Voices on Reporting

26 April 2018

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KPMG.com/in

Ind AS 115 – Sector Series 2

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Welcome

01 Series of knowledge sharing calls

03 Scheduled towards the end of each month

02 Covering current and emerging reporting issues

04 Look out for our Accounting and Auditing Update, IFRS Notes and First Notes publications

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Speakers for the call

Ajit ViswanathDirector

Accounting Advisory ServicesKPMG in India

Saurabh MathurDirector

Accounting Advisory ServicesKPMG in India

Ruchi RastogiPartner

AssuranceKPMG in India

4

Ind AS 115 – Quick recap

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Ind AS 115 - Quick recap

Core principle of Ind AS 115, Revenue from Contracts with Customers

……is that an entity recognises revenueto depict the transfer of promisedgoods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

Customer is…..... “a party that has contracted with an entity to obtain goods or servicesthat are an output of the entity’s ordinary activities in exchange for consideration”.

The new revenue standard is applicable to Indian companies following the Ind AS road map framework from 1 April 2018.

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Recap of the five-step model

STEP

1Identify the contract with the customer(One or multiple)

STEP

3Determine the transaction price(Total consideration for contract)

STEP

4Allocate the transaction price to the performance obligation(Allocate to various performance obligations identified)

STEP

5Recognise revenue(At a point-in-time or over-time)

STEP

2

Identify the performance obligations in the contract(One obligation or multiple)

7

Common industry issues –Pharmaceutical and media sectors

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Performance obligationsDo your agreements include elements that meet the new ‘distinct’ test to be accounted for separately?

Criterion 1:

Capable of being distinct

Criterion 2:

Distinct within the context of the contract

+

Think about…Pharmaceutical sector

Licence for compound combined with R&D and manufacturing services

Distinct – performance obligations

Not distinct – combine with other goods and

services

Yes No

A good or service is distinct if it is…

Media sector

Bundled media I Additional content I Promotional activities I Renewal options

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Licences of intellectual property

How will you account for your licencing arrangements?

Is the licencedistinct?

Use licenceguidance

Apply general guidance

Point-in-time recognition

Yes

No

Does the customer have a right to use the entity’s IP?

Over-time recognition

Yes No

Pharmaceutical sector

Licences of biological compounds and drug formulae.

Media sector

Movies, TV programmes, music.

Examples

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or

Variable consideration

If the contract price contains variable consideration, have you decided on the…

Estimation method

Expected value

Think about…

Constraintand applied the

Most likely amount

Could there be a significant revenue reversal?

Pharmaceutical sector

Milestone payments | Volume discounts | Bonuses | Rights of return

Media sector

Rebates I Subscriber or viewer based fee I Bonuses I Fees based on ad revenue

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Significant financing components

Do deferred or advance payment terms in your contracts give rise to a significant financing component?

Interest expense

Interest incomeAdvance payment

Performance date

Deferred payment

Practical expedient

No need to recognise if period between payment and performance is less than one year.

Does not apply if consideration is entirely

variable - e.g. royalty arrangements

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Allocating the transaction price

How will you determine the stand-alone selling prices of your performance obligations and allocate the transaction price?

Is the price directly observable?

Use observable price

Estimate price

Adjusted market assessment approach

Expected cost plus margin approach

Residual approach (only in limited circumstances)

Pharmaceutical sector

Allocation of upfront fees I Performance obligations with variable pricing

Think about…

Media sector

Advertising spots I Bonus spots

Yes

No

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Timing of revenue recognition

Will there be any changes to the timing of your revenue recognition?

Revenue is recognised…

At a point-in-time when the customer obtains control

Over-time if specific criteria are metor

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Non-cash consideration

Have you identified any non-cash consideration components in your contracts?

Can you reasonably

estimate the fair value of the

non-cash consideration?

Include fair value in transaction price

Use the stand-alone selling price of the goods promised in exchange for the non-cash consideration

Yes

No

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Principal vs agent

Have you reassessed whether you are acting as a principal or as an agent?

Identify the good or service to be

transferred to the customer

Acting as principal –gross revenue

Acting as agent –net revenue

Yes

No

Did you control that good or service

before the transfer?

16

Common industry issues –Contract manufacturing sector

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Timing of revenue recognition

Will there be any changes to the timing of your revenue recognition?

