Financial Controllers’ Club · 2020-05-10 · Sage Group PLC Few instances where carbon reporting...
Transcript of Financial Controllers’ Club · 2020-05-10 · Sage Group PLC Few instances where carbon reporting...
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Deloitte Finance Club
The community for Financial Controllers and senior financial executives
Wednesday, 26th March 2014
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• Financial Controllers’ Club established in May 1997
• Provides an annual programme of technical updates and hot topic briefings
• Connects our members to relevant experts as well as over 2,200 members
across the country
• Renamed Deloitte Finance Club in January 2013
Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 2
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• Accounting for real estate and a Tax update
Wednesday, 23 April 2014
• Finance IT systems
Wednesday, 7 May 2014
• The Summer finance checklist
Date TBC (July)
Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 3
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• Accounting update Amanda Swaffield
• Revenue recognition Dave Griffin
• TMT predictions Paul Lee
Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 4
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Deloitte Finance Club
Accounting update
Amanda Swaffield
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‘It has begun’ – findings from 30 September reporters
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3. Select ’OK’ Findings from 30 September reporters ‘A new beginning’ and ‘It has begun’
• Deloitte’s 2013 annual report survey,
‘A new beginning’, provides insight for
users and preparers of annual reports
based on a survey of 100 UK listed
companies’ annual reports
• The follow-up publication, ‘It has
begun’, looks at early examples of
reporting practice under the new
Regulations and the 2012 UK
Corporate Governance Code.
• Both publications are available at:
www.ukaccountingplus.co.uk
Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 7
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3. Select ’OK’ ‘It has begun’ – key narrative reporting findings Emerging practices & better practice examples: 30 Sep year-end reporters
8
Enterprise Inns
PLC
Confusion over
separation of strategic
report and directors’
report
Imperial
Tobacco PLC
Human rights disclosure
brief in most cases with
no policy
Grainger PLC
Various interpretations
of “senior management”
in diversity disclosures
Sage Group
PLC
Few instances where
carbon reporting
impracticable. Disclosure
often promoted to
strategic report
See our practical guide,
‘A new beginning’ and
FRC guidance
Continued efforts on
linkage throughout
annual report
Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014)
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3. Select ’OK’ ‘It has begun’ – key corporate governance findings Emerging practices & better practice examples: 30 Sep year-end reporters
9
Enterprise Inns
PLC
Majority included the
fair, balanced and
understandable
statement without detail
on process
Diploma PLC
A number of companies
explained why not a
good time for an audit
tender or the decision to
retain incumbent
ITE Group PLC
Many disclosures
focused just on
effectiveness of the
external auditors
Shaftesbury
PLC
Average number of
significant issues disclosed
by audit committees was four
– limited cross-referencing to
other disclosures
Lonmin PLC
Lots of statistics on
gender diversity but
limited evidence of
broader considerations
Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014)
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Exceptional items
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• In December 2013 the FRC issued a press notice on the need to:
‒ improve the reporting of additional and exceptional items by companies; and
‒ ensure consistency in their presentation.
• Many companies report exceptional items on the face of the income statement;
these should be clearly and consistently calculated and explained.
11
“It is essential that investors should be able
to understand and rely on the trends in the
profitability of companies.
This announcement draws attention to the
importance of providing information in a
way that enables users to assess the quality
of a company's profitability.”
– Richard Fleck, FRRP Chair
Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014)
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Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 12
Reporting of exceptional
items
Avoid netting off gains and losses
Consider whether recurring items are really exceptional
Present related material cash
amounts separately
Explain the tax effect of
exceptional items
Treat gains and losses evenly and
consistently
Explain calculation of ‘underlying’
measures clearly
Ensure consistency between back half
and front half
Consistent from year to year
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Risk management, internal control and going concern
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Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 14
A new, integrated approach
Limiting the use of the term
“going concern” to the financial
statements
Focusing the narrative on
consideration of principal
solvency & liquidity risks
One board assessment
process feeding into three
separate (but linked)
disclosures on risk
Enhanced communication
for investors
Separate guidance for
banks and for smaller entities
Corresponding, increased
responsibilities for auditors
For periods
commencing on or
after 1 October 2014
so not until
31 December 2015 for
December year ends
• The Strategic Report
– principal risks and
uncertainties
• Financial statements
– statement on the
going concern basis
of accounting
• Statement on review
of risk management
and internal control
systems
“The ability of the
board to understand
and address the risks
facing the company
is itself a major risk
factor.”
