Adopting IFRS in Oracle EBS

Transcription

1 Adopting IFRS in Oracle EBS

2 WHAT IS IFRS? TABLE OF CONTENTS What is IFRS? 1 SEC Timeline for Adoption 2 What are the New Standards? 3-5 IFRS and GAAP 6 US GAAP -vs- IFRS Similarities 7 US GAAP -vs- IFRS Differences 8 Convergence -vs- Compliance 9-10 IFRS and EBS R12 Examples The Centroid IFRS Team 14 The Centroid Advantage 15 IFRS - International Financial Reporting Standards are a series of accounting standards developed by the International Accounting Standards Board (IASB), that is becoming the global standard for the preparation of public company financial statements. IFRS focuses on the standardization of financial reporting standards across international borders. This standardized reporting practice provides a uniform view of a corporations accounting statements. As of 2011, approximately 120 countries currently require or permit IFRS reporting. The US Securities and Exchange Commission is weighing a five-year work plan that would lead to conversion of all US public companies to IFRS. This is in response to global demand from regulators, investors, businesses and auditors for a single set of accounting standards. While support for maintaining US GAAP remains strong in the US, it is clear that multinational corporations or corporations that simply do business internationally will need to begin preparing for IFRS one way or another.

3 WHAT ARE THE NEW STANDARDS? SEC TIMELINE FOR ADOPTION Financial Statement Preparation Standards The first standard refers to statement preparation; this includes the format, content and layout of financial statements. For organizations that generate financial statements out of their GL today, their current ERP solutions have powerful statement generation tools, dual accounting representations using Subledger Accounting (SLA) and Business Intelligence (BI) tools to meet the IFRS reporting challenge. A limited group of large US Firms are permitted to use IFRS on an optional basis for fiscal periods ending on or after December 15, The SEC evaluates achievement of roadmap milestones and decides whether to adopt a mandatory approach. Possible effective date for convergence Accelerated filers begin filing in IFRS standard Possible adoption start date Non-accelerated filers begin filing in IFRS standard Complete adoption Standard Area Covered Products IAS 01 Financial Statements Hyperion Financial IAS 27 Consolidate or Separate Management, IAS 28 Associates Oracle General Ledger IAS 31 Joint Ventures IAS 33 Interims IAS 34 EPS IAS 07 Cash Flow Statements IFRS 03 Business Combinations Features include: Consolidation features (GCS), line aggregation, adjustment capability, XBRL publication, cube management, slice and dice.

4 WHAT ARE THE NEW STANDARDS? WHAT ARE THE NEW STANDARDS? IFRS Consolidation Standards Detailed Transaction Standards The next set of standards focuses on professional-level accounting and consolidation practices where corporations handle specific situations; for example - merger and acquisition activity, foreign currency translations, etc. and/or specific high-level transactions (e.g., government grants, discontinued businesses, etc.). Organizations can chose to use Oracle s EPM solutions to facilitate modeling corporate adjustments before pushing them down to the ERP General Ledger. Also, all of Oracle s ERP solutions contain many powerful general accounting features in each of its General Ledgers. The last set of standards often require detailed transaction data to be summarized and reported correctly, which means capturing this data in the subsystems. Oracle s ERP solutions will provide specialized industry products and subledger solutions for service consumers. Specific compliance and features are constructed with the IFRS Statement in mind. Standard Area Covered Products IAS 10 IAS 20 IAS 21 IAS 29 IAS 36 IAS 37 IAS 38 IAS 40 IFRS 01 IFRS 05 IFRS 06 IFRS 08 Post Balance Sheet Government Grants Foreign Currency Hyperinflation Impairment Provisions & Contingencies Intangibles Investment Property First Time Adoption Discontinued, Held for Sales Mineral Resources Operating Segments Hyperion Financial Management, Oracle General Ledger Features include: Flexfields, segments and other chart of accounts features, translation (or remeasurement) multiple ledgers and accounting engines. Model Corporate Adjustments. Standard Area Covered Products IAS 41 IAS 32 IAS 39 IFRS 07 IFRS 04 Agriculture FI: Presentation FI: Recognition, Measurement Financial Instruments Insurance Contracts Specialized industry products and subledger solutions for service consumers Specific compliance and features constructed with the IFRS statement. Standard Area Covered Products IAS 02 IAS 11 IAS 16 IAS 17 IAS 18 IAS 19 IAS 23 Inventories Construction Projects PP&E Leases Revenue Employee Benefits Borrowing Costs Specialized subledger solutions: Projects, Fixed Assets, CRM, Order Management and revenue recognition in AR, Procurement and AP, Inventory and Costing Tracks data required by the specific statement, such as revenue recognition in receivable, costing methods in inventory, etc.

