JD Edwards - · PDF fileJD Edwards Product Management ... “obligations times SSP or...

Copyright © 2015, Oracle and/or its affiliates. All rights reserved.

JD Edwards Summit

The New Global FASB/IASB Revenue Recognition Accounting Standard JD Edwards EnterpriseOne and World

Seamus Moran - Senior Director Oracle Financials Product Management David Scott – Senior Principal Product Manager JD Edwards Product Management Karen L. Brown – Senior Principal Product Manager JD Edwards Product Management

Copyright © 2015, Oracle and/or its affiliates. All rights reserved. |

Safe Harbor Statement

The following is intended to outline our general product direction. It is intended for information purposes only, and may not be incorporated into any contract. It is not a commitment to deliver any material, code, or functionality, and should not be relied upon in making purchasing decisions. The development, release, and timing of any features or functionality described for Oracle’s products remains at the sole discretion of Oracle.

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Program Agenda

The Standard

Impacts to JD Edwards

JD Edwards Contracts and Job Cost

JD Edwards Accounts Receivable

Call to Action

Q&A

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2

3

4

5

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The Standard Overview

Oracle Confidential – Internal/Restricted/Highly

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M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D

Accounting Standard Timeline

• The new Revenue standard became both US GAAP and IFRS on May 28th, 2014

– US GAAP Topic 606 published as ASU 2014-9

– IFRS 15

– Text is identical; references to GAAP and to IAS are different; minor difference to ensure identity of meaning by reference to different glossaries; differences in transition and take up options

• Implementation Timeline: – Effective date is set for first new fiscal after January 1, 2017

– 2 Options on Retroactive Reporting

Standard Final 5/28

Today January.

OOW 9/28

Reprocess data from here for comparatives 1/1/2015

OOW 2016

New Year 2016

All Companies

Live on New Rules + FRM

1/12017

2014

2046

2015 2017

OOW 2015

2015 2016



Oracle’s Product Response for Topic 606 & IFRS 15

Topic 606 and IFRS 15 Requirements & Software Objective

Transition Arrangements, what we need ASAP

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Applicability

• Industries

– All, except Insurance and Lease vendors

• GAAPs

– Changes to both US GAAP and IFRS

• Repeals (withdraws, cancels) the following US GAAP & IFRS statements – US GAAP (Codification):

Topics 340-20, 360-20, 430, 605-15, -20, -25, -28, -30, -35, -50, 908-605, 910-605, 912-210, 912-235, 912-605, 915-605, 920-310, 920-605, 920-845, 922-430, 926-430, 926-605, 926-845, 928-430, 928-305, 932-605, 940-605, 942-605, 948-605, 952-340, 952-720, 954-340, 970-605, 976-605, 978-605 and 985-605

– Amends many others.

– IFRS: IAS 11 and 18

Concept Applies to All Companies, All Industries, All Countries


Revenue Standard

• All companies to identify Contracts – combinations of Customer Obligations that are related as a contract for accounting purposes. Example: Car + x years free service

• Must Recognize Revenue on performance obligations you have satisfied – a “positive” definition, as opposed to “what you have billed, less carve-outs” or “lifted contingencies”

• Recognize a monetary Customer Liability, “Performance Obligation”, (as opposed to deferring revenue) on performance obligations you have not satisfied but you do owe to customers

• Recognize a Receivable only on your right to receive cash where the only condition is the passing of time (e.g. 30 days)

• Recognize a Customer Asset, “Performance Asset”, on a conditional right to receive consideration for a satisfied obligation. A condition might be a requirement to complete satisfaction.

• An open order is a Performance Obligation but not a Performance Obligation liability (3 conditions)

• Value each obligation using “Observed Standalone” or “Estimated” Selling Prices apportioned to each element of the contract, by following four steps

• No longer amortize a sales invoice to the P&L; instead, track (recognize and value, list and audit) performance obligations to customers – “obligations times SSP or ESP”, not “invoice minus released”

“Performance Obligations” replace “Deferred Revenue”


Today’s Old Rules: two extremes, difficult to compare industries, companies

Standard Compliance, IFRS 15 & Topic 606 All Industries

Identify Bundled services and goods Allocate deal prices to identify discounted goods/services

Revenue Recognition immediately on Performance Performance Obligation Accounting

Complex Compliance Specified industries: Software, Hi-tech, etc Bundled services and goods Variable Pricing Recognition when contingencies met Deferred Revenue Accounting

Non-complex Compliance All others

Possible unidentified bundles Standard Pricing

Recognition on delivery Sales Invoice Accounting

Tomorrow’s New Rules: extremes removed, easier to compare industries, companies

Applicable to all industries, & to all IFRS & US GAAP filers Move to the center, all use the same revenue recognition principles