– FRC Consultation Paper
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15
The board is responsible for determining the nature and extent of the
principal risks it is willing to take in achieving its strategic objectives.
The board should maintain sound risk management and internal
control systems.
Code Principle C.2
The board should carry out a robust assessment of the principal
risks facing the company, including those that would threaten its
solvency or liquidity. In the annual report the directors should
confirm that they have carried out such an assessment and explain
how the principal risks have been managed or mitigated. They
should indicate which, if any, are material uncertainties in relation to
the company’s ability to continue to adopt the going concern basis
of accounting.
*NEW* Code Provision C.2.1
The board should monitor the company’s risk management and
internal control and, at least annually, carry out a review of their
effectiveness, and report to shareholders that they have done so.
The monitoring and review should cover all material controls,
including financial, operational and compliance controls.
Code Provision C.2.2
Just a slight change to the Main
Principle from “significant” to
“principal” to bring the terminology
in line with Strategic Report
disclosure requirements
A new provision which replaces the
existing Code Provision requiring a
statement from the board that the
business is a going concern.
This provision has been changed to
reflect that the board’s review
should not just be a one-off, annual
exercise but an on-going monitoring
responsibility
Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014)
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‘New’ UK GAAP – Act now!
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Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 17
Choose your GAAP for the
opening balance sheet
Identify and designate hedging
arrangements
Identify and assess impact of key accounting
changes
Consider tax effects
Plan dividend policy
Review systems for new GAAP
readiness
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• Based on IFRS 4, FRS 27 Life Assurance and elements of ABI SORP
• Broadly allows current accounting for insurance contracts to continue
• Requirements of FRS 102 and 103 may nevertheless change accounting for
many insurers
• Non-mandatory implementation guidance published
• Effective date of 1 January 2015
• Once FRS 103 adopted, FRS 27 and ABI SORP cease to apply
Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 18
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• FRED 54 proposes to amend the criteria that determine whether a debt
instrument is ‘basic’.
• It is intended to reduce the need for entities to measure debt instruments at fair
value.
• The amendments proposed in FRED 54 do not alter the fundamental approach of
FRS 102. The assessment continues to be rules-based.
• Some of the types of instrument that may qualify as basic under the proposals
include:
Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 19
Inflation linked debt instruments
Compensation for lost of interest on early termination
Debt instruments with different rates in different periods
Foreign currency denominated debt
instruments
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• FRED 51 proposes to replace the restrictive hedge accounting requirements in
FRS 102 with a set of hedge accounting principles based on draft IFRS 9
Financial Instruments hedge accounting model.
• It is intended to allow more opportunities to apply hedge accounting, reducing
profit or loss volatility.
• It introduces less onerous criteria for qualifying for hedge accounting than those
in FRS 102 and the proposed IFRS 9 hedge accounting model.
• Current transitional provisions
in FRED 51 are unclear.
• These are expected to be
clarified in the final standard.
Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 20
“Economic relationship”
replaces “highly effective” criterion
More items, instruments and
risks eligible
Uses established terminology (e.g.