5 US GAAP -VS- IFRS SIMILARITIES IFRS AND GAAP US GAAP: 25,000 Pages IFRS: 2,500 Pages There are quite a few similarities between IFRS and US GAAP because the convergence project between IASB and FASB (the standard setters responsible for IFRS and US GAAP respectively) has been going on for a while (since 2003 actually). Approach (some examples) Revenue Recognition Fair Market (e.g. AR or inventory valuation) Detailed Disclosure Segment Reporting Chart of Accounts Not Mandated Distinction Between Tax & External Reporting IFRS US GAAP For example, both IFRS and US GAAP have the same rules around revenue recognition. German GAAP on the other hand does not have revenue recognition; instead an organization would book sales invoices directly. US GAAP is rules-based, meaning that there are very specific If/Then pronouncements. IFRS is principles-based, so there is greater dependency on judgement. IFRS is also more vague in how companies adopt or implement those standards.

6 US GAAP -VS- IFRS DIFFERENCES Approach (some examples) IFRS US GAAP Fair Market Revaluation Fixed Assets & Investments Only Certain Fixed Assets Extraordinary Items None Rare (negative goodwill) Consolidation Control 2 Models Joint Ventures Proportional OK Only Equity Research & Development Capitalized Expensed Inventory No LIFO LIFO OK Impairment 1 Step, Reversible 2 Step, No Reversal Some specific differences between the two standards include: - Fair Market Revaluation - Under IFRS, organizations must revalue fixed assets. Under US GAAP, only certain assets like real estate must be revalued. - Extraordinary Items - Negative goodwill has gone away under IFRS. - Consolidation - Only entities that are under your control should be consolidated under IFRS. - Research and Development - Development costs are placed in the Balance Sheet under IFRS. - Inventory - IFRS does not allow LIFO or Last In First Out. There are particular tax advantages to LIFO, so that is why firms practice it. But under IFRS, LIFO is not allowed because inventory in the Balance Sheet is not quite reflective of actual cost. CONVERGENCE -VS- COMPLIANCE There are 2 main approaches to IFRS adoption: Convergence: - Restructure existing applications so the primary ledgers reflect the standards set forth in IFRS. US GAAP Reporting IFRS Reporting Ledger Set Primary Ledger Secondary Ledger IFRS Accounting US GAAP Accounting SLA SLA AP AR FA Subledgers Transactions CST

7 CONVERGENCE -VS- COMPLIANCE Compliance: IFRS AND EBS R12 EXAMPLES Inventory - IAS 02 - Maintain current accounting practices per US GAAP guidelines and then build a secondary ledger to reflect the standards set forth in IFRS. Inventory Costing US GAAP - Allowable costing methods include LIFO, FIFO and Average Cost SCM products like Oracle Inventory handle Inventory, Costing - They do all the IFRS options - Actual w/flavors: landed, period actual, etc. - Standard w/flavors: process, BOM, semiconductors - And variances to actual - Rev dates & Inventory Aging - Reconfigure LIFO to standard or actual - Use a second IO for dual costing IFRS - LIFO not allowed IFRS Reporting US GAAP Reporting Inventory Valuation US GAAP - Inventory is valued at the lower of cost or market, and cannot be written up at a subsequent date Ledger Set Primary Ledger US GAAP Accounting Secondary Ledger IFRS Accounting SLA SLA AP AR FA Subledgers Transactions CST IFRS - Inventory is valued at the lower of cost or net realizable value: if the net realizable value of an item that has been written down increases subsequently, then the write-down is reversed under IFRS Asset Componentization - IAS 16 US GAAP - Component accounting is permitted, usually assets are depreciated as a whole IFRS - Component accounting is required Assets - Componentized assets with different useful lives - Parent Child features - Grouping features (restricted revaluation support) - API (to import the real estate & assessor s valuation) - Asset revaluation

