2008 asset accounting and ifrs things to consider

7/17/2019 2008 Asset Accounting and IFRS Things to Consider

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Orange County Convention Center

Orlando, Florida | May 15-18, 2011

Asset Accounting and IFRS -

Things to Consider

Gary Fullmer Americas IFRS Enablement – SAP Lead

Ernst and Young LLP



Real Experience. Real Advantage.

[

1

Learning Points

Accounting Changes are taking place today

Convergence is now

IFRS is later?

Financial Managers should have a ―working‖ knowledge of

Asset Accounting Communication with Asset Accounting Experts

Begin Now

Project teams




[

2

What We’ll Cover …

Meeting the Convergence & IFRS Requirements

An Overview of SAP Asset Accounting Planning for your Conversion Project

Wrap-up




[Convergence Projects Underway




[ Timeline for Accounting Change

4

1Assumes IFRS adoption in 2015 with two years comparative information.

► 12 Exposure Drafts (“EDs”) expected in 2010 and 2011–

jointly developed by the FASB and IASB

► Includes - Leases, revenue recognition, financial statementpresentation and financial instruments

► The rate and volume of accounting change is unprecedented

► SEC final decision on IFRS is still expected in 2011,

potentially driving further conversion changes

► Navigating the uncertainty and complexity will be challenging

and will put extreme pressure on the finance function

Analyze standard

and create plan

… fundamental changes in

accounting and reporting

paradigms … are being proposedin the forthcoming Eds … there are

numerous interdependencies

among the standards that further

complicate the analysis

Arnold Hanish , VP & CAO Eli Li l ly

Chairman, FEI Comm ittee on Corpo rate

Report ing

Letter to the FASB and IASB, May 7, 2010

2010 2011 2012 2013 2014 2015

Q2 Q3 Q4 H1 H2

IFRS timeline 1

FASB/IASB jo in t pro jects

Parallel reporting for

comparative purposesIFRS

reporting

SEC

decision

Implementation/Effective dates?

IFRS opening balance sheet

FinalImplement and testComme

nt




[ Selected IFRS Rules

5


http://slidepdf.com/reader/full/2008-asset-accounting-and-ifrs-things-to-consider 7/45Real Experience. Real Advantage.

[ IFRS will Impact Many of the Major Components of the

SAP Financial Landscape

6



[ Parallel Reporting Options — Embed or Hybrid Optionsfor Asset Accounting

Approach Definition Manual Automated

Top-side ► An approach using journal entries at the company orconsolidation level to adjust existing US GAAPbalances for IFRS differences

Embed ► An approach using enabling technologies to recordIFRS compliant transactions

► May use ERP application via chart of accounts,alternate ledger, company codes or anotheroptions

► Individual solutions for assets and other areas arealso enabled at the sub-module level by addingtransaction types, valuation differences, etc.

Hybrid ► Combination of the “top-side” and “embed”

Companies need to maintain two versions of data within their systems.

The challenge is how to enable the different versions

without undue manual adjustments.

7



[ Two Options for IFRS Reporting Using SAP General Ledger — Flexibility

8

Suggested Approach SAP General Ledger

Account-Based Easiest to implement

Single-ledger approach

Parallel Ledgers Most transparentapproach

Independent set of books

Future IFRS requirementsmore easily

accommodated Future enhancements

easily accommodated



[

Subsidiary

(Sub)

Finance

Asset Accounting Must Be Configured at ERP Sub-Ledger Level

Sub A GLSub A

Sub B

Sub C

Sub B GL

F e e d e r

S y s t e m s

Sub C GL

Operational

Departments

(Cost Centers)

Subsidiaries

close their GL

& Report to

HQ

It is expected that companies will embed IFRS at various levels

for different transactions and for different subsidiaries.

With the decision being driven by the cost/benefit.

F e e d e r

S y s t e m s

F e e d e r

S y s t e m s

Embed atReporting

Package

Single or

Parallel

Ledger

Asset

Accounting

Sub ledger

Corporate Consolidated Results

CorporateConsolidation

Process & System

US GAAP & IFRS

Financial &

Management

Reports

Consolidation Process

Reports ----------

---

------

Reports

----------

---

------

Reports

----------

---

------

Reports

----------

---

------

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[

10




Wrap-up



[ Selected Asset Accounting ConsiderationsUS GAAP to IFRS

General topics

Componentization of Assets

Fair Value and Original Costs – converting assets under IFRS

Impairments and Residual Values – annual testing/review

Disclosures

Selected Asset topics where there may be changes

Leases

Research and development

Intangible assets/software

Assets held for resale and investment assets

11



[

FI/CO/MMSource

for asset creation

Company

Code (s) Chart

Local

(01)IFRS

Deprec.Keys Methods& Controls

Asset

Master

Records

Sub-Asset (s)

Master

Records

Asset

Class

(02)

(Local)

Deprec.

Keys

Methods

& Controls

(03)

(TAX)

Deprec.