Understanding the Standard: Old versus New

Mandate: Don’t recognize Revenue until all delivered Mandate: Recognize Revenue once performed

Deferred Revenue is a sales invoice you are feeding to the P&L

Contract Liability is a performance obligation you have not delivered on

UBR are receivables

you haven’t billed yet

Contract Assets

are not Receivables,

and you might even

have billed

already

Revenue and Deferred

Revenue are valued at

invoice value Plus or minus Carve-ins and

carve outs

Revenue and Contract

Balances are valued at

Performance Obligation

value per Step Four

VSOE, TPE, Estimate = Fair Value OSSP, ESP = Expected Consideration

Multiple Element Arrangement

Contract With Customers

Elements Units of Account

Distinct Performance Obligations

The Constraint

Revenue Schedule

Performance Satisfaction

Specific USA Industries

All Commercial Customers

Bill, then defer Four steps to valuation, then book that

Follow the carve out

Follow Customer satisfaction

Revenue system functionality changes?


Understanding the Standard : Old versus New FASB IASB

Oracle Confidential – Internal/Restricted/Highly Restricted

Mandate: Don’t recognize Revenue until all delivered Mandate: Recognize Revenue once performed

Deferred Revenue is a sales invoice you are feeding to the P&L

Contract Liability is a performance obligation you have not delivered on

UBR are receivables

you haven’t billed yet

Contract Assets

are not Receivables,

and you might even

have billed

already

Revenue and Deferred

Revenue are valued at

invoice value Plus or minus Carve-ins and

carve outs

Revenue and Contract

Balances are valued at

Performance Obligation

value per Step Four

VSOE, TPE, Estimate = Fair Value OSSP, ESP = Expected Consideration

Multiple Element Arrangement

Contract With Customers

Elements Units of Account

Distinct Performance Obligations

The Constraint

Revenue Schedule

Performance Satisfaction

Specific USA Industries

All Commercial Customers

Bill, then defer Four steps to valuation, then book that

Follow the carve out

Follow Customer satisfaction

Repealed


The 5 Steps are the Data Capture - Revenue Accounting is based on Performance Obligation ID & Valuation

Search through “order lines” from many

sources & Link

ID distinct performance

obligation from “order lines”

Establish linked transaction

price & constraint

Apply relative observed SSP

or ESP

Revenue Bookkeeping

Source Detail Contract

ID Performance

Obligation Amount To Bill

Revenue Amount

PO Xfr (from) / to

PA Performance obligation 1000 1000-10

- 4,000 (1,000)

OM Performance obligation 1000 5,000

Alien Performance obligation 1000 1000-20 1,000 2,000 1,000

OM Performance obligation 1100 1100-30 3,000 2,800 (200)

Excel Performance obligation 1100 1100-40 2,500 2,700 200

PA Performance obligation 1100 1100-50 2,350 2,350 -

OM Performance obligation 1200 1200-60 4,000 4,000 -

OM Performance obligation 1200 1200-70 1,800 1,800 -


• Retrospective: Recalculate your opening balance sheet, replacing “deferred revenue liability” with “performance obligation liability”, offsetting equity

• Then Two Options:

– Option 1 = Restate the years BEFORE cutting over, e.g. from 1/1/2015 (already gone) • Two sub options: redo all transactions or redo only transactions open at year ends

– Option 2 = Disclose Deferred Revenue reconciliation for the years AFTER you cut over (ie, do old accounting through 2020 alongside new accounting)

• Both options require you study the impact ahead of time

– Dollar impact; Informed Decision; Model 2017; Data gathering

Retrospective Transition: Reprocess all/some transactions


Model the Transition

• There are two transition options with certain sub-options; nine ways in total.

• In practice, you need to model them all (planning, guidance, taxation, etc.)

– There is a substantial dollar value difference between them * deferred revenue that may never be realized * performance obligations that are already satisfied

– You need to examine them to decide which you adopt: it isn’t an IT decision

• To model one option, you need to re-iterate with different performance obligation or different prices or different recognition rules: it will be reiterative

• We’re suggesting that:

1. Use your existing RR system to do “old rules”

2. Use your favorite tool to figure the difference between old and new for restatement purposes


Transition Comparison: $ impact & Full/Partial Retrospective Model new rules, compare and iterate as needed, and cutover in CY 2016

Existing Revenue Recognition Process

Original Financial

Statements

FY 17 General Ledger

Content

Original Financial

Statements

Old Rules & Restatement until last balance sheet before adoption (2017) New Rules Apply

Cutover

FY 2017

Restated Financial

Statements

Reporting Tools

Iterative Modeling

FY 2016

Compare and Contrast Old and New

Reports

Reports

FY15, FY16 General Ledger

Content


Next Steps “Don’t panic, do hurry up!”