“cash flow hedge”)
Less guidance than IFRS 9 hedge
accounting
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Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 21
Consolidation “Package of 5” (EU deferred to 2014)
Investment entities amendments
IAS 36 amendments on impairment
disclosures
Novation of derivatives and
continuation of hedge accounting
IFRIC 21 Levies (endorsement outstanding)
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Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 22
Leases ED –considering
responses and redeliberating
Revenue standard – due in Q2 2014
Insurance ED – considering
responses and redeliberating
IFRS 9 – hedging phase issued in Q4
2013, final impairment phase expected Q2
2014
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The use of clients’ intellectual property, including trademarks,
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Policy Release 116, Copyright and Other Intellectual Property
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KM/Admin_Policy/100_General_Policies/Apr116CopyrightInfrin
gementapprovedJune2002.htm
DPM 10640: http://dtpolicy/DPM%2010640.pdf
If you use “Deloitte” in a document, you must include
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Deloitte Finance Club
Revenue recognition
Dave Griffin
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Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 24
Motorola DynaTAC “Phablets”
FRS 5 Revenue exposure draft
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Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 25
Summary of
responses
published
Revised
Exposure Draft
published
New standard
expected to be
published
Expected
effective
date
Comment
letters
received on
revised ED
Boards
publish
preliminary
views
Dec 2008 Jul 2009 Jul 2010 Nov 2011 Mar 2012 Q2 2014 1 Jan 2017
Exposure Draft
published
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• IFRS 15 expected to be published in April 2014
• Effective date 1 January 2017 (early adoption permitted)
• Restatement options:
i. Restate comparative year (2016)
ii. Present comparative year under previous basis
• Consideration of all ‘open’ contracts on the adoption date
Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 26
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Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 27
Identify the
contracts with
customers
Identify the
separate
performance
obligations
Determine the
transaction
price
Allocate the
transaction
price to the
performance
obligations
Recognise the
allocated
revenue when
performance
obligation is
satisfied
Core principles:
• Revenue recognised in a manner that depicts transfer of goods and services
to customers
• Amount recognised should reflect the amount entity expects to be entitled in
exchange
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3. Select ’OK’ The Standard Steps 1 & 2
Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 28
Identify the contract with a customer Identify the separate performance
obligations
• Contract definition:
− Can be written, verbal, or implied
− Must have commercial substance
• Contracts should generally be accounted for
separately
• Contract modifications should be treated as an
adjustment to original contract unless:
− additional performance obligation is
distinct; and
− priced based on an appropriately adjusted
standalone selling price
• Identify contractual ‘promises’ and whether
they are ‘distinct’
• Distinct criteria:
− the customer can benefit from that good or
service either on its own or together with
resources that are readily available; and
− the good or service is separable from other
contractual promises
• Separable:
− Not used as an input
− Doesn’t modify another good or service
− Not interrelated with other goods or
services
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Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 29
Determine the transaction price Allocate the transaction price to the
performance obligations in the contract
• Transaction price is consideration that entity
expects to become entitled
• Factors to consider:
− Time value of money
− Non-cash consideration
− Consideration payable to a customer
• Variable consideration
− ‘Highly probable’ and ‘significant revenue
reversal’ test
− IP royalty revenue
• Multiple performance obligations - allocated
based on relative standalone selling prices
• If the standalone selling price is not directly
observable, the entity should estimate it
− Use of residual approach restricted
• Allocate discounts across all performance
obligations unless meets specific criteria
• Variable consideration – allocated to relevant
performance obligations
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Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 30
Recognise the allocated revenue as the
entity satisfies a performance obligation
• Recognise revenue as the performance
obligations are satisfied
• A performance obligation is satisfied when
‘control’ is transferred to the customer.
• Control - ”the ability to direct the use of and
obtain substantially all of the remaining
benefits from the asset”
• Guidance for where control deemed to have
transferred over time
IFRS 15
Transfer of control
• Customer can direct the use of the asset
• Customer has obtained substantially all of
remaining benefit of asset
• Customer is able to prevent other entities
using asset
IAS 18
Transfer of risks and rewards
• Usually coincides with transfer of legal title
• No further obligations for unsatisfactory
performance (except covered by warranty)
• No significant installation obligations remain
• Buyer has right of return for which probability
is unknown
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Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 31
Costs of obtaining a
contract
Recognised as an asset, amortised consistent with pattern of transfer
of goods or services (unless goods / services <1 year)
Warranties Accounted for as a separate performance obligation if option given to
customer to purchase or not (or if warranty represents a service in
addition to compliance with product specifications)
Customer options for
additional goods and
services
Accounted for separately if provides material right to the customers
Customers’ unexercised
rights Consider variable consideration guidance for breakage revenue
Non-refundable upfront
fees Only recognise if relates to separate performance obligation
Licensing (excluding sales
or usage based licences)
Right to access IP – recognise over period of access; promise to
transfer IP – recognise when transfer occurs
Repurchase agreements Account for as financing arrangement or lease unless customer has
right to sell back to the entity but at the outset has no significant
economic incentive to do so
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Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 32
Disaggregation of
revenue by category
and relationship with
segment disclosures
Closing balance of
any assets
Information on
amortisation
including method
Information about
judgements and
changes
Contract assets and
liabilities, impact on
revenue of
previously reported
positions
Information on
outstanding
performance
obligations
Contracts with customers
Significant judgements Contract costs
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Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 33
Industry Comment
Aerospace
and Defence
• Contracts modifications common and new Standard may change current practice
• Contracts are typically of a long-term nature and often include significant variable elements.
