Media Industry Accounting Group Annual conference 2017 · • FASB members of the TRG continue to meet. Meetings were held during April and November 2016. • Clarifications issued

Media IndustryAccounting GroupAnnual conference 2017

www.pwc.com/miag

London

15 June 2017

PwCMIAG Annual conference 2017

Slide 2PwC

Revenue recognition

Richard Veysey

PwC UK

E:[email protected]

Gary Berchowitz

PwC South Africa

E: [email protected]

PwC

What are we covering today?

MIAG Annual conference 2017Slide 3

Latest updates1

Hot topics for E&M2

Practical implementation issues3

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Latest updates


1. Latest updates 2. Hot topics for E&M 3. Practical implementation issues

Current status1

Clarifications2

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Current status and TRG


• No significant change since this time last year

• Effective date amended to 1 January 2018 for both IASB and FASB (EU endorsed).

• Transition Resource Group has met six times (48 issues discussed).

• IASB has not scheduled any further meetings of the TRG. Not disbanded. Meetings may be scheduledif the need arises.

• FASB members of the TRG continue to meet. Meetings were held during April and November 2016.

• Clarifications issued by both the IASB (not yet EU endorsed) and FASB.


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Clarifications

Topic FASB IASB Convergence

Identifying performanceobligations

Identifying Performance Obligationsand Licensing

Clarifications to IFRS 15

Issued April 2016

Partially

Licences Issued April 2016 Partially

Principal vs. agent Principal vs. Agent ConsiderationsIssued March 2016

Same

Transition Narrow-Scope Improvements andPractical ExpedientsIssued May 2016

Partially

Collectability None None

Presentation ofsales taxes

None None

Non cash consideration None None



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Performance obligations

Implementation issue IASB FASB

Performance obligations

How to determine whether a promiseis “separately identifiable”?

The revised principle states that an entity should determine whether its promise is totransfer individual goods or services to the customer, or a combined item (or items) towhich the individual goods and services are inputs.

Whether immaterial POs need to beidentified

No further guidance. Entities are not required to identify promisedgoods or services that are immaterial in thecontext of the contract

How to account for shipping andhandling

No further guidance. Entities can elect to account for shipping andhandling activities as a fulfilment cost ratherthan as an additional promised service..



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Licences of intellectual property


Implementation issue IASB FASB

Licences

How to determine the nature of acompany’s promise in granting alicence?

Clarify and expand on principles to betterexplain when an entity’s activities‘significantly affect’ the IP.

Create two new categories of licences –‘symbolic’ and ‘functional’ – That willdetermine whether revenue is recognisedover time or upfront.

When does the exception for sales- andusage-based royalties apply?

Sales- and usage-based royalty guidance applies when the predominant item to whichthe royalty relates is a license (no splitting of the royalty).

Does the licence guidance apply whenthe licence is not distinct?

No further guidance. The licence guidance should beconsidered, even if the licence is notpredominant.

How do contractual restrictionsimpact the identification of promisesin a contract?

No further guidance (though seediscussion in BC).

Distinguishes between contractualprovisions that transfer additional rightsand those which do not affect the numberof promised goods or services in acontract.


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Principal versus agent


Implementation issue IASB and FASB

Principal versus agent (gross vs. net revenue reporting)

How should an entity identify the ‘unit of account’ for theprincipal versus agent assessment?

• Clarify that an entity determines whether it is principal or agentfor each ‘specified good or service’ promised to a customer.

• An entity could be a principal for some specified goods orservices and an agent for others.

How should the notion of control be applied to servicesperformed by another party?

• Clarify that a principal can control a service, even when anotherparty performs the service, if it can direct that party to performthe service for customer on its behalf.

What is the relationship between the notion of controland the indicators?

• Clarify that ‘control’ is the underlying principle, the indicatorsassist an entity in determining whether it controls a good orservice before it is transferred to a customer.

