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IFRS16 IMPLEMENTING SAP RE-FX FOR LEASE ACCOUNTING
Fredrik Warne
Tuomo Repo
www.linkedin.com/in/fredrik-warne
AGENDA
Telia Company
Introduction to IFRS16
SAP RE-FX key components and solution for Telia
Project considerations
Lessons learned
Summary
2
TELIA COMPANY PROVIDES COMMUNICATION SERVICES HELPING
MILLIONS OF PEOPLE TO BE CONNECTED AND COMMUNICATE, DO BUSINESS AND BE ENTERTAINED. BY DOING THAT WE FULFILL
OUR PURPOSE TO BRING THE WORLD CLOSER
3
TELIA COMPANY IN BRIEF
4
RESULT OF A MERGER WITH TELIA & SONERA 2002
HEADOFFICE IN STOCKHOLM
THE BEST MOBILE NETWORKIN 5 OF 7 MARKETS
TELIA BRAND IN ALL MARKETS
19,600 EMPLOYEESMARKET CAP SEK
171.4 BILLIONJULY 2018
2017 NET SALES SEK 79.9 BILLION IN
CONTINUING OPERATIONS
#2 TV
#1 Mobile
#1 Internet
#2 Mobile
#3 Mobile
#5 Internet
#3 TV
#2 Mobile
#2 Internet
#2 TV
#1 Mobile
#1 Internet
#1 Mobile
(43%)
#1 TV
#2 Mobile
#1 Internet
FOCUS ON THE NORDICS AND BALTICS
16.8 MILLION MOBILE
SUBSCRIPTIONS
2.0 MILLION FIXED VOICE
SUBSCRIPTIONS
1.8 MILLION TV SUBSCRIPTIONS
2.5 MILLION BROADBAND
SUBSCRIPTIONS
#2 TV
#4 TV
5
6
LIKE ALL LARGE COMPANIES, SOME IT LEGACY STILL EXISTS…
7
IFRS16 FOR TELIA – WHAT ARE WE LEASING IN
Office space
Ducts
Copper
Fiber
Cars
Land
Technical space
Shops
8
DIFFERENT TYPES OF LEASE CONTRACTS ACCROSS SEVERAL COMPANIES AND TYPES OF BUSINESSES
Office space
Shops
Land
Cars
Technical space
Copper lease
Fiber lease
Ducts
Legend
+ 40 additional legal entities
9
INTERNATIONAL FINANCIAL REPORTING STANDARDS
Source: Pocket Guide to IFRS Standards (214p) https://www.ifrs.org/-/media/feature/around-the-world/pocket-guide/pocket-guide-2017.pdf
IFRS16
IAS17
10
INTRODUCTION TO IFRS16 ACCOUNTING STANDARD –WHAT WILL CHANGEIFRS 16 becomes effective Jan 1st, 2019
• Lessee shall include all leases on the
balance sheet.
• A lessee is required to recognize an asset
for the right to use the leased item and a
liability for the present value of its future
lease payments.
• The intent is to have transparency on lease
liability obligations on financial statements.
Contract
Invoices
Vendor
A
B“Lessee” “Lessor”
The key events for IFRS16 calculations
A. Contract commencement
B. Vendor invoicing
Vendor Lease Expense
RoU Assets Lease Liabilities Lease ClearingInterest PaidVendor Depreciation Cost
(B) 3200 (B) 3200
(A) 303300 (A) 303300
(B1) 3200 (B1) 3200
(B2) 1250 (B2) 1250
(B3) 10700 (B3) 10700
(B4) 3200(B4) 3200
Balance Sheet postings
Income Statement postings
Clearing postings
A – Asset and Liabilities, SAP RE-FX
B1 – Liability amortization, SAP RE-FX
B2 – Interest payment, SAP RE-FX
B3 – Asset depreciation, SAP AA
B4 – Invoice posting, SAP VIM
11
SAP PROVIDES SAP RE-FX (FLEXIBLE REAL-ESTATE) FOR IFRS16 LEASE MANAGEMENT
12
CONTENT OF CONTRACT MASTER DATA IN SAP RE-FX
Generic information
• Start and end
• Termination and extension
options
• Fix term or unlimited?
• Payment method
IFRS16 information
• Part of IFRS16 valuation?
• Interest rate
• Probable end date
Value information
• Lease vs non-lease components
• Unit prices
• Indexes and other adjustments
Postings information
• In advance or in arrears?
• Posting cycle: monthly, quarterly,
yearly, once in advance?
• Invoice based or self-billing?
Contract type information
• Asset class
• Cost object
Other information
• Notes and memos
• Reference to scanned copy of
signed contract
13
HOW IT ALL LOOKS IN SAP RE-FXContract Objects
Conditions Valuations
IFRS16 valuation factors:
• start dates
• end dates
• interest rates
Contract object details:
• asset class
• cost center / WBS
Contract condition details:
• lease vs. non-lease
• unit price
• start and end dates
Contract details:
• start and end dates
• extension and
termination options
• Part of IFRS16
valuation?
Contract details:
• start and end dates
• extension and
termination options
• part of IFRS16
valuation?
