Media Industry Accounting Group Annual conference 2017

Transcription

1 Media Industry Accounting Group Annual conference 2017 London 15 June 2017

2 Revenue recognition Richard Veysey UK Gary Berchowitz South Africa E: Slide 2

3 What are we covering today? 1 Latest updates 2 Hot topics for E&M 3 Practical implementation issues Slide 3

4 Latest updates 1 Current status 2 Clarifications Slide 4

5 Current status and TRG No significant change since this time last year Effective date amended to 1 January 2018 for both IASB and FASB (EU endorsed). Transition Resource Group has met six times (48 issues discussed). IASB has not scheduled any further meetings of the TRG. Not disbanded. Meetings may be scheduled if the need arises. FASB members of the TRG continue to meet. Meetings were held during April and November Clarifications issued by both the IASB (not yet EU endorsed) and FASB. Slide 5

6 Clarifications Topic FASB IASB Convergence Identifying performance obligations Identifying Performance Obligations and Licensing Clarifications to IFRS 15 Partially Issued April 2016 Licences Issued April 2016 Partially Principal vs. agent Principal vs. Agent Considerations Issued March 2016 Same Transition Narrow-Scope Improvements and Partially Collectability Practical Expedients Issued May 2016 None None Presentation of sales taxes None None Non cash consideration None None Slide 6

7 Performance obligations Implementation issue IASB FASB Performance obligations How to determine whether a promise is separately identifiable? The revised principle states that an entity should determine whether its promise is to transfer individual goods or services to the customer, or a combined item (or items) to which the individual goods and services are inputs. Whether immaterial POs need to be identified No further guidance. Entities are not required to identify promised goods or services that are immaterial in the context of the contract How to account for shipping and handling No further guidance. Entities can elect to account for shipping and handling activities as a fulfilment cost rather than as an additional promised service.. Slide 7

8 Licences of intellectual property Implementation issue IASB FASB Licences How to determine the nature of a company s promise in granting a licence? Clarify and expand on principles to better explain when an entity s activities significantly affect the IP. Create two new categories of licences symbolic and functional That will determine whether revenue is recognised over time or upfront. When does the exception for sales- and usage-based royalties apply? Sales- and usage-based royalty guidance applies when the predominant item to which the royalty relates is a license (no splitting of the royalty). Does the licence guidance apply when the licence is not distinct? How do contractual restrictions impact the identification of promises in a contract? No further guidance. No further guidance (though see discussion in BC). The licence guidance should be considered, even if the licence is not predominant. Distinguishes between contractual provisions that transfer additional rights and those which do not affect the number of promised goods or services in a contract. Slide 8

9 Principal versus agent Implementation issue IASB and FASB Principal versus agent (gross vs. net revenue reporting) How should an entity identify the unit of account for the principal versus agent assessment? How should the notion of control be applied to services performed by another party? What is the relationship between the notion of control and the indicators? Clarify that an entity determines whether it is principal or agent for each specified good or service promised to a customer. An entity could be a principal for some specified goods or services and an agent for others. Clarify that a principal can control a service, even when another party performs the service, if it can direct that party to perform the service for customer on its behalf. Clarify that control is the underlying principle, the indicators assist an entity in determining whether it controls a good or service before it is transferred to a customer. Reframe indicators as indicators of a principal. Clarify that the indicators are not all-inclusive, and certain indicators may be more/less persuasive. Remove indicators related to credit risk and earning a commission. Clarify that an entity that performs a significant integration service is a principal. Slide 9

10 Hot topics for E&M 1 Identifying performance obligations 2 Licences 3 Principal versus agent Slide 10

11 Current issues Identifying performance obligations Slide 11

12 Identifying performance obligations The customer can benefit from the good or service on its own or with other readily available goods or services And Distinct The goods or services are not highly interrelated or highly dependent on other promises in the contract Slide 12

13 Identifying performance obligations Issue Example Sub-sector Distinct promises Equipment used to deliver a service Broadcast and cable operators Distinct promises Free trials Publishing, video gaming Material rights Options for future content TV, film Material rights Subscription renewals Publishing, broadcasting Modifications Change in scope or price Broadly applicable How will you identify and assess contract modifications? Are all of your contracts identical or will this need to be continuously assessed? Do you have a process to identify and calculate the value of options? Slide 13

14 Current issues Licensing Slide 14

15 Licences And don t forget the sales based royalty exception Right to use Licensor performs activities that significantly affect the IP Right to access Rights expose customer to effects of those activities Activities are not a separate good/service Slide 15

16 Licences HOW to apply the licensing guidance? Which changes significantly affect the IP? Licensor performs activities that significantly affect the IP Activities are not a separate good/service Function? Activities expected to significantly change the form/ functionality of the IP. Form? or Ability of customer to obtain benefit from IP is substantially derived from or dependent upon the entity s activities. Value? Slide 16

17 Licencing Issue Example Sub-sector Licence versus service Linear feed Broadcast and cable Licence plus updates Content library Music and online broadcasters Hosted licence Data and information licence Information services SBR exemption for licences only do you have the data to estimate variable consideration? Do you have data to support your determination of standalone-selling price? Does your commercial team understand how contractual clauses affect revenue recognition? Slide 17