Judgment required when estimating consideration on part-complete contracts
Automotive
• Where a warranty contains assurance and service elements, judgment needed to
determine transaction price allocation
• Repurchase arrangements will need to be considered whether the customer has
“significant economic incentive” to exercise the repurchase
Healthcare
• Contracts will often include significant variable elements (e.g. whether services will be paid
by private issuer or government)
• Uncertainty in respect of collectability for services provided or value of services provided
Investment
Management
• “Sign-on” fees will be treated as advance payment for future services, and so recognised
when those services are provided
• Costs incurred that are directly attributable to obtaining contracts (e.g. “success fees”) will
need to be capitalised
Technology
• Bundled services including licenses may not qualify as distinct and therefore would need to
be recognised over than time, rather than on delivery
• Long term contracts will need to be retrospectively accounted for if the span several
periods
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3. Select ’OK’ Telecoms industry Multiple element deliverables – the big issue
• Issues where subsidised hardware or devices provided to customers
• Current practice is to recognise revenue upon delivery of contractual elements
but limited to the amount that is not contingent on delivery of additional elements
Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 34
• Revenue currently
recognised as
consideration is invoiced
• New standard requires
apportionment of
consideration between
goods and services
• Cash ≠ revenue
Consideration
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3. Select ’OK’ Telecoms industry Bringing the theory to life
Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 35
Current practice New approach
Direct sales channel Indirect sales
channel Direct sales channel
Indirect sales
channel
Year 1 Year 2 Year 1 Year 2 Year 1 Year 2 Year 1 Year 2
Service revenue 480 480 480 480 409 409 480 480
Handset revenue - - - - 142 - - -
Total revenue 480 480 480 480 551 409 480 480
Sales commission (50) - (300) - (25) (25) (150) (150)
Handset costs (250) - - - (250) - - -
Total costs (300) - (300) - (275) (25) (150) (150)
Profit 180 480 180 480 276 384 330 330
Cash inflow 180 480 180 480 180 480 180 480
Indirect channel
• Customer acquired through dealer
• Two-year contract, £40 pm (FV of £60)
• Free handset, which has a cost and
standalone selling price of £250
• Distributor paid a commission of £300
• Operator has not supplied the handset
Direct channel
• Acquired through direct sales channel
• Two-year contract, £40 pm (FV of £60)
• Free handset, which has a cost and standalone
selling price of £250
• Commission of £50 paid to the direct channel
salesperson
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Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 36
“...the proposed model involves the use of
estimations to a greater extent thereby
increasing complexity and potentially
decreasing reliability and comparability
of the information. This affects not only
accounting but also internal control as
well, since entities will have to ensure that
estimation techniques are used
consistently throughout the Group.”
“...the proposed model would require
operators to implement new IT systems,
solely for the purpose of revenue
recognition. This would result in
tremendous implementation and
ongoing costs, which we estimate to
amount to at least hundreds of millions
of Euros, without visible advantages to
the users of financial statements.”
Comment letters submitted by telecoms operators…
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Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 37
After considering the feedback from respondents, the
Boards decided not to modify the proposals on the
basis that:
a) the proposals would most faithfully depict the
economics of those arrangements because the
pattern of revenue recognition would take into
account the effect of any upfront discounts and/or
commissions; and
b) modifying the proposals would set a precedent that
the required allocation methodology (i.e. relative
standalone price allocation) need not be applied in
all circumstances.
