CFO Financial Forum Webcast

Transcription

1 CFO Financial Forum Webcast Revenue Recognition: Are you going to be left behind? April 4, 2017

2 With You Today Bill Tomazin Partner Tel: Stephen Thompson Partner Tel: Bill is KPMG s National Audit Market Development Leader, where he plays a pivotal role in the firm s growth strategy for the Audit Practice and is a member of our National Audit Leadership team. Bill previously served as Chicago Metro Business Unit Audit Partner in Charge and was responsible for overall operations of the Chicago and Milwaukee audit practices, including audit quality, resource management, financial performance and overall audit client service. Bill has more than 30 years of experience and also serves as global lead partner or Account Executive on multi-national public and private companies. Steve leads KPMG s revenue recognition accounting change practice, which is focused on assisting companies with implementing new revenue recognition guidance and policies. Steve is currently leading revenue recognition implementation projects for companies in various industries, instructing in national training programs and is a frequent speaker and author on matters related to revenue recognition. Steve has 25 years of experience providing accounting advisory and financial statement audit services to public companies, including a two-year professional practice assignment in KPMG s national office.. Cooperative ( KPMG International ), a Swiss entity. All rights reserved. NDPPS

3 Administrative CPE regulations Ask a question Technical issues Require that online participants take part in online questions Must respond to a minimum of three questions Polling questions will appear on your media player Results will be reviewed in the aggregate; no responses will be tracked back to any individual or organization Use the Ask A Question box in your media player use the? button in the upper-right corner of your Webcast player to access our online help portal If this does not resolve your issue, please submit a question through the Ask a Question box, and you will receive a reply from our technical staff shortly in the Answered Questions box Cooperative ( KPMG International ), a Swiss entity. All rights reserved. NDPPS

4 Agenda Overview of the new revenue standard Impact on the Audit: Internal controls and disclosures methods Implementation timeline discussion

5 Polling question #1 Is your company public or private? A. Public B. Private C. Not applicable Cooperative ( KPMG International ), a Swiss entity. All rights reserved. NDPPS

6 Polling question #2 What industry do you represent? A. Asset Management B. Banking & Insurance C. Building, Construction & Real Estate D. Chemicals, Energy & Natural Resources E. Consumer Goods & Retail F. Healthcare & Life Sciences G. Manufacturing H. Media & Telecommunications I. Technology J. Other Cooperative ( KPMG International ), a Swiss entity. All rights reserved. NDPPS

7 Revenue recognition overview Revenue recognition effective date January 1, 2018 for calendar-year public companies and one year later for nonpublic companies. In 2014, the Financial Standards Board (FASB) and the International Standards Board (IASB) issued a new revenue recognition standard; the FASB has issued several amendments to the standard to clarify and interpret the requirements, culminating with amendments issued in the spring of This new standard incorporates a single, principles-based accounting model for revenue recognition and disclosures. As a result, many companies are encountering significant changes to their historical revenue recognition policies. Cooperative ( KPMG International ), a Swiss entity. All rights reserved. NDPPS

8 Timing of new revenue recognition standard This reflects FASB's and IASB's decision to allow companies to defer the adoption of the standard by one year. May 28 th Final standard January 1 st Retrospective transition application date January 1 st Effective date for public companies for both IFRS and US GAAP Timeline effective dates shown are for public entities with December 31 year ends. Effective one year later for private companies.. Depending on transition method and length of contracts, many companies should have started addressing: Process and system changes. Enabling dual reporting during transition period. Dealing with unanticipated complexity. Maximizing the use of internal resources by spreading work over longer period. (Time is running out!) Cooperative ( KPMG International ), a Swiss entity. All rights reserved. NDPPS

9 Broad Impacts on Your Organization? For many companies, implementation of the new revenue recognition standard is not just an accounting exercise, as many different groups across the organization need to be involved. New Revenue Recognition Standards & Corresponding Changes Changes to revenue policies Significantly expanded disclosures Tax reporting/planning adjustment Coordination with auditor Revenue Recognition Automation and ERP Upgrades Automation and customization of ERP environment Impact on ERP systems General ledger, sub-ledgers and reporting packages Peripheral revenue systems and interfaces Financial and Operational Process Changes Revenue process allocation and management Budget and management reporting Communication with financial markets Covenant compliance Opportunity to rethink business practices Coordination with other strategic initiatives Revenue Recognition Governance and Change Governance organization and changes Impact on internal resources Project management Training (accounting, sales, etc.) Revenue change management team Multi-national locations Cooperative ( KPMG International ), a Swiss entity. All rights reserved. NDPPS

10 Polling question #3 What is your organization s progress towards adopting the new revenue recognition standard? A. Not started B. High level assessment C. Detail level assessment D. Designing process and/or IT changes E. Implementing process and/or IT changes F. Calculation transition adjustment G. Done H. Not applicable Cooperative ( KPMG International ), a Swiss entity. All rights reserved. NDPPS