BI FRONTEND TOOL – SAP ANALYSIS FOR OLAP
BI FRONTEND TOOL – SAP ANALYSIS FOR OFFICE
Tolerance outcome
Min Max
9 900 10 100
1 600 2 400
11 880 12 120
3 087 3 412
7 920 8 080
950 1 050
1 500 1 500
36 837 38 662
Contract # 101234567
Lessor John Smith Ab
Lessee Telia Company Ab
Invoice period 1.5.2018 - 30.5.2018
Due date 30.6.2018
Net
Site1
Lease rent 10 000
Electricity 2 200
Subtotal 12 200
Site2
Lease rent 12 000
Maintenance fee 3 250
Subtotal 15 250
Site3
Lease rent 8 000
Maintenance fee 1 500
Electricity, fixed 1 500
Subtotal 11 000
TOTAL 38 450
Invoice
Tolerance configurations
Condition type Tolerance
Lease rent +-1 %
Maintenance fee +- 5%
Electricity +- 20%
Electricity, fixed - 16
THERE IS A MAJOR BUSINESS CHANGE IN INVOICE APPROVAL• SAP RE-FX does not use Purchase
orders and Goods receipt for invoice
approval
• Instead, the lease invoices are
matched against approved contract
master data
• Invoice matching is based on:
• Contract ID on invoice
• Tolerances
• A match or match within tolerances is
automatically selected and cleared
• SAP RE-FX is flexible in supporting
other contract modelling. Examples:
• Portfolio contracts
• Aggregated invoice contracts Lease components have
tighter tolerances than
non-lease components
Periodical contract total
with tolerances is matched
against the invoice total
Contract # 101234567
Lessor John Smith Ab
Lessee Telia Company Ab
Start date 1.5.2018
End date 30.4.2028
Signed date 15.4.2018
Net
Object 1
Lease rent 10 000
Electricity 2 000
Object 2
Lease rent 12 000
Maintenance fee 3 250
Object 3
Lease rent 8 000
Maintenance fee 1 000
Electricity, fixed 1 500
TOTAL 37 750
Contract
17
SAP RE-FX SOLUTION FOR TELIA – SUPPORTING BOTH SAP AND NON-SAP COMPANIES
Contracts through Excel
SAP ERP
BCC/ICC
Legend
SAP internal SAP externalSweden local
domainFinland local
domainNorway local
domainGroup
domain
Business Partner
BP
Object Management
REContract
Management
RE
WBS Element
PS
Asset Master Data
AA
Invoice Management
VM
FI
AR
AP
GL
Telia Consolidation
Cognos
Manual input
Controlling
CO
Customer Master Data
Customer Master Data
Customer Master Data
Customer Master Data
Customer Master Data
Denmark local domain
SAP BI
COPA
AA
RE-FX
PCA
WBS
BW Cognos
Non-SAP companies GL
Contract system
Contract system
Contract system
Object system
Object system
Object system
18
IFRS16 PROJECT MAIN ACTIVITIES AND TIMEPLAN
2017 2018
Q3 Q4 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
Implementat
ion
Mock 1Data analysis & design
PT UAT
RT
Mock 2 Mock 3 Migr
SIT
Data collect & cleansing
Post Go-Live Support
Build
Train
Migration
Post GoLive Support
1 2 3Design 1 2
GoLive
Nov 16th
ST
Pre-study
IT pre-study
IT architecture and staffing
RFP
Accounting
Accounting questionnaires
Materiality assessment
Accounting use cases
Accounting requirements
Disclosure requirements
Impl. start
Feb 5th
1 2
19
LESSONS LEARNED AND SUMMARY
• What is a lease? - Accounting questionnaires and material assessment support in understanding what shall
be considered as leases under IFRS16
• Telia guidelines - Establishing common guidance on interpreting lease terms and interest rates is important
since it has great impact on RoU assets and liabilities
• Accounting design - Accounting use cases for each IFRS16 trigger will help in deriving the IT requirements
ACCOUNTING
• Lots of info needed - IFRS16 accounting and disclosures are raising new needs on contract master data
• System landscape may be messy - Different types of contracts were maintained in different systems, e.g. in
contract management systems, contract registries or excel
• Data capture is time consuming - It is a major activity to capture all the needed contract master data, but it
will pay of via renewed business processes and new control points
CONTRACT DATA
• New IT system - SAP RE-FX is a new module for Telia and is integrated with many existing SAP modules
• Impact on other processes - With the IFRS16 solution is impacting on several existing business processes,
e.g. contract management and invoice maintenance
• Change management - IFRS16 also introduces new business processes for contracts, index maintenance,
etc. A more centralized and systematic approach requires change management internally and towards
vendors, and new roles & responsibilities.
IT COMPLEXITIES
20
APPENDIX
21
SAP VERSIONS AT TELIA
BW on HANA 7.50 SP12
SAP ERP 6.0 Enhancement Pack 8SAP Invoice Mgmt by OpenText 7.5
IFRS16 BI CHANGES
RE-FX reporting – Master data
• Reports covering contract master data including objects, partners, conditions, terms etc plus business entity repository
RE-FX reporting – Transactional data
• Reports covering actuals and forecasts of RE-FX cash-flows (valuation, partner and object) plus actual FI-GL postings
RE-FX reporting – Disclosures
• Reports defined to support disclosure requirements where no direct flow SAP ERP SAP BW Cognos exists
Existing financial reporting
• Ensure that existing reporting dimensions are populated as applicable from SAP RE-FX data
• Update mapping of SAP ERP postings (Asset Accounting and Profit Center Accounting) to appropriate Cognos accounts and forms