Staff paper issued in December 2012
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Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 38
New revenue recognition
standard
Judgements /
assumptions Accounting
policy choices
Customer
contracts
Behaviours &
governance
Organisation
& capabilities
Processes
Systems
Data &
definitions
Finance operations Finance as business partner
Sales
commissions
Budgets and
forecasts
Remuneration
Presentation /
disclosure
Investor
relations
Taxation
Impacting
Debt
covenants
Customer
services
Commercial
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Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 39
Avoids significant capital
outlay and system change
Performance obligations not
be linked to individual
contracts
Approach will use KPIs
which can be tracked, and
linked to a calculation engine
KPIs may already exist
System remain untouched
x Accuracy
x Proving it’s accurate
x Consistency of assumptions
x Difficult to apply contract
modification guidance
x Likely to require much more
ongoing input from the
custodians of customer data
1. Portfolio approach
Business rules are applied
“at source”, i.e. the lowest
level of data granularity
Likely to be the most
accurate reporting basis
(and data)
x High risk of disrupting the
billing processes (customer
facing)
x Very costly approach
(prohibitive?)
x Approach unlikely to bring
any additional reporting
insights
3. Amend billing system
More accurate than portfolio
approach
Much of the data required to
process the calculations and
allocations currently exists in
source systems
Current systems may be
customisable, or allow easy
insertion of such a solution
No change to billing
environment
x Costly and time consuming
x Changes to existing
architecture may be required
x Extends scope of financial
reporting systems and
datasets
2. Middleware solution
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• Tele2 and TeliaSonera - recognition
of revenue up front
• Tele2 – prospective change in
accounting from Q4 2010 which
boosted profit by SEK 87m (€10m)
in that quarter
• TeliaSonera and Tele2 - handsets
sold separately under an instalment
plan (e.g. 24 monthly payments of
€20 recognised would result in
recognition of $480 on day one)
The Swedish approach
Telecoms industry An alternative solution?
Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 40
2013: O2 refresh tariff introduced
to UK
20bp added to OIBDA margin in
Q3 2013 results
Tariff innovation resulting in alignment to new revenue recognition approach
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Telecoms industry survey
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Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 42
6%
16%
52%
26%
19%
26%
32%
23%
0% 10% 20% 30% 40% 50% 60%
Don't know
None
Aware but don't understand, or some awarenessand limited involvement
High awareness and understanding
Investors and Analysts Boards and audit committes
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Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 43
-
1
2
3
4
5
Meeting thedata
requirements
Impact on ITsystems
Meetingadoptiontimetable
Impact onfinancial results
Industry peercomparability
Intragroupconsistency
Investorcommunication
(1 = no impact; 5 = significant impact)
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Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 44
8%
12%
24%
44%
12%
0% 10% 20% 30% 40% 50%
Yes
No, but can be addressed with some simple modification
No, but a potential solution (new software, systemupgrade) has been identified
No
Don't know
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between peers
Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 45
7%
26%
30%
11%
26%
No concern
Limited concern
Concern
Growing concern
Significant concern
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Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 46
• It’s more complicated than IAS 18
and requires careful consideration
• It’s coming soon
• Most companies are likely to be
impacted
• Understand and communicate
implications of adoption early
• Contracts that commenced this
year and have duration of over 3
years’ will be affected
Revenue standard
• Good example of a strong finance
community within an industry
• Portfolio vs. contract-level: no-one
wants to be an outlier
• System and data capabilities are
very different between operators
• Acceptance that there is unlikely to
be a simple solution
• Importance of stakeholder
education around the changing
revenue numbers
• Don’t mention lease accounting…
Telecoms sector
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Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 47
Life was much simpler….
…when Apple & Blackberry were just fruits
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Deloitte Finance Club
TMT Predictions 2014
Paul Lee
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New technologies thrive when they indulge existing or latent needs
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Smart glasses We have long been attracted by flowing, digital information in our line-of-sight
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when crossing the road
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Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 53
For some workers, having both hands
free while gazing at screens is a
distinct advantage
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To view Deloitte drawing guides:
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2. Check ’Display drawing guides
on screen’
3. Select ’OK’ Smart glasses In 2014, multiple enterprise uses will be experimented with
(the below is a simulation)
Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 54
+
Eyes on the patient at all times…
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Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 55
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corner of the right eye
Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 56
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enterprises
Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 57
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To view Deloitte drawing guides:
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3. Select ’OK’ Smart fitness In 2014, multiple forms of wearable device enabling self-measurement will
launch
Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 58
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direction
Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 59
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Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 60
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To view Deloitte drawing guides:
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Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 61
1983 1999 2014
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Growth in spend on consumer devices may be reaching a plateau: but at $800 billion
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To view Deloitte drawing guides:
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3. Select ’OK’ The $750 billion Converged Living Room A plateau approaches
Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 63
The $750 billion Converged Living Room: a plateau approaches
“Deloitte predicts that global sales of smartphones, tablets, PCs,
TV sets and videogame consoles will surpass $0.75 trillion in 2014,
up $50 billion from 2013 and 2x the 2010 total.