11 Pulse survey December 2016 at KPMG Annual Symposium What is your organization s progress toward adopting the new revenue recognition standard? % % Not yet begun Assessment of accounting impacts 4% 2% 13% 1% Systems requirement development Software vendor selection Implementation in progress Implementation completed Source: KPMG s Annual & Financial Reporting Symposium Key findings: Companies appear stuck in assessment Audit committees expect companies to have a clear plan Many believe they are behind Do not underestimate the effort. It will likely take 2 3 months to fully assess impacts, and longer to design and implement a go-forward solution Cooperative ( KPMG International ), a Swiss entity. All rights reserved. NDPPS

12 Internal control considerations An auditor s perspective Identification of Significant Accounts Risk Assessment IT Considerations! Process Narratives Identifying Relevant What Could Go Wrongs Identifying and Evaluating Design and Operating Effectiveness of Key Controls Cooperative ( KPMG International ), a Swiss entity. All rights reserved. NDPPS

13 Polling question #4 Do you feel your company has sufficient internal controls over the transition? A. Yes B. No C. Not sure D. Not applicable Cooperative ( KPMG International ), a Swiss entity. All rights reserved. NDPPS

14 Focus on disclosures 1 Perform a disclosure gap analysis 2 Model pro forma results including disclosures 3 Prepare adoption period financial statements with disclosures Disclosure of other potential impacts that result from adoption of the standard is encouraged (e.g., changes in business practices put in place while implementing the new standard) 4 SEC expects SAB 74 disclosures will evolve and provide significantly more detail by Q If the effect is unknown, the SEC has suggested a registrant may consider advising investors when that assessment is expected to be complete Cooperative ( KPMG International ), a Swiss entity. All rights reserved. NDPPS

15 Choosing a transition method Companies can elect retrospective or cumulative effect transition method Trends Determine your aspirations by considering: Comparability with peers Will deferred revenue be lost? Availability of data Determine your capabilities by considering: - Is required data in your system? Outside your system? - How many years are in the look-back period? - IT and process changes during the look-back period? Method of calculation (systematic versus manual) Approach to calculation (reprocess historical transactions vs. calculate specific adjustments) Many companies are finding that retrospective will be harder than they thought. Cooperative ( KPMG International ), a Swiss entity. All rights reserved. NDPPS

16 Choosing a transition method Public companies must also consider impact on their ability to access capital markets. Form S-3 registration statement Requires restated financial statements if there has been a change in accounting principles that requires a material retroactive restatement Acknowledges that ASC provides an impracticable exception; historically this has been a high hurdle Incorporated by reference United States Securities and Exchange Commission Form 10-K XYZ Company Form 10-Q Securities and Exchange Commission XYZ Company United States Securities and Exchange Commission Form S-3 XYZ Company What does this mean with respect to ASC 606? Could result in having to restate 3 years instead of just 2 years if the K needs to be restated Cooperative ( KPMG International ), a Swiss entity. All rights reserved. NDPPS

17 Polling question #5 Which transition method is your organization using / expecting to use, when adopting the new Revenue Recognition standard? A. Retrospective B. Cumulative Effect (also called Modified Retrospective) C. Still evaluating D. Not applicable Cooperative ( KPMG International ), a Swiss entity. All rights reserved. NDPPS

18 Implementation timeline January March April June July September October December January February Management ID Project Leader ID Project Team ID Resource Challenges Scope Revenue Streams Preliminary Gap Analysis Position Papers Contract Reviews Disclosure Gaps Method Tax Gaps Use Cases Process Baselining Data Gaps Data Mapping IT Gaps Design Process Changes & Internal Controls Draft Policies New Manual Processes IT Changes Data Remediation Strategy for Calculate Training Educate Stakeholders Draft Calculate Finalize Assess Design Implement Auditor Review implementation plan, timeline and align work effort Review Conclusions and test contracts to corroborate identification accounting impacts Test Design of Controls over transition Walkthroughs of New Processes Understand Policies Draft Audit Audit Cooperative ( KPMG International ), a Swiss entity. All rights reserved. NDPPS

19 Implementation timeline January March April June July September October December January February Management ID Project Leader ID Project Team ID Resource Challenges Scope Revenue Streams Preliminary Gap Analysis Position Papers Contract Reviews Disclosure Gaps Method Tax Gaps Use Cases Process Baselining Data Gaps Data Mapping IT Gaps Design Process Changes & Internal Controls Draft Policies New Manual Processes IT Changes Data Remediation Strategy for Calculate Training Educate Stakeholders Draft Calculate Finalize Assess Design Implement Auditor Review implementation plan, timeline and align work effort Review Conclusions and test contracts to corroborate identification accounting impacts Test Design of Controls over transition Walkthroughs of New Processes Understand Policies Draft Audit Audit Cooperative ( KPMG International ), a Swiss entity. All rights reserved. NDPPS

20 Implementation timeline January March April June July September October December January February Management ID Project Leader ID Project Team ID Resource Challenges Scope Revenue Streams Preliminary Gap Analysis Position Papers Contract Reviews Disclosure Gaps Method Tax Gaps Use Cases Process Baselining Data Gaps Data Mapping IT Gaps Design Process Changes & Internal Controls Draft Policies New Manual Processes IT Changes Data Remediation Strategy for Calculate Training Educate Stakeholders Draft Calculate Finalize Assess Design Implement Auditor Review implementation plan, timeline and align work effort Review Conclusions and test contracts to corroborate identification accounting impacts Test Design of Controls over transition Walkthroughs of New Processes Understand Policies Draft Audit Audit Cooperative ( KPMG International ), a Swiss entity. All rights reserved. NDPPS