Keys

Methods

& Controls

Line Items

APC,

Deprec

Dep. Areas Dep. Keys Deprecation

ChartIFRS

Chart

TAX

Charts of

Depreciation

LLIFRS

02

Local

03TAX

Parallel

Ledgers

Transaction

Types

12

SAP — Asset Accounting: Overview and Terminology



[ Transaction Types

Definition Asset transaction types identify individual business transactions as

they are recorded during the original financial posting

Can be a manual entry or automatically derived based onconfiguration

Transaction types identify: Acquisitions

Retirements

Fixed Asset Transfers

Post Capitalization

Down Payments Manual Depreciation Entries

Asset Write-Up Entries

Transaction

Types

13



[Asset Master Record

Definition The asset master contains the comprehensive listing of data

for an asset including: General Description, and Functionality

Serial numbers Time Dependency – For Cost Center, Business Area, ... Allocations – Investment support measures, links to

equipment master, and other data Origin Information – Vendor, Manufacturing, Country of

Origin ...

Net Worth Tax Insurance – Type, company, agreement number, start,

value, index Depreciation Area Link Other – Leasing information if applicable

Asset

Master

Records

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[ Asset Master Record (cont.)

15



[Charts of Depreciation

Definition

They manage various legal requirements for the depreciation andvaluation of assets

Usually country-specific requirements by Company Codes

SAP delivers country-specific charts as reference Serves as a directory of depreciation areas

Assigns the characteristics to individual depreciation areas

One-to-one relationship with Depreciation Areas

Each Company Code identified in Asset Accounting must be

assigned to a single Chart of Depreciation Company Code assignment to a Chart of Accounts and Chart of

Depreciation are not related

Charts of

Depreciation

16



[Asset Class

Definition

Individual assets are grouped according to the requirements of

your company

Example:

Buildings, Machines, Furniture & Fixtures, …

Asset Classes drive GL Account Assignments

Asset Class templates can be used when setting up new Asset

Master Records

Controls screen layouts, information tabs and required information

characteristics, default useful lives

Asset

Class

17



[Asset Class (cont.)



[• Screen Layouts controlled by settings in Asset Class

Asset Master Record — Layout Example



[ Depreciation Areas

Definition

Used to calculate and track separate valuations by asset

according to different accounting rules

Up to 99 different valuations possible

Depreciation Areas can be grouped according to different

account rule requirements

Linked to a Company Code through a Charts of Depreciation

Depreciation Areas can be Calculated or Derived

Depreciation Areas can but are not required to post to theGeneral Ledger

Depreciation Area 01 must post to the Leading Ledger

(01)

IFRS

20



[Depreciation Area (cont.)

21



[Drill-Down Depreciation Area 01 — Example

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[Depreciation Keys

Definition

Depreciation keys control the automatic calculation of differentdepreciation types and resulting values

Examples of types of depreciation

Ordinary Depreciation (Normal wear and tear)

Special Depreciation (Tax related)

Unplanned Depreciation (Unexpected wear and tear)

Examples of valuation methods

Base method

Declining-bal. method

Maximum amount method Depreciation Keys are recorded in each Depreciation Area and

linked to each Asset Master Record An Asset Master will have a Depreciation Key for each

Depreciation Area that must track a valuation

Deprec.

Keys

23




[

24




Wrap-up




[ Planning for IFRS Conversion

Get assistance to understand the impacts that IFRS will have on

you, what elections are open to you, and what is

recommended for your circumstances

IFRS will impact more than just the Asset Accountants, it is

important to develop an integrated IFRS strategy

25




[ Planning for IFRS Conversion (cont.)

26





Build IFRS requirements into your Asset Accounting solution

Understand asset componentization impacts at your company How will you define a component?

How many and what assets will be impacted?

Configuration

Componentization of Assets is handled by using asset andsub-asset records in standard SAP

A sub-asset has its own independent asset master record, but

is linked to the main asset by common numbering (each sub-

asset has a separate 4 digit extension) Nomenclature for sub-asset numbering should be developed

for tracking component types and year of acquisition

27




[ IAS 16 Componentization of PP&E

Component Total Yrs Dep./yr 1 - 10 11 - 20 21 - 30

Engines $100M 20 $ 5M $50M $50M

Avionics $40M 10 $ 4M $40M

Fuselage $60M 30 $ 2M $20M $20M $20M

Interior $70M 14 $ 5M $50M $20M

Total $270M $16M $160M $90M $20

Airplane Total Yrs Dep./yr 1 - 10 11 - 20 21 - 30

Boeing 787 $270M 30 $9M $90M $90M $90M

US GAAP – The value of an airplane is based on the total cost of the airplane with

little or no componentization. Generally, depreciation approach follows the straight

line method.

IFRS – The value of an airplane is determined based on the components that

comprise the airplane. In this case, the Engine, Avionics, Fuselage and Interior.