“Since 2003, trailing five-year CAGR for these five products has
increased 6%-12% percent per year. In the near term, a plateau
appears likely: while sales should continue growing, this will be at
a slower rate than over the past decade, and annual sales are
unlikely to exceed $800 billion in the medium-term.
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3. Select ’OK’ The $750 billion Converged Living Room Converged devices have taken over the living room over the past decade,
with smartphones the biggest driver
Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 64
0
100
200
300
400
500
600
700
800
900
Combined global sales revenues ($ billions) of smartphones, tablets, PCs, TV sets, gaming consoles (1999-2018)
PCs Smartphones Gaming consoles TVs Tablets
Source: Deloitte Analysis, 2013
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1. Right-click on slide and select
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3. Select ’OK’ The $750 billion Converged Living Room While revenues are may be approaching a plateau, units continue to rise
over the medium-term
Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 65
Source: Deloitte Analysis, 2013
0
500
1000
1500
2000
2500
3000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Combined global sales (millions of units) of smartphones, tablets, PCs, TV sets, gaming consoles (1999-2018)
Tablets Smartphones Gaming Consoles PCs TVs
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66
Source: Deloitte Global Mobile Consumer Survey, all European countries surveyed, May/July 2013.
Weighted base: Total respondents (all ages, 18-24, 25-34): Belgium (2,000, 217, 323), Finland (1,000, 108,160), France (2,000, 226, 315), Germany (2,000, 197, 286), Netherlands
(2,000, 216, 332), Portugal (607, 90, 158), Spain (2,000, 182, 378), UK (4,020, 472, 669).* Note: The online research approach in Russia resulted in a higher concentration of urban
professionals with higher income.
Question: Which of the following portable devices do you own or have ready access to?
88%
83% 82%
58%
87%
78%
67%
54%
61%
82% 84% 80%
63%
82%
74%
67%
48%
60%
69%
62% 59%
56% 55% 52% 51%
41% 39%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Spain UK Netherlands Portugal Germany France Finland Russia* Belgium
18-24 25-34 All ages
The $750 billion Converged Living Room Smartphone penetration among 18–24 and 25–34 year olds is reaching
saturation … but the devices they own should continue to iterate
Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 66
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To view Deloitte drawing guides:
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3. Select ’OK’ The smartphone (high to low-end) should continue to be
refreshed significantly every year
Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 67
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3. Select ’OK’ Moore’s Law increments the capability of the $100
smartphone every year
Smartphones vary by specification, age, condition. High-end apps, websites are
created for the latest models of phone.
Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 68
$100 smartphone
Feb 13
High-end smartphone
Feb 13
User interface QWERTY or touch Touch / Touch + qwerty
Processor 0.8 – 1.2 GHz 1 – 2 GHz, quad core
Connectivity Wi-Fi, GPRS, EDGE, 3G HSPA, HSPA+, 2x HSPA, multi
band LTE, Wi-Fi direct
Navigation Available GPS, GLONASS, Wi-Fi
Memory <1 GB 8GB – 64 GB (internal)
Camera 5 MP Up to 41 MP
Open OS Yes Yes
App support Yes Yes
Every year, the spec of the $100 phone should improve by about 30%-40%,
thanks to Moore’s Law
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phone
Smartphones vary by specification, age, condition. High-end apps, websites are
created for the latest models of phone.
Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 69
$25 smartphone
24 Feb 14
High-end smartphone
Q2 14
User interface 3.5 inch touch HVGA Touch, Gorilla Glass 3, up to
6.99 inch
Processor Single core, 1 GHz ($1.40) Up to 2.7 GHz, octo core
Connectivity GPRS, EDGE, Wi-Fi,
Bluetooth
HSPA, HSPA+, 2x HSPA, multi
band LTE, Wi-Fi direct, BT
Navigation Available GPS, GLONASS, Wi-Fi
Memory 1 GB 8GB – 64 GB (internal)
Camera Rear facing 2MP Up to 41 MP
Open OS Yes Yes
App support Yes Yes
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Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 70
One became many: the tablet market stratifies
Deloitte predicts that in the first quarter of 2014, the installed base
of compact tablets (with screens smaller than 8.5 inches) will
surpass the base of classic tablets (8.5 inches and larger). By end
Q1 2014, we expect the base of compact tablets to be 165 million
units, slightly ahead of the classic tablet base, with 160 million.