8 IFRS AND EBS R12 EXAMPLES Impairment - IAS 36 IFRS AND EBS R12 EXAMPLES Operating Segments - IFRS 08 Impairment, specifically Fixed Assets Assets - API to accumulate and contrast recoverable values - API processes losses automatically and executes all immediate and long-term accounting - Automated comparison and impairment accounting - Automatically process the losses - Automatically execute all the immediate and long-term accounting Identifying Operating Segments General and Subledger - Use our very flexible chart of accounts design to track and identify different operating segments - Reporting features like FSG with BI Publisher US GAAP - Based on fair value - Non-reversible IFRS - Based on the recoverable amount (the higher of the asset s value-in-use and fair value less costs to sell) - Reversible Intangible Assets - IAS 38 Development Costs GL and Project features deploy for Capitalized Development - GL Cost Centers with Balance Sheet accounts capture the costs - Allocate to P&L when time to release OR - Project Accounting stores Projects on the Balance Sheet - Release to P&L via BOM & inventory - Integration with costing - Direct release to P&L via Project Accounting - Project Time & Costs features US GAAP - Development costs are generally expensed as incurred IFRS - Development costs (directly attributable expenditure) are capitalized when certain criteria are met US GAAP - Segments are based on actual Management Reporting. (excludes intangible assets) IFRS - Operating segments are identified by Risk and reward. (includes intangible assets) Foreign Currency - IAS 21 IFRS and GAAP determine Functional Currency using different emphasis General and Subledgers - Reporting Currencies and Revaluation work together to provide both Remeasurement or Translation - Chose the level of detail per your business needs: - The Subledger Transaction Level - Or the General Ledger Activity Level - Or the General Ledger Balance Level - Can also be done in HFM US GAAP - Cash Flow Based IFRS - Factors based with more emphasis on pricing factors. Both FAS 52 and IAS 21 specify: - Remeasurement (Historic Rate Conversion) from Accounting to Functional Currency - And Translation (Current Rate Conversion) from Functional to Reporting Currency

9 THE CENTROID IFRS TEAM THE CENTROID ADVANTAGE Centroid's Applications and Industry consultants are a focused team dedicated to working with our clients to help guide them on the path to achieving IFRS compliance. We work with our clients to identify the most optimal approach between GAAP to IFRS convergence, or complete IFRS Adoption. We provide the solutions you need for increased performance maximizing your investments - guaranteed. Using an established portfolio of common accounting and reporting changes for IFRS, we're able to establish a framework for transiting in an expedient manner. Oracle E-Business Suite Release 12 enables clients to take full advantage of Oracle R12's multiple ledger functionality. With the introduction of Subledger Accounting (SLA) in R12, customers now have the ability to translate their ledgers into an IFRS compliant set of accounting entries. We continually survey over 2,000 finance executives to gauge their concerns/progress regarding IFRS. Our results along with industry updates are reviewed on a quarterly basis on Centroid s IFRS Webinar series. For more details on the IFRS survey and our Webinar series, go to or feel free to contact us. We believe high performers push the envelope, outperforming their competition. As a high-performing organization, we take full responsibility for our work and the potential risks involved. Quite simply, we always deliver on our promises. As an experienced leader in Oracle consulting, we offer a broad range of services that give you an array of industry experience and proven performance. From sophisticated customer management and integrated supply chain solutions, to the transformation of your business and internal functions, we have the expertise to get the job done and get it right the first time. We are focused on providing you with comprehensive solutions whatever your needs may be. From infrastructure optimization, technology deployments to application configuration and support, we believe in using the best industry-honed talent to provide you with a value-added solution. Our first customer is still with us after 15 years. Centroid s relentless pursuit of providing the best solutions to our clients is a testament to our success and yours. Call us today and see how we can FutureProof your technology and business.

10 Detroit 1050 Wilshire Drive Suite 170 Troy, MI (p) Dallas Quorum Drive Suite 150 Dallas, TX (p) Hyderabad No. 304, 3rd Floor Fortune Chambers, Image Garden Lane Madhapur, Hyderabad India (p)