Proposed Componentization Process

1. Identify the current level of componentization

2. Determine the level needed for componentization

3. Set up new categories in the Fixed Asset Register

Standard 1 - 10 11 - 20 21 - 30 Total

US GAAP $90M $90M $90M $270M

IFRS $160M $90M $20M $270M

Timing Diff.* <$70M> - $70M 0

US GAAP vs. IFRS - The difference in the depreciation between US GAAP and IFRS

impacts the bottom line.

ILLUSTRATIVE

* Temporary Difference

28




[ Planning for IFRS Conversion

29





30






Configuration (cont.)

Customized transaction types for IFRS impairments and reversals

See comments related to a new Depreciation area

Existing transaction types will need to be reviewed to enable/disable

impacts in the new Depreciation Area

New transaction types may be required Remember increased requirements for disclosures under IFRS

Link to data conversion strategies

Other configuration and master data can also be impacted

Chart of Account detail

Project Systems WBS’s need to provide the right splits for correctcapitalization

31






(cont.) Process

Identify what processes will be different for IFRS and make sure they

are built into your requirements now

Capitalization policy

There may still be differences between Local Country IFRS and US IFRS Global Accounting Policy may be more concerned with local reporting that it has

been in the past

Disclosures

IFRS requires greater detail in Asset Disclosures, don’t forget these

requirements in your design

New reports required? New transaction types?

32

[






(cont.)

People

Training will be required to educate US employees on IFRS as well

as process design changes required to meet IFRS requirements

There may still be differences between Local Country IFRS and USIFRS

Global Accounting Policy may be more concerned with local reporting

than it has been in the past

People will have to understand the differences and how they will be

reported

33

[






(cont.)

Data Conversion

Componentization – considerations?

What level of detail is a component?

How will data be disaggregated?

When will the data be converted?

Fair Value elections and posting changes to asset values?

Work to have a single data conversion for assets

Componentize the assets now if you can

It will save effort later

34

[






(cont.)

Test

Make sure integrated tests ensure that other processes or

configurations are not inadvertently impacted by IFRS configurations

(for example other depreciation areas) in Asset Accounting Include integrated testing scenarios if you will have changes to your

leading ledger while converting to IFRS

Ensure all disclosure requirements can be met with your design

today

Ongoing

Monitor the environment for further changes in SEC and/or IFRS

requirements

35

[




[ Specific Comments If You Already Have Implemented SAPAsset Accounting

Develop an integrated plan for implementing IFRS and plan the

timeline for implementation of these changes

Do not wait too long

Skilled resources may become scarce

Make sure you understand the options, elections, and impacts

Identify the changes that will be required to convert to IFRS in

your SAP Landscape

Some of these may impact other areas (example: PS WBS

element configuration), GL COA, Leading Ledgers

Do not forget disclosure differences in your IFRS requirement

gathering

36

[




[ Specific Comments If You Already Have Implemented SAPAsset Accounting (cont.)

Configuration

Integrate design and changes with the planned approach for

parallel accounting

Review the process for adding a new Depreciation Area

It is possible to add a new depreciation area after going live with

SAP, but it is not recommended Identify the steps and test them completely in your environment

37

[




[ Specific Comments If You Already Have Implemented SAPAsset Accounting (cont.)

Data Conversion

There is no simple way to create asset components in SAP from

existing Asset Master records

Understand the strategy and test the effort required to

componentize your assets

Make sure you don’t adversely impact other depreciation areaswith any configuration changes that you plan to make

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[




[

39



An Overview of SAP Asset Accounting

Planning for your Conversion Project

Wrap-up

[




[ Key Learning Points

It is critical to understand the ―big picture‖ of the IFRS impacts onyour company to enable the right decisions and elections to be

made Asset Accounting is a high-impact area with requirements for

componentization, and some differing accounting treatment fromUS GAAP

SAP’s Asset Accounting module can be configured to meet IFRS

requirements – anticipate some new asset classes, GL accounts,transaction types, depreciation areas, and other changes

Depreciation Area 01 must post to the Leading Ledger and mayrequire an SAP SLO project to change (if your Leading Ledgerchanges Accounting Principles)

IFRS requires significantly more disclosures to support thefinancial statements. Make sure you understand your disclosurerequirements, the information may be hard to find later.

40

[




[

41

Best Practices

Things to do Next Week

Review you Asset Accounting Records

Check on amount of componentization in place

Check on Lease Accounting

How many operating leases

[




[ Resources –

Ernst and Young IFRS Resources

www.ey.com/ifrs

Industry-Specific updates for IFRS

Links to the SEC IFRS Web pages

Monthly IFRS status update newsletters

Technical Accounting

Thought Leadership

SAP IFRS Resources

www.sdn.sap.com/irj/bpx/ifrs

www.sdn.sap.com/irj/bpx/ifrs?rid=/webcontent/uuid/10ca1d5c-0818-2c10-aca7-dae9fa23a363

SAP and Ernst & Young Webcasts IFRS White Papers from SAP

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2008 asset accounting and ifrs things to consider

Documents

real advantage

ifrs differences

ifrs things

convergence ifrs requirements

ifrs compliant transactions

selected ifrs rules

testcommentreal experience

accommodatedreal experience