Revenue is recognised…

At a point-in-time when the customer obtains control

Over-time if specific criteria are metor

Sr. no. Criteria Example

1. The customer simultaneously receives and consumes the benefits provided by the entity’s performance as the entity performs.

Routine or recurring service.

2. The entity’s performance creates or enhances an asset the customer controls as the asset is created or enhanced.

Building an asset on a customer’s site.

3. The entity’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date.

Building a specialisedasset that only a customer can use, or building an asset as per customer order.

Critical area

18

Disclosure requirements

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Disclosure

Understand nature,

amount, timing and

uncertainty of revenue and cash flows

Disaggregation of revenue

Costs to obtain or fulfil

a contract

Performance obligations

Significant judgements

Contract balances

Qualitative and quantitative disclosures

Q&A

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Links to previous recordings of VOR

Month Topics Link

August 2017 (special session)

• Special session on FAQs on computation of book profit for levy of MAT and proposed amendment to Section 115JB Click here

October 2017• Ind AS updates• Updates on the 2013 Act• Updates on SEBI regulations

Click here

January 2018

• Companies (Amendment) Bill, 2017• SEBI Corporate Governance Committee Report• ITFG clarification: Bulletin 12• Delhi HC decision on constitutional validity of ICDS

Click here

January 2018(special session) • Ind AS 115, Revenue from Contract with Customers Click here

March 2018(special session) • Ind AS 115 - Sector series 1 Click here

April 2018

• Ind AS 115, Revenue from Contracts with Customers• New/revised Standards on Auditing (SAs)• SEBI accepts some recommendations of the committee report on corporate

governance• Other regulatory updates

Click here

For other archives of VOR calls, visit www.KPMG.com/in

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KPMG in India’s IFRS institute

Visit KPMG in India’s IFRS institute - a web-based platform, which seeks to act as a wide-ranging site for information and updates on IFRS implementation in India.

The website provides information and resources to help board and audit committee members, executives, management, stakeholders and government representatives gain insight and access to thought leadership publications on the evolving global financial reporting framework.

In addition to proprietary KPMG content, the website provides links to several other sources of information related to IFRS and its implementation. The site can be accessed by all interested parties at no cost. Additionally, the site provides the facility of registering as a member by providing certain minimal information.

To download KPMG content, become registered members of the website by following a few easy steps.

https://www.in.kpmg.com/IFRS

You can reach us for feedback and questions at: in-fmkpmgifrsinst@kpmg.com

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IFRS NotesInd AS Transition Facilitation Group (ITFG) issues Clarifications Bulletin 15

18 April 2018

The Ind AS Transition Facilitation Group (ITFG) in its meeting considered certain issues received from the members of the Institute of Chartered Accountants of India (ICAI), and issued its Clarifications’ Bulletin 15 on 5 April 2018 to provide clarifications on 10 application issues relating to Indian Accounting Standards (Ind AS).

This issue of IFRS Notes provides an overview of the clarifications issued by ITFG through its Bulletin 15.

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Topics discussed in AAU and First Notes

Issue no. 20 - March 2018

• Ind AS 115 - Impact on the real estate sector and construction companies• New auditor's report requirement - Communication of key audit matters• Derecognition and consolidation requirements in a securitisation transaction• Accounting for income taxes: Few practical considerations• Regulatory updates.

Accounting and Auditing Update (AAU)

SEBI decisions regarding the Report of the Committee on Corporate Governance 20 April 2018On 28 March 2018, the Securities and Exchange Board of India (SEBI) considered the recommendations of the Kotak Committee on Corporate Governance (the Committee) and the public comments thereon. Accordingly, they accepted certain recommendations without modifications, few with modifications and referred certain recommendations to various agencies (i.e. government, other regulators, professional bodies, etc.) since the matters involved those agencies.

In this issue of First Notes, we have provided an overview of the decisions considered by SEBI.

First Notes

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Coming up next

Others

New issue of:• Accounting and Auditing Update • First Notes• IFRS Notes

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Download from www.kpmg.com/in

Thank youKPMG in India contacts:

Feedback/queries can be sent to: aaupdate@kpmg.com

Ajit ViswanathDirectorAccounting Advisory ServicesE-mail: ajit@kpmg.com

Saurabh MathurDirectorAccounting Advisory ServicesE-mail: saurabhmathur1@kpmg.com

Ruchi RastogiPartnerAssuranceE-mail: ruchirastogi@kpmg.com

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