• Reframe indicators as indicators of a ‘principal’.• Clarify that the indicators are not all-inclusive, and certain

indicators may be more/less persuasive.• Remove indicators related to credit risk and earning a

commission.• Clarify that an entity that performs a significant integration

service is a principal.


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Hot topics for E&M



Identifying performance obligations1

Licences2

Principal versus agent3

PwCMIAG Annual conference 2017

Slide 11


Current issues

Identifying performance obligations

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The customer canbenefit from the good or

service on its own orwith other readilyavailable goods or

services

The goods or services arenot highly interrelated or

highly dependent onother promises in the

contract

And Distinct

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Issue Example Sub-sector

Distinct promises Equipment used to deliver a service Broadcast and cable operators

Distinct promises Free trials Publishing, video gaming

Material rights Options for future content TV, film

Material rights Subscription renewals Publishing, broadcasting

Modifications Change in scope or price Broadly applicable

Are all of your contractsidentical or will thisneed to be continuouslyassessed?

How will youidentify and assesscontractmodifications?

Do you have aprocess to identifyand calculate thevalue of options?


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Current issues

Licensing



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Licences


Licensor performs activitiesthat significantly affect the IP

Right to use Right to access

Activities are not a separategood/service

Rights expose customer toeffects of those activities


And don’t forget the sales based royalty exception…

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Licences


HOW to apply the licensing guidance?

Licensor performs activities thatsignificantly affect the IP

Activities expected to significantly change the form/functionality of the IP.

or

Ability of customer to obtain benefit from IP is substantiallyderived from or dependent upon the entity’s activities.

Activities are not a separategood/service


Which changes significantlyaffect the IP?

Function?

Form?

Value?

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Licencing



Licence versus service Linear feed Broadcast and cable

Licence plus updates Content library Music and online broadcasters

Hosted licence Data and information licence Information services

SBR exemption forlicences only – doyou have the data toestimate variableconsideration?

Do you have data tosupport yourdetermination of stand-alone-selling price?

Does your commercialteam understand howcontractual clausesaffect revenuerecognition?


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Licencing



Unit of account Contractual restrictions Film, music

Unit of account Renewals Film, music

Point in time v over time Brands and content Film, TV

Do your processescurrently capture all ofthe separate ‘units ofaccount’ in a singlecontract?

Do your systemssupport recognition ofrevenue both over timeand at points in time?

When setting accountingpolicy has IR beeninvolved (how importantis comparability withpeers)?


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Current issues




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Fundamental change


20

IAS 18 IE 21 IFRS 15.B35

Risk and reward approach Control concept

‘An entity is acting as a principal when it hasexposure to the significant risks and

rewards associated with the sale of goodsor the rendering of services.’

‘An entity is a principal if it controls thespecified good or service before that good or

service is transferred to a customer.’

IFRS 15 states that having risk and rewards ofownership is one indicator of control


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Definition of control

MIAG Annual conference 201721

(b)

(c)

(a)

IFRS 15Para 33


Ability to direct the use of the goods/services

Ability to obtain substantially all of the remaining benefitsfrom the good/service

Ability to prevent others from directing the use of thegood/service

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The indicators of control


b)

c)

a)

Indicatorsof control

Responsibility

The entity is primarily responsible for fulfilling the promise toprovide the specified good/service, including the responsibility foracceptability of the good/service.

Inventory risk

The entity has inventory risk before the goods/service has beentransferred to a customer or after transfer of control to the customer.

Pricing

The entity has discretion in establishing the price for thegood/service, indicating that the entity has the ability to direct theuse of that good/service and can obtain substantially all of theremaining benefits.


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Principal v agent Distribution deals Film

Principal v agent Production contracts Advertising

Principal v agent Media planning and buyingAdvertising

Principal v agent* eBooks Publishing

Principal v agent* Music streaming Music

Principal v agent* Agency commissions Broadcast and cable

How many contractsmight this impact?

Do key metricschange?

Can you estimatevariable grossincome?