18 Licencing Issue Example Sub-sector Unit of account Contractual restrictions Film, music Unit of account Renewals Film, music Point in time v over time Brands and content Film, TV When setting accounting policy has IR been involved (how important is comparability with peers)? Do your processes currently capture all of the separate units of account in a single contract? Do your systems support recognition of revenue both over time and at points in time? Slide 18

19 Current issues Principal versus agent Slide 19

20 Fundamental change IAS 18 IE 21 IFRS 15.B35 Risk and reward approach Control concept An entity is acting as a principal when it has exposure to the significant risks and rewards associated with the sale of goods or the rendering of services. An entity is a principal if it controls the specified good or service before that good or service is transferred to a customer. IFRS 15 states that having risk and rewards of 20 ownership is one indicator of control Slide 20

21 Definition of control Ability to direct the use of the goods/services (a) (b) Ability to obtain substantially all of the remaining benefits from the good/service IFRS 15 Para 33 (c) Ability to prevent others from directing the use of the good/service 21

22 The indicators of control Responsibility The entity is primarily responsible for fulfilling the promise to provide the specified good/service, including the responsibility for acceptability of the good/service. a) b) Indicators of control c) Inventory risk The entity has inventory risk before the goods/service has been transferred to a customer or after transfer of control to the customer. Pricing The entity has discretion in establishing the price for the good/service, indicating that the entity has the ability to direct the use of that good/service and can obtain substantially all of the remaining benefits. Slide 22

23 Principal versus agent Issue Example Sub-sector Principal v agent Distribution deals Film Principal v agent Production contracts Advertising Principal v agent Media planning and buying Principal v agent* ebooks Publishing Principal v agent* Music streaming Music Principal v agent* Agency commissions Broadcast and cable How many contracts might this impact? Can you estimate variable gross income? Advertising Do key metrics change? Slide 23

24 Practical implementation issues 1 What does implementation involve? 2 Industry discussion Slide 24

25 Phased approach to implementation Potential implementation approach IFRS 15 effective date Today Current IFRS Q1 Q2 IAS 8 disclosure 2018 Q3 Q4 Q1 Disclose comparatives Required Q3 Q2 Update IAS 8 disclosure Q4 IFRS Interims Update comparatives Optional Assess Convert Embed Manual Solution ERP Implementation / IT Solution Slide 25

26 Our understanding of the challenges The key challenges that entities may face when preparing for the adoption of a new standard are: Organise the project Get technical aspects right from Day 1 Leverage existing data and systems Sufficient, quality source data Inform stakeholders of the potential impacts We have developed an approach to help you with these challenges ensuring that the implementation of the new accounting standards is performed to the highest quality Slide 35

27 Accounting standards change project methodology Identify accounting change Identify business change Develop solution Implement solution Slide 36

28 How to approach IFRS 15 implementation What needs to happen? Desktop review and analysis Workshops with finance teams Identify key areas of IFRS 15 impact Identify key workstreams and resources needed to implement IFRS 15 Confirm sponsorship and project governance Key outputs Workshop/briefing materials Impact assessment report summarizing key areas of impact Roadmap for implementation Key stakeholders: Finance, Auditors Slide 37

29 How to approach IFRS 15 implementation What needs to happen? Workshops with impacted functions (e.g. sales and marketing) Determine the data, business processes IT systems and controls which needs to change due to the accounting change Evaluate how to obtain transition information Identify impact on wider stakeholder group Key outputs Documented business and IT process flows with identification of points of change Accounting use cases Workshop / Training materials Key stakeholders: Finance, Sales and Marketing, Legal, Tax, HR, IT, Auditors MIAG Annual conference 2017 Slide 38

30 How to approach IFRS 15 implementation What needs to happen? Determine how the business processes and IT systems should be changed Determine transition approach Document decision points and accounting policy choices Identify data sources and confirm proposed approach to extract, stage and store data Key outputs Business Requirements document detailing the required changes to the processes and the IT systems Decision on data capture and accounting engine solutions (software vendor or self build) Key stakeholders: Finance, Sales and Marketing, Legal, Tax, HR, IT, Auditors MIAG Annual conference 2017 Slide 39

31 How to approach IFRS 15 implementation What needs to happen? Execute transitions and changes identified in phases 2 & 3 Calculate transition adjustments Embed long-term sustainable changes to data, processes, systems and controls Key outputs Testing of proposed business processes and IT system changes Restated opening balance sheet and comparatives Transition adjustments Updated accounting polices, processes and controls Go-live roll out Key stakeholders: Finance, IT Slide 40

32 Practical example Identify accounting change Contract for TV services Identify free equipment as a separate performance obligation Need to allocate revenue to this new performance obligation Identify business change Update accounting policies and position papers Prepare accounting use cases Identify information needed to support SSP for equipment and service Develop approach and templates for contract reviews Develop solution Prepare business requirements document Select solutions for data storage and accounting engine Complete pilot study / prototype Implement solution Gather data / build data interfaces Build, implement and test solutions for data storage and accounting engine Calculate transition adjustment Dry run / parallel reporting in advance of effective date Training and communications Project management and governance MIAG Annual conference 2017 Slide 41

33 This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it All rights reserved. refers to the network and/or one or more of its member firms, each of which is a separate legal entity. Please see for further details AG-OS