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
© 2018 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 3
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
© 2018 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15
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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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.
© 2018 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 24
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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Others
New issue of:• Accounting and Auditing Update • First Notes• IFRS Notes
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Thank youKPMG in India contacts:
Feedback/queries can be sent to: [email protected]
Ajit ViswanathDirectorAccounting Advisory ServicesE-mail: [email protected]
Saurabh MathurDirectorAccounting Advisory ServicesE-mail: [email protected]
Ruchi RastogiPartnerAssuranceE-mail: [email protected]
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
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