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Practical implementation issues



What does implementation involve?1

Industry discussion2

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Phased approach to implementationPotential implementation approach

Slide 25

IFRS 15effective

date

Q4Q3Q2Q1Q4Q3Q2Q1

20182017IFRS 15IFRS 152016

CurrentIFRS

CurrentIFRS

Assess

ConvertConvert

EmbedEmbed

IAS 8disclosure

Disclosecomparatives

Update IAS 8disclosure

Optional

2018Interims

Required

ERP Implementation / IT Solution

Manual Solution

Today

Updatecomparatives



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Our understanding of the challengesThe key challenges that entities may face when preparing for the adoption of a new standard are:

We have developed an approach to help you with these challenges ensuring that theimplementation of the new accounting standards is performed to the highest quality

Organise the projectGet technical aspects rightfrom Day 1

Leverage existing data andsystems

Sufficient, quality source data

Inform stakeholders of thepotential impacts

Slide 35


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Accounting standards change projectmethodology

Identify accounting change

Identify business change

Develop solution

Implement solution

Slide 36



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How to approach IFRS 15 implementation

What needs to happen?

• Desktop review and analysis

• Workshops with finance teams

• Identify key areas of IFRS 15 impact

• Identify key workstreams andresources needed to implement IFRS15

• Confirm sponsorship and projectgovernance

Key outputs

• Workshop/briefing materials

• Impact assessment report –summarizing key areas of impact

• Roadmap for implementation

Key stakeholders: Finance, Auditors

Slide 37



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What needs to happen?• Workshops with impacted functions

(e.g. sales and marketing)• Determine the data, business

processes IT systems and controlswhich needs to change due to theaccounting change

• Evaluate how to obtain transitioninformation

• Identify impact on wider stakeholdergroup

Key outputs• Documented business and IT

process flows with identification ofpoints of change

• Accounting use cases• Workshop / Training materials

Key stakeholders: Finance, Sales and Marketing, Legal, Tax,HR, IT, Auditors

Slide 38



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What needs to happen?• Determine how the business

processes and IT systems should bechanged

• Determine transition approach• Document decision points and

accounting policy choices• Identify data sources and confirm

proposed approach to extract, stageand store data

Key outputs• “Business Requirements” document

detailing the required changes to theprocesses and the IT systems

• Decision on data capture andaccounting engine solutions(software vendor or self build)

Key stakeholders: Finance, Sales and Marketing, Legal, Tax,HR, IT, Auditors

Slide 39



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What needs to happen?• Execute transitions and changes

identified in phases 2 & 3• Calculate transition adjustments• Embed long-term sustainable

changes to data, processes, systemsand controls

Key outputs• Testing of proposed business

processes and IT system changes• Restated opening balance sheet and

comparatives• Transition adjustments• Updated accounting polices,

processes and controls• Go-live roll out

Key stakeholders: Finance, IT

Slide 40



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Practical example

Identifyaccounting

change

• Contract for TV services• Identify free equipment

as a separateperformance obligation

• Need to allocate revenueto this new performanceobligation

Identifybusinesschange

• Update accountingpolicies and positionpapers

• Prepare accounting usecases

• Identify informationneeded to support SSPfor equipment andservice

• Develop approach andtemplates for contractreviews

Developsolution

• Prepare businessrequirements document

• Select solutions for datastorage and accountingengine

• Complete pilot study /prototype

Implementsolution

• Gather data / build datainterfaces

• Build, implement andtest solutions for datastorage and accountingengine

• Calculate transitionadjustment

• Dry run / parallelreporting in advance ofeffective date

Training and communications

Project management and governance

Slide 41



This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in thispublication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in thispublication, and, to the extent permitted by law, PwC does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act,in reliance on the information contained in this publication or for any decision based on it.

© 2017 PwC. All rights reserved. “PwC” refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure forfurther details.

160613-095853-AG-OS

Documents

Media Industry Accounting Group Annual conference 2017 · • FASB members of the TRG continue to meet. Meetings were held during April and November 2016. • Clarifications issued