webinar_ifrs_implementation_6_15

8/7/2019 webinar_ifrs_implementation_6_15

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IFRS @ SAPTransition to IFRS:

Implementation of IFRS as an

additional set of accountingstandards alongside US GAAP

June 15thSAP EcoHub Webinar

Christiane Ohlgart

Corporate Financial Reporting

SAP AG, Walldorf (Germany)



© Corporate Financial Reporting, SAP 2010 Page 1

Background: SAP„s Financial Reporting

a. SAP‟s Financial Reporting History

b. Reporting Requirements and Output

c. Characteristics of SAP„s Financial Reporting

SAP‟s IFRS Introduction

a. From Strategy to Project Execution

b. Timetable, Roles & Responsibilities, Impacted Processes

c. US GAAP – IFRS Differences @ SAP

d. Learnings

SAP„s Full IFRS Transition

Outlook

Agenda

1

2

3

4




1988: SAP starts to report consolidated financials under German GAAP (HGB)

German requirement due to size and existence of subsidiaries

1999: SAP starts to report consolidated financials under U.S. GAAP

Obligation due to U.S. listing

Most major competitors located in the U.S.=> U.S. GAAP as the accounting language of the industry

IFRS (IAS) no alternative at that time

2002: European Union requires all publicly listed European companies to report under IFRSfrom 2005 onwards (U.S. listed companies to start latest for fiscal 2007)

2003: SAP starts preparation for IFRS

2004-

2008: Increasing U.S. GAAP/IFRS convergence and increasing IFRS acceptance worldwide

The History of SAP‘s Financial Reporting




2008: SAP issues first IFRS financials for fiscal 2007 with comparatives for 2006 Minimal differences to U.S. GAAP financials

No differences in revenue except for different classification of discontinued operations

SEC accepts IFRS financials from foreign issuers without U.S. GAAP reconciliation

SEC proposes roadmap to converge all U.S. issuers to IFRS until 2014

SAP collects feedback from investors regarding full conversion to IFRS

Overall very mixed feedback

Several investors asked for the migration not to be done short-term per end of 2008 but askedSAP to report U.S. GAAP and IFRS in parallel during 2009

2009: SAP announces full transition to IFRS and discontinuance of U.S. GAAP per January 1, 2010 2009 as the year of transition:

Gradually shift the focus of SAP‘s financial communication from U.S. GAAP to IFRS toaccustom the capital markets to SAP reporting under IFRS

Increase the prominence of IFRS information in SAP‘s financial reports Explain relevant U.S. GAAP/IFRS differences and familiarize capital markets with Non-IFRSfigures

Commitment to continuing minimization of IFRS/U.S. GAAP differences SAP is the foreign private issuer to provide IFRS XBRL financials

(which was a separate project in 2009 and required modifications regarding the presentation andlabeling of financial statement positions)

2010:SAP discontinues US GAAP for internal and external reporting

The History of SAP‘s Financial Reporting




Why Does SAP Have to Prepare Financial

Reports?

SAP AG is a legal entityincorporated underGerman law

SAP AG’s shares are

publicly listed in Germany

SAP AG’s shares are

publicly listed in the U.S.

SAP subsidiaries are legalentities incorporated underrespective local law

Under German law corporationsmust prepare and disclose certainfinancial reports

Under German law publicly listed

companies must prepare anddisclose certain financial reports

Under U.S. law publicly listedcompanies must prepare anddisclose certain financial reports

Under most local lawscorporations must prepare anddisclose certain financial reports

Financial Reportingby SAP AG

as a Group:

IFRS (US GAAP)

as a stand-aloneentity:

German GAAP

Financial Reportingby SAP

subsidiariesfollowing localrequirements




Key characteristics of SAP‘s financial reporting

High level of transparency & compliance on all levels Real time access to all postings in the entire group Consistent accounting in the entire group, no harmonization of accounting and valuation rules Easy group-wide analysis down to account entry level, no reclassification from different chart of

accounts

Uniform Global Accounting Uniform chart of accounts for all SAP companies Accounting of all SAP companies on one SAP system and one client