The surge in compact tablet sales is accompanying a stratification
of the tablet base, similar, but possibly ultimately more profound to
that experienced in the smartphone market in the last two years .
The tablet market stratifies
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70%
5%
0% 0% 1% 4% 3%
1%
16%
52%
12%
8% 8%
2% 2% 1% 1%
14%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Apple iPad Samsung GoogleNexus
AmazonKindle
BlackBerryPlaybook
ArchosTablet
Asus Acer Iconia Other / Don’t Know
2012 2013
When first launched, the iPad was the tablet market Its share has steadily slipped
Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 71
Source: Deloitte Global Mobile Consumer Survey UK, May-July 2013
Base: Respondents that have a tablet (2013)1,431, (2012) 327
Tablet market share by brand
Question: Which, if any of the following models is your current tablet?
In 2013, 36% of respondents had a tablet
In 2012, 16% of respondents had a tablet
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To view Deloitte drawing guides:
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3. Select ’OK’ In the last year, iPad sales growth has slowed It is now premium, rather than predominant
Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 72
4.1
7.3 4.7
9.2 11.1
15.4
11.8
17.0 14.0
22.9
19.5
14.6 14.1
26.0
0.0
10.0
20.0
30.0
40.0
50.0
60.0
Q4FY10
Q1FY11
Q2FY11
Q3FY11
Q4FY11
Q1FY12
Q2FY12
Q3FY12
Q4FY12
Q1FY13
Q2FY13
Q3FY13
Q4FY13
Q1FY14
iPhone iPad iPod Macs (Desktops + portables)
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Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 73
17
61
78 75 72
15
52
139
215
-
50
100
150
200
250
2010 2011 2012 2013 2014
Sh
ipm
en
ts in
mill
ion
un
its
Tablet shipments
Over 8.5' Below 8.5'
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Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 74
Amazon Tesco (supermarket/general)
Argos (discount general)
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To view Deloitte drawing guides:
1. Right-click on slide and select
’Grid and Guides...’
2. Check ’Display drawing guides
on screen’
3. Select ’OK’ In some markets, tablets are becoming more toys than tools Top non-Fire tablets on amazon.co.uk – December 2013
Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 75
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Questions
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• Accounting for real estate and a Tax update
Wednesday, 23 April 2014
• Finance IT systems
Wednesday, 7 May 2014
• The Summer finance checklist
Date TBC (July)
Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 77
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To view Deloitte drawing guides:
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• Dave Griffin – 020 7303 8926 [email protected]
• Paul Lee – 020 7303 0197 [email protected]
• Amanda Swaffield – 020 7303 5330 [email protected]
• James Bates – 020 7303 0094 [email protected]
Resources:
• Deloitte Finance Club home page: www.deloitte.co.uk/financeclub
• UK Accounting Plus (formerly IAS Plus): www.ukaccountingplus.co.uk
• Deloitte UK Tax home page: www.deloitte.co.uk/tax
• Deloitte TMT predictions 2014: www.deloitte.co.uk/tmtpredictions
• Plan. Budget. Forecast.: http://www.planbudgetforecast.com/
Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 78
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©2014 Deloitte LLP. All rights reserved.
©2014 Deloitte LLP.
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), a UK private company limited by guarantee, and its network of member firms, each of
which is a legally separate and independent entity. Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms.
Deloitte LLP is the United Kingdom member firm of DTTL.
This publication has been written in general terms and therefore cannot be relied on to cover specific situations; application of the principles set out will depend upon
the particular circumstances involved and we recommend that you obtain professional advice before acting or refraining from acting on any of the contents of this
publication. Deloitte LLP would be pleased to advise readers on how to apply the principles set out in this publication to their specific circumstances. Deloitte LLP
accepts no duty of care or liability for any loss occasioned to any person acting or refraining from action as a result of any material in this publication.
Deloitte Finance Club – Revenue recognition and TMT predictions (26 Mar 2014) 79