Article: IFRS 15: Value Beyond Compliance

Author: Ross Chapman

Publication Date: June 3, 2015

IFRS 15: How to unlock value beyond compliance Many telecommunications providers have assessed the impact of new revenue recognition rules (IASB IFRS 15, FASB ASC 606) and are now analyzing their implementation options. The costs to comply will be large – so many CFOs are gearing their projects to gain value beyond compliance.

By now, most telecommunication providers have confirmed that compliance with the new revenue recognition requirements will require a significant investment of time and money.

We have been working with a number of leading telecommunication providers that have found opportunity in the middle of this challenge. These CFOs are gearing their revenue recognition projects to unlock business insights, transform management reporting and improve their finance team’s strategic capabilities. In this article, we look at how these firms are approaching their IFRS 15 projects to unlock value beyond compliance.

Why is IFRS15 (FASB ASC 606) compliance so costly, complex and difficult?

The new revenue recognition standard is the most significant accounting change since the introduction of IFRS over ten years ago, according to Tony Chanmugam, group CFO at BT.

Achieving compliance is much more than a simple policy adjustment. It requires significant change to process and systems.

For the majority, the most prominent system challenge lies in collecting and managing the contract-level data for millions of customer contracts as well as transactional data required to determine when to recognize what revenue. Nick Read, group CFO of Vodafone, recently noted “under the new

The IFRS 15 compliance process offers three main opportunities to improve finance IT architectures: • Streamlining the data integration

and validation processes

• Moving to a single point of accounting control

• Providing a rich data store of granular, contract level data that links the General Ledger to the data warehouse

Article: IFRS 15: Value Beyond Compliance

Author: Ross Chapman

Publication Date: June 3, 2015

rules, sourcing and linking the data required to reliably allocate revenue could be challenging given diverse and complex IT systems.“

Does a portfolio approach simplify anything?

Many telecommunication providers originally thought that a ‘portfolio approach’ (with groups of similar contracts grouped together) would simplify their IFRS 15 implementations – but following further analysis – the majority of firms seem to be concluding that this approach doesn’t eliminate the need to collect low-level data and comes with the added complexity of actively managing portfolios.

What value should CFOs expect from their investments?

To paraphrase a CFO, we were speaking to recently, “no one wants to spend hundreds of millions of dollars on just accounting.” Certainly, one would hope that investment at the levels estimated for IFRS 15 compliance would deliver significant business value, and Aptitude Software sees CFOs from large telecommunications striving to achieve this.

Value-additive objectives that Aptitude Software sees providers incorporating into their IFRS 15 projects fall into two main categories.

1. Improving management reporting and analytics to empower finance to drive the business forward

2. Simplifying, streamlining and automating finance operations to reduce costs and improve agility

Improving management reporting and unlocking insights from analytics

The contract-level customer and product data required to address IFRS 15 can be tapped to dramatically improve analytics and management/performance reporting. By building systems that integrate, validate and store this data, telecom providers have determined that they can calculate metrics such as customer lifetime value and the profitability of individual products, channels and customer segments.

One large European telecommunications provider, for example, sees the opportunity to dramatically improve revenue forecasting. They want to forecast revenue for different customer segments and other dimensions, including both in- and out-of-bundle revenue streams, and to be able to show the forecast impact to the P&L.

Their IFRS 15 solution is easily geared to deliver these insights, providing a system on which they can combine granular transactional & customer/product reference data, calculate and apportion revenue, and deliver dynamic reporting.

“The new revenue recognition standard is the most significant accounting change since the introduction of IFRS over ten years ago.”

-Tony Chanmugam, group CFO at BT

Article: IFRS 15: Value Beyond Compliance

Author: Ross Chapman

Publication Date: June 3, 2015

Data collection and reliability has always been finance’s key limitation in delivering analytic insights. Data acquisition projects to support IFRS 15, if done properly, will help telecom providers overcome this barrier while solving the underlying compliance issue.

Standardize, simplify and automate finance operations

A second way that telcos are unlocking value from their IFRS 15 projects is by taking the opportunity to streamline their finance IT architectures. The three main opportunities are to:

• Streamline data integration/validation processes • Gain a single point of accounting control (to

apply new rev rec rules) • Links financial reporting (/or the GL) to a rich

source of underlying transactional data.

Telecom providers that we are working with recognized this opportunity very early, and are implementing a revenue recognition engine in tandem with an accounting hub and financial data warehouse. Our recent finance architecture brochure gives an overview of the best-practice architectures and the components finance can install to address IFRS 15 while streamlining broader accounting and reporting processes. By using IFRS 15 to transform finance architectures, telecommunications providers will be able to reduce the cost of finance.

Recent research published on CFO.com highlights that many of the most cost-conscious CFOs achieve efficiencies by standardizing global financial data models and charts of accounts, automating transaction processing and streamlining core

accounting processes – exactly the same things that many finance teams need to address the new revenue recognition rules. In the margin-sensitive, highly competitive telecoms environment, reducing costs is imperative for many CFOs. The labor component of the total finance cost averages 60% or higher according to Mary O’Driscoll at AQPC, with many finance teams constrained by the need for manual data collection and manipulation.

Conclusion Achieving compliance with the new international revenue recognition accounting requirements will challenge telecom providers. The time frames are tight, but providers that are starting now have an opportunity to gear their projects to achieve value beyond mere compliance.

4. Financial controllers will continue to focus on statutory and regulatory reporting Statutory and regulatory reporting has long been under the jurisdiction of financial controllers and for the most part they will continue to tackle challenges in this space. However, the goal of tomorrow’s financial controller will be to strategically manage regulatory uncertainty and respond to new requests faster and more cost effectively.

   

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This article was written by Ross Chapman, Head of Marketing for Aptitude Software. Ross specializes in understanding CFO challenges and working to address unmet market needs in this space.

Ross welcomes comments and discussion on this topic and can be reached at rosse.chapman@aptitudesoftware.com