Uniform Accounting Language All SAP entities record their transactions under primary group GAAP Financial statements under secondary group GAAP and local GAAP produced by reconciliation

Central Approach“: Corporate Financial Reporting responsible for group wide accounting guidelines consolidation (total SAP group and sub-groups) creation of new accounts for all company codes managing subsidiaries‘ closing processes

supporting subsidiaries‘ accounting

monitoring subsidiaries’ accounting

all material non routine acc. decisions certain group wide postings





a. SAP‟s Financial Reporting History

b. Reporting Requirements and Output






d. Learnings


Outlook

Agenda

1

2

3

4




Important considerations for every IFRS

implementation:

Adoption and first time conversion rules for IFRS (IFRS 1)

Analyze carefully where you have hidden reserves or hidden losses and how you want totreat them in your IFRS opening balance sheet define your IFRS strategy!

If there is no specific IFRS guidance IAS 8.12 allows you to refer to

pronouncements of other standard setters (e.g. US GAAP) as long asthese do not conflict with IFRS

If you continue US GAAP policies and the respective US GAAP guidance changes thechange can be applied under IFRS (IAS 8.21) but the US GAAP transition rules may notbe applicable

risk that new guidance must be applied retrospectively despite US GAAP transition rules withprospective application

Do you want to implement XBRL-compliant IFRS financial statements?

If yes, you should already create your financial statements considering the IFRStaxonomy. Please be aware this could create more presentation differences than wouldotherwise be required.




Introduction of IFRS:

From Strategy to Project Execution

Definition of

IFRS Strategy

Decision on

External Support

Project

Planning

Project

Execution

Alternatives Considered

Multi-GAAP

US GAAP and IFRS statements in parallel IFRS statements and US GAAP reconciliation

IFRS Accounting Policies „Use the Opport unity“: Revisit all accounting

policies and select as best for SAP‘s future

„Minimize the Differences “: Continue established

US GAAP policies wherever possible

Communication Focus Move Focus to IFRS or continue focus on US

GAAP

IFRS Start Date Earlier than required or latest possible date

Management Reporting Change to IFRS or continue with US GAAP

IFRS Strategy Established

Continue to prepare and file U.S. GAAP financial

statements until financial community understandscomparability of SAP‘s IFRS reporting with

competitors‘ U.S. GAAP reporting

No „independent“ IFRS accounting strategy.

Objective: Minimize the U.S. GAAP / IFRSdifferences

Focus of communication to capital markets

continues to be on U.S. GAAP Prepare IFRS financial statements in accordance

with legal requirements no proactivecommunication beyond legal requirements

No voluntary IFRS financial statementsprior to 2007

Internal Reporting continues to be basedon U.S. GAAP


http://slidepdf.com/reader/full/webinarifrsimplementation615 10/29© Corporate Financial Reporting, SAP 2010 Page 9



Definition of

IFRS Strategy

Decision on

External Support

Project

Planning

Project

Execution

Alternatives Considered

External accounting support No external support External Auditor as external support Other audit firm as external support

Scope of external support Limited to review of research done by SAP Performance of research Performance of trainings Drafting of guidelines

Decision on External Support Made

Engage audit firm other than externalauditor

Tasks Review research done by SAP Perform research in areas where SAP

believes external research is appropriate Support SAP in preparing trainings but

trainings to be held by SAP Support SAP in drafting guidelines but

guideline ownership stays with SAP

Engage external auditor for review andclearance of research results





Definition of

IFRS Strategy

Decision on

External Support

Project

Planning

Project

Execution

Project Streams

Stream 1: Knowhow development

Identification of differences between US-GAAP and IFRS

Preparation of IFRS Accounting Policy Training of relevant employees

Stream 2: Technical preparation Preparation of IFRS chart of accounts

Set-up of accounts/structures Determination of additional accounting

objects

Stream 3: Organizational Support Rollout to subsidiaries Establish an IFRS network