21 Implementation timeline January March April June July September October December January February Management ID Project Leader ID Project Team ID Resource Challenges Scope Revenue Streams Preliminary Gap Analysis Position Papers Contract Reviews Disclosure Gaps Method Tax Gaps Use Cases Process Baselining Data Gaps Data Mapping IT Gaps Design Process Changes & Internal Controls Draft Policies New Manual Processes IT Changes Data Remediation Strategy for Calculate Training Educate Stakeholders Draft Calculate Finalize Assess Design Implement Auditor Review implementation plan, timeline and align work effort Review Conclusions and test contracts to corroborate identification accounting impacts Test Design of Controls over transition Walkthroughs of New Processes Understand Policies Draft Audit Audit Cooperative ( KPMG International ), a Swiss entity. All rights reserved. NDPPS

22 Implementation timeline January March April June July September October December January February Management ID Project Leader ID Project Team ID Resource Challenges Scope Revenue Streams Preliminary Gap Analysis Position Papers Contract Reviews Disclosure Gaps Method Tax Gaps Use Cases Process Baselining Data Gaps Data Mapping IT Gaps Design Process Changes & Internal Controls Draft Policies New Manual Processes IT Changes Data Remediation Strategy for Calculate Training Educate Stakeholders Draft Calculate Finalize Assess Design Implement Auditor Review implementation plan, timeline and align work effort Review Conclusions and test contracts to corroborate identification accounting impacts Test Design of Controls over transition Walkthroughs of New Processes Understand Policies Draft Audit Audit Cooperative ( KPMG International ), a Swiss entity. All rights reserved. NDPPS

23 Implementation timeline January March April June July September October December January February Management ID Project Leader ID Project Team ID Resource Challenges Scope Revenue Streams Preliminary Gap Analysis Position Papers Contract Reviews Disclosure Gaps Method Tax Gaps Use Cases Process Baselining Data Gaps Data Mapping IT Gaps Design Process Changes & Internal Controls Draft Policies New Manual Processes IT Changes Data Remediation Strategy for Calculate Training Educate Stakeholders Draft Calculate Finalize Assess Design Implement Auditor Review implementation plan, timeline and align work effort Review Conclusions and test contracts to corroborate identification accounting impacts Test Design of Controls over transition Walkthroughs of New Processes Understand Policies Draft Audit Audit Cooperative ( KPMG International ), a Swiss entity. All rights reserved. NDPPS

24 Polling question #6 Are you implementing new IT tools or system enhancements to support recognition of revenue under ASC 606? A. Yes B. No C. Not sure D. Not applicable Cooperative ( KPMG International ), a Swiss entity. All rights reserved. NDPPS

25 So, you don t think this standard impacts you? Even if you think the new standard does not have an impact on your business, your auditor will require documentation to support that conclusion. Are you going to be left behind? START NOW G O Auditor will obtain and review management s white papers that address evaluation of the new standard and impact on the company s revenue recognition. Detailed memo(s) documenting conclusions on the following: Scope of management s procedures including the revenue streams and locations Management s summarized key terms and conditions of customer contracts in scope of analysis Impact on income taxes Impact of on the company s information systems Impact on the company s processes and internal controls, particularly controls over implementation and the transition adjustment Impact on other areas outside of accounting (e.g., FP&A, operations, sales, human resources, investor relations and treasury) adjustment summary with supporting documentation to support conclusions Internal controls over the transition adjustment will be tested Cooperative ( KPMG International ), a Swiss entity. All rights reserved. NDPPS

26 Resources available Go to: Financial reporting view at On Financial Reporting View (FRV) you will find: Links to publications - March 2017 Quarterly Outlook - New: Revenue book for Software and SaaS industry (detailed technical guidance in Q&A format) - Revenue Options What is the best option for your business? - Issues In-Depth: Revenue from Contracts with Customers (2nd Edition) - Illustrative Revenue - Revenue by Industry-Supplement Series: - Aerospace & Defense - Consumer Products - Engineering & Construction - Freight & Logistics - Healthcare Providers Individual Web pages for Revenue, Leases, and Financial Instruments Links to Webcasts live and on-demand including KPMG s CFO Financial Forum Webcasts on revenue recognition Links to podcasts - Manufacturers - Software & SaaS - Telecoms - Real Estate Information about upcoming public seminars (Executive Education) Cooperative ( KPMG International ), a Swiss entity. All rights reserved. NDPPS

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28 Presenter s contact details Name Bill Tomazin, Partner Stephen Thompson, Partner wtomazinjr@kpmg.com sgthompson@kpmg.com Financial Reporting View: KPMG Executive Education: Cooperative ( KPMG International ), a Swiss entity. All rights reserved. NDPPS

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30 kpmg.com/socialmedia The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. NDPPS The KPMG name and logo are registered trademarks or trademarks of KPMG International.