• Review your Quote to Revenue cycle

– Indentify obligation & contract possibilities

– Identify customer satisfaction patterns

– Identify data gaps

• Identify process gaps – where you do not think you do not have MEAs today, but might have contracts & obligations tomorrow

• Model the impact of addressing that on a big bang basis or standard revised trend basis

• Monitor our blog for updates

• Upgrade to the 9s


Questions and Answers


Impacts to JD Edwards


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What will our customers expect?

• Accounts Receivable:

– Ability to Recognize Revenue for invoices generated from Accounts Receivable, Sales, Contract and Service Billing, and other methods without the need to purchase and use the Contracts module

– Ability to research prices to determine the “stand alone price”

– Ability to make the Revenue Recognition process transparent to current users of the Accounts Receivable Invoice process

• Contracts:

– Additional flexibility of tying work to specific performance obligations

– Flexibility to track how change orders affect existing performance obligations

– Simplify the control of how invoicing affects GL date revenue recognition adjustments


JD Edwards Contracts and Job Cost Approach


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• Ability to manage multiple performance obligations in a single project/job

• Additional capabilities to tie detailed project costs to contract performance obligations

• Flexibility to track contract change orders and existing performance obligations in different ways

• More control of invoicing that affect revenue recognition

Contracts and Job Cost Revenue Recognition

New Flexibility

Contract Entered

•Identify performance obligations (billing lines)

•Trace project tasks to performance obligations

Project Executed

•Accumulation of costs

•Contract invoices created

Manage changes to contract

•Add new performance obligations

•Disposition existing performance obligations

Revenue Recognized

•Performed independently from contract invoicing

•Specified for each performance obligation

•Revenue Booked in G/L


What Needs to Change to Allow Compliance

• Invoicing with a contract:

– Job Cost • Identify multiple performance obligations within a single project/job

• Ability to make adjustments (revenue, cost, and % complete) by performance obligation

• Ability to run Profit Recognition process by performance obligation

– Ability to summarize Unit Price and Lump Sum contract billing transactions by subledger

– Ability to enter change requests for Time & Material and Fee billing lines

– Reporting changes • Track contract amounts (e.g., Schedule of Values) related to change orders

• Detailed revenue recognition posting report

• Performance Liability Account amounts visible in Contract Status Inquiry application

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Impacted Modules

• Contract and Service Billing

• Advanced Contract Billing

• Job Cost (aka Project Costing)

• Change Management

Contracts and Job Cost Revenue Recognition


JD Edwards Accounts Receivable Approach


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• New feature to support recognition of revenue for invoices without a contract

• Performance Liability Accounting

• Recognize all, none, less than, or more than the invoice amount

• Performance obligation completion is determined by a process defined by the organization utilizing the system

• Audit trail of all revenue recognition activity

• Reconciliation and Integrity tools

Accounts Receivable Revenue Recognition

New Features

Invoice Entered

•A/R Invoice

•Sales Order

•Contract Billing

•Service Billing

Invoice to Revenue Recognition Process

•Trigger processing from source invoice entry process

Performance Liability Booked in G/L

Performance obligation complete

•Determined by customer business process

Revenue Recognized

•Performance Liability Cleared from G/L

•Revenue Booked in G/L


What Needs to Change to Allow Compliance

• Invoicing without a contract:

– The current invoice process will recognize revenue at the time an invoice is posted

– Due to the new standard we must provide processes to allow our customers to: • Place the revenue into a Performance Liability Account for invoices that require revenue recognition

at a later date than invoice posting

– When revenue is considered a Performance Liability for a sales order, its cost of goods sold must also be treated as such

• Recognize the revenue upon the completion of the performance obligation

– Recognize the cost of goods sold when the revenue is recognized for a sales order

• Ensure the integrity of the information in the new process

• Ensure the audit-ability of the process

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Impact to Current Functionality

• New feature to recognize revenue

• Impacts:

– Invoice Creation/Maintenance (interactive, batch, and from other methods)

• Determine if invoice is to go through the new process

• Book Revenue amounts to Performance Liability accounts

– Recognize Revenue

• Clear the Performance Liability accounts

• Book amounts to the Revenue Accounts

– Book any differences to Performance Liability Adjustment Accounts



Impacted Modules

• Accounts Receivable

• Sales Order Management

• Contract and Service Billing

• Service Management



Call to Action


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Call to Action

• Encourage customers to upgrade to the 9s to get enhancements

• Opportunity to sell robust functionality related to revenue recognition

– Contract and Service Billing

– Advanced Contract Billing


Questions and Answers

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