Project Setup

Steering Committee with

Group CFO Chief Accountant and Corporate Controller One Regional CFO and one local CFO Representative from SAP ERP Development

Fully dedicated project lead with strong skills in Accounting (IFRS, US GAAP) SAP processes and systems

project and people management

Project team members recruited from Corporate Financial Reporting Other Corporate Departments

(Controlling, Tax etc.) Subsidiaries (including Australia (early adopter)) SAP ERP development and SAP IT

Definition of roles & responsibilities & timetable




Project Timetable

knowhow technical/IT organizational

HY1

2004

HY2 HY1

2005

HY2 HY1

2006

HY2 HY1

2007

HY2 HY1

2008

HY2HY1

2003

HY2

Implemen-tationStrategy

Decision onexternalsupport

Identification of initial relevant differencesU.S. GAAP/IFRS

IFRSAccountingGuideline

Prepare IFRS chart of accounts

Rollout of IFRSto subsidiaries(incl. training)

2006 IFRSData forSAPGroup

2007 IFRSData forSAP Group

Determine add.accountingobjects

2004/2005 IFRS

Data forSAP Australia



IFRS Introduction:


Typical tasks and steps taken foreach topic:

Identification and classification ofdifferences (presentation, valuation ordisclosure difference) Suggestion of IFRS Policies

Engagement of IT where required Discussion of IFRS policies with external

accounting firm and auditor

Determination of Group-wide impact

Obtain approval from Steering committee

Definition of

IFRS Strategy

Decision on

External Support

Project

Planning

Project

Execution




Assignment of Responsibilities

Introduction

of IFRS

@

Provides guidance and training

Provides posting infrastructure

Performs certain reconciliation postings forall company codes

Collects data for disclosures (via expandedreporting package)

Supports identification of IFRS/

U.S. GAAP differences Suggests accounting policies to be decided

by Steering Committee if critical

Corporate Financial Reporting

Identify reconciling items (i.e., differencesIFRS/U.S. GAAP)

Perform all reconciliation postings exceptthose performed by CFR

Bring open issues to the attention ofregional IFRS Specialist

Complete expanded reporting package

certify accuracy and completeness ofreconciling entries and disclosures

Support KPMG‘s audit

Local SAP Entities

Collect all ambiguous issues from individualentities in the respective region

Provide guidance to solve ambiguous issues

Discuss complex issues with CFR (singlepoint of contact in CFR for each IFRSSpecialist)

Regional IFRS Specialists

Audit

IFRS opening balance sheet IFRS reconciliation 2006

IFRS reconciliation 2007 and beyond

IFRS consolidated financial statements2007 and beyond

KPMG




Classification of US GAAP – IFRS Differences

Differences between

IFRS and U.S. GAAP

Avoidable differences Unavoidable differences

Differencesnot relevant to SAP

Differencesrelevant to SAP

Insignificantdifferences

Significantdifferences

Avoided via accountingpolicy choice as close as

possible to U.S. GAAP“

Documentation required to support that thereis no difference (R&D, component approach)

Differences that just required change indocumentation to comply with IFRS (e.g. forhedging, but no accounting impact; Goodwillimpairment testing)

Closely monitored but notconsidered as long as

clearly inconsequential

- Classification- Measurement

- Presentation- Disclosures




Discussed Differences

The following potentially significant differences between U.S. GAAP and IFRS werediscussed in detail in before the implementation of IFRS …

Difference not relevant (documentation)

Component Approach applied prospectively

Differences not relevant; not material

impairments, Relevant, unavoidable difference

Relevant difference, minimize difference byestablishing respective accounting policies

Unavoidable differences that were insignificant,

Only relevant for opening balance sheet

Difference not relevant, adjusted documentation

Unavoidable differences

Significant unavoidable differences until SFAS141R was issued.

Difference not relevant (documentation andprocess was adjusted)

Research & Development,

Fixed Assets (Component Approach)

Financial Assets and Marketable

Securities,Provisions,

Employee related liabilities andliabilities for Pension Plans,

Revenue Recognition,

Share-based Payments,

Financial Derivatives,

Taxes,

Business Combinations andmeasurement of Intangible Assets,

Impairment Testing of Goodwill andother Assets




Discussed Differences

… and the most significant differences were finally identified and have to continuously

be monitored for …

Constant monitoring on item or program level

Most significant differences until issuance ofSFAS 141R

Change US GAAP balance sheet presentationalign US GAAP and IFRS as much as possible

Initially not discussed, but when SAPdiscontinued the operations of one entity, thedifference resulted in significant unavoidabledifference

Hedging documentation adjusted, certain ICoFX hedges seized to qualify under IFRS

Unavoidable differences impacting processes

Provisions, Pensions and TerminationLiabilities

Business Combinations

Presentation of certain balance sheetitems (i.e. deferred taxes, minorities)

Discontinued operations (scope)

Hedging (primarily documentation)

Disclosures

IFRS 7 (Financial Instruments)

Provision development schedule

Disclosures for non-significant

acquisitions



Introduction to IFRS:

Impacted Accounting Objects and Processes

New IFRS Accounting Guideline and/or update of US GAAP Accounting Guideline

Additional accounts and reporting structures (for segment reporting, balance sheet,comprehensive income, fixed asset classes etc)

Additional CO objects (like cost and profit centers) to capture IFRS deviations (for differencesof personnel expenses like pensions, other benefits or share based payments, etc)

Introduction of transaction types for provision development (addition, release, utilization, FX,interest accretion, etc)

Automation of certain standard US GAAP / IFRS differences:

US GAAP requires recognition of services according to proportional performance method

IFRS requires application percentage of completion method for service revenues

Difference when project is operating at a loss

Automation of related accounting entries by expanding the logic for certain project related

sales order types that calculate the stage of completion and generate postingsautomatically

Expansion of annual reporting package to include IFRS disclosure obligations

Additional consolidation processes (IFRS, Segment Reporting)



SAP’s Financial Reporting Output (2007-2009):

Parallel Reporting @ SAP

Reporting of SAP AG and SAP Group

Annual reporting in 2008 Annual Report to Shareholders with consolidated

financial statements and consolidated Review of Operations IFRS< 6 weeks before shareholder meeting (i.e. in March) – German & English

Annual Report on Form 20F with consolidatedfinancial statements US GAAPWith Annual Report – English

SAP AG standalone German GAAP financial statements< 6 weeks before shareholder meeting (i.e. in March) – German

Quarterly reporting in 2009

Press Release (Q1 - Q4)< 4 weeks after end of quarter – German & English US GAAP and IFRS

Quarterly Report (Q1 - Q3)< 45 days after end of quarter – German & English IFRS

Ad-hoc reporting

Whenever required under German law or Regulation FD

Reporting of SAP Subsidiaries

Most of the subsidiaries

Individual financial statements under local GAAP




Learnings

Key Success Factors

Early Start of the Project

Early Clarity regarding IFRS strategy

Management attention

Dedicated project lead

Involvement of all levels in the organization

Centralized approach Engagement of Audit Form other than external auditor

Involvement in IFRS standard setting

Difficulties

Advising audit firm unable to fully act as advisor rather than auditor

Complexity of alignment efforts of two sets of financial statements in two languagesunderestimated

Risk of non-endorsement of individual IFRS in European Union not manageable




a. SAP‟s Financial Reporting Historyb. Reporting Requirements and Output






d. Learnings


Outlook

Agenda

1

2

3

4



Benefits and Risks of Full IFRS Transition for

SAP in 2010

Benefits Risks

Communication to capital markets

based on single accounting regime

eliminates confusion that reporting

under multiple GAAPs creates

Use of a global accounting standards

fits better to SAP as a globalEuropean company

IFRS is increasingly applied as local

GAAP across the world => Reduction

in local GAAPs to be applied by SAP

subsidiaries

IFRS are principle based, as a resultapplication to similar transactions

across the world is possible

Concern that SAP‘s financials change

significantly

Concern that comparability to

U.S. competitors is impaired

IFRS revenue recognition rules

provide more flexibility Differences in U.S. GAAP and IFRS

rules regarding non-revenue

transactions

IFRS as a principle based standard

is less strict



Risk Mitigation Measures

Board Resolution to apply U.S. GAAP revenue recognition rules unless

specifically prohibited by IFRS Reference to application of U.S. GAAP revenue recognition rules in the notes to the

