fasb/iasb for jd edwards

Confidential & Proprietary

FASB/IASB for JD Edwards – What to Expect

Presenter: Yogesh GodbolePrincipal Consultant, FinanceCircular [email protected]

mailto:[email protected]


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Agenda

1. What are FASB & IASB?2. Relevance of IFRS and US GAAP in US Market3. New Accounting Standard on Revenue Recognition4. Deadline to adopt to changes in Revenue

Recognition5. Main Provisions under Revenue Recognition 6. JDE EnterpriseOne 9.2 Solution7. Benefits of the Revenue Recognition process


What are FASB & IASB?


• In USA, Financial Accounting Standards Board (FASB) issues different guidelines called as “US GAAP” (US Generally Accepted Accounting Principles) between 1973-2009

• The International Accounting Standards Board (IASB) is an independent, private-sector body that develops and approves International Financial Reporting Standards (IFRS).

• The Securities and Exchange Commission (SEC) designated the FASB as the organization responsible for setting accounting standards for public companies in the U.S.

What are FASB & IASB?


Relevance of IFRS and US GAAP in US Market


• Under SEC regulations, domestic US companies need to file financial statements under US GAAP issued by FASB

• US Domestic Companies cannot use IFRS standards• SEC permits its foreign private issuers to use IFRS issued by

IASB for filing of annual reports• Unlisted private companies can use IFRS or IFRS for SMEs issued by IASB• In some cases this requires multi GAAP reporting

Relevance of IFRS and US GAAP in US Market

• Under Norwalk Agreement between FASB and IASB, US is committed to convergence of US GAAP and IFRS standards


New Accounting Standard on Revenue Recognition


• FASB and IASB initiated a joint project to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and IFRS that would:• Remove inconsistencies and weaknesses in revenue requirements.• Provide a more robust framework for addressing revenue issues.• Improve comparability of revenue recognition practices across entities,

industries, jurisdictions, and capital markets• In May 2014, new common standard was issued as

• US GAAP Topic 606 (ASC 606) - Revenue from Contracts with Customers (issued by FASB)

• IFRS 15 - Revenue from Contracts with Customers (issued by IASB)

New Accounting Standard on Revenue Recognition


Deadline to adopt to changes in Revenue

Recognition


• FASB Update 2015-14: 1 year deferment for applicability of new standard on revenue Recognition

• New effective date 12/15/2017: For Public business entities, certain not-for-profit entities, and Certain employee benefit plans in US (early adoption permitted for annual reporting period starting 12/15/2016 including interim reporting)

• New effective date 12/15/2018: For all other entities in US (early adoption permitted for annual reporting period starting 12/15/2016. Interim reporting can be done as per new standard effective from 12/15/2016 or one year after annual reporting first under new standard)

Deadline to adopt to changes in Revenue Recognition


Main Provisions under Revenue Recognition Standard


Main Provisions under Revenue Recognition• The core principle as stated in the IFRS is to:

“Recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to exchange for those goods or services.”

• Here are the basic steps outlined related to this new standard:

• The guidance in this Update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (for example, insurance contracts or lease contracts).


Main Provisions under Revenue Recognition• The new standard states that you cannot recognize

revenue for billed revenue amounts associated with the billing amount until the performance obligation to the customer is satisfied.• For each performance obligation, an entity must apply consistent method of measuring the progress

• Performance obligation is satisfied at a point in time or over time. This is the trigger to recognize the revenue.

• Recognize Costs to obtain or fulfill the contract• Under disclosure requirements, qualitative and

quantitative information is required about contracts, changes, transaction price, costs, etc.


Example: Over the Counter Sales

Assumptions:• Goods or services are received at a point• Payment made at the point of sale• Transactions finalized in ERP system

immediately


Example: Over the Counter Sales

Customer purchases auto-parts at a retail store

Customer takes possession of the goods and pays for them at the

store

Invoice created for transaction

Revenue and COGS amounts booked

Payment created for transactionJanuary 5

No Changes Required to Current Business Process or Accounting Entries

Performance Obligation

Satisfied

Revenue and COGS

Recognized


Example: Shipping of Goods to Customer

Assumptions:• Sales Order for goods that will be shipped a long

distance to the customer• Customer is invoiced at the time of shipment• Customer takes advantage of the discounts

available and pays prior to receiving the shipment



Agreement made between

supplier and customer for the

sale of auto-parts

Sales Order

Created

Auto-parts Shipped to Customer

Invoice created

Customer pays the

invoice

Supplier receives payment

