligation or different prices or different recognition rules: it will be reiterative We re suggesting that: 1. Use your existing RR system to do old rules 2. Use your favorite tool to figure the difference between old and new for restatement purposes

17 Transition Comparison: $ impact & Full/Partial Retrospective Model new rules, compare and iterate as needed, and cutover in CY 2016 FY 2016 FY 2017 Old Rules & Restatement until last balance sheet before adoption (2017) New Rules Apply Existing Revenue Recognition Process FY15, FY16 General Ledger Content Original Financial Statements Restated Financial Statements Reports Iterative Modeling Reporting Tools Compare and Contrast Old and New FY 17 General Ledger Content Original Financial Statements Reports Cutover

18 Next Steps Don t panic, do hurry up! Review your Quote to Revenue cycle Indentify obligation & contract possibilities Identify customer satisfaction patterns Identify data gaps Identify process gaps where you do not think you do not have MEAs today, but might have contracts & obligations tomorrow Model the impact of addressing that on a big bang basis or standard revised trend basis Monitor our blog for updates Upgrade to the 9s

19 Questions and Answers

20 Impacts to JD Edwards Oracle Confidential 20

21 What will our customers expect? Accounts Receivable: Ability to Recognize Revenue for invoices generated from Accounts Receivable, Sales, Contract and Service Billing, and other methods without the need to purchase and use the Contracts module Ability to research prices to determine the stand alone price Ability to make the Revenue Recognition process transparent to current users of the Accounts Receivable Invoice process Contracts: Additional flexibility of tying work to specific performance obligations Flexibility to track how change orders affect existing performance obligations Simplify the control of how invoicing affects GL date revenue recognition adjustments

22 JD Edwards Contracts and Job Cost Approach Oracle Confidential 22

23 Contracts and Job Cost Revenue Recognition New Flexibility Ability to manage multiple performance obligations in a single project/job Additional capabilities to tie detailed project costs to contract performance obligations Flexibility to track contract change orders and existing performance obligations in different ways More control of invoicing that affect revenue recognition Contract Entered Identify performance obligations (billing lines) Trace project tasks to performance obligations Project Executed Accumulation of costs Contract invoices created Manage changes to contract Add new performance obligations Disposition existing performance obligations Revenue Recognized Performed independently from contract invoicing Specified for each performance obligation Revenue Booked in G/L

24 What Needs to Change to Allow Compliance Invoicing with a contract: Job Cost Identify multiple performance obligations within a single project/job Ability to make adjustments (revenue, cost, and % complete) by performance obligation Ability to run Profit Recognition process by performance obligation Ability to summarize Unit Price and Lump Sum contract billing transactions by subledger Ability to enter change requests for Time & Material and Fee billing lines Reporting changes Track contract amounts (e.g., Schedule of Values) related to change orders Detailed revenue recognition posting report Performance Liability Account amounts visible in Contract Status Inquiry application 24

25 Impacted Modules Contracts and Job Cost Revenue Recognition Contract and Service Billing Advanced Contract Billing Job Cost (aka Project Costing) Change Management

26 JD Edwards Accounts Receivable Approach Oracle Confidential 26

27 Accounts Receivable Revenue Recognition New Features New feature to support recognition of revenue for invoices without a contract Performance Liability Accounting Recognize all, none, less than, or more than the invoice amount Performance obligation completion is determined by a process defined by the organization utilizing the system Audit trail of all revenue recognition activity Reconciliation and Integrity tools Invoice Entered A/R Invoice Sales Order Contract Billing Service Billing Invoice to Revenue Recognition Process Trigger processing from source invoice entry process Performance Liability Booked in G/L Performance obligation complete Determined by customer business process Revenue Recognized Performance Liability Cleared from G/L Revenue Booked in G/L

28 What Needs to Change to Allow Compliance Invoicing without a contract: The current invoice process will recognize revenue at the time an invoice is posted Due to the new standard we must provide processes to allow our customers to: Place the revenue into a Performance Liability Account for invoices that require revenue recognition at a later date than invoice posting When revenue is considered a Performance Liability for a sales order, its cost of goods sold must also be treated as such Recognize the revenue upon the completion of the performance obligation Recognize the cost of goods sold when the revenue is recognized for a sales order Ensure the integrity of the information in the new process Ensure the audit-ability of the process 28

29 Impact to Current Functionality Accounts Receivable Revenue Recognition New feature to recognize revenue Impacts: Invoice Creation/Maintenance (interactive, batch, and from other methods) Determine if invoice is to go through the new process Book Revenue amounts to Performance Liability accounts Recognize Revenue Clear the Performance Liability accounts Book amounts to the Revenue Accounts Book any differences to Performance Liability Adjustment Accounts

30 Impacted Modules Accounts Receivable Revenue Recognition Accounts Receivable Sales Order Management Contract and Service Billing Service Management

31 Call to Action Oracle Confidential 31

32 Call to Action Encourage customers to upgrade to the 9s to get enhancements Opportunity to sell robust functionality related to revenue recognition Contract and Service Billing Advanced Contract Billing

33 Questions and Answers

34 Oracle Confidential 34

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