financials audited by KPMG

Four years (2006-2009) of parallel U.S. GAAP and IFRS reporting toevidence “insignificance” of differences

IFRS requirement to consistently apply accounting policies obligation to continuecurrent accounting policies

SAP is extensively supporting convergence of IFRS/U.S. GAAP throughinvolvement in national and international organizations

Training and information material was made available to financialcommunity

Further reduction of differences on Non-GAAP and Non-IFRS level




a. SAP‟s Financial Reporting Historyb. Reporting Requirements and Output






d. Learnings

SAP„s Full IFRS Migration

Outlook

Agenda

1

2

3

4



Outlook:

What will we be faced with in the future?

Fair values and expectations will drive recognition and valuations

A/R (= financial asset to be recognized at amortized cost)

will not be recorded at contract value but credit losses will have to be factored in on initial recognition( expected loss model)

Provisions

Changes of the presentation of financial information

Additional reconciliation schedules / disclosures that clearly show the coherence ofbalance sheet, income statement, cash flow statement and shareholder‘s equity

Investments (= financial assets at fair value through profit and loss or other comprehensive income)

Accounting will be more principle based with added complexity. Internal and external transparency will be necessary.



Outlook:

Why should you get involved with IFRS?

IFRS might become applicable or mandatory in the US, depending on the outcome

of the SEC’s work plan

IFRS are or will be allowed or even required in many countries under local GAAP(certain European countries, Canada, Brazil, Venezuela, many Asian countries, etc)

You do not want your subsidiary to potentially influence Group reporting policies by setting their ownpolicies when applying IFRS locally

Get involved in local IFRS implementation projects Group-wide you can have tremendous savings, if you concentrate IFRS expertise and coordinate

accounting policies

Significant projects are currently not done independently by the IASB and FASBbut as joint projects with the clear intention to converge US GAAP and IFRS(revenue recognition, financial presentation, lease accounting)

High risk that you will be faced with IFRS thinking even if the SEC will not require or allow IFRS in theUS

Even if the EU might not endorse certain IFRS standards, the IASB and FASB could decide to proceedwith their work plan.



Resources

Read our IFRS whitepapers:

http://www.sap.com/solutions/sapbusinessobjects/large/enterprise-performance-management/fincons/brochures/index.epx

"Streamlining Your Conversion to IFRS"Take an in-depth look at how organizations worldwide are adopting IFRS - both for regulatory compliance and to take

advantage of the opportunities this transition provides. Read about what the experts are saying, critical decision points to

be addressed, and technology solution that can help smooth the way. Log-in required. "Streamlining Your Conversionto IFRS“

"Complying with International Financial Reporting Standards (IFRS)"

Read this in-depth discussion of the considerations for effecting a smooth transition to IFRS. Co-authored by SAP andPwC, the paper provides an independent review of why SAP BusinessObjects Planning and Consolidation is so well

suited to addressing IFRS requirements. Log-in required. "Complying with International Financial Reporting Standards

(IFRS)" (161 KB)

Join the Business Process Expert (BPX) Community:

For sharing IFRS on SAP knowledge https://www.sdn.sap.com/irj/bpx/ifrs

Contribute to IFRS on SAP Ideas, Best Practices, Tips and Tricks -

https://wiki.sdn.sap.com/wiki/display/IFRS/IFRS+on+SAP+-+Best+Practices Attend next webcast on IFRS Parallel Reporting

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Listen to the IFRS Webinars and Other Resources from SAP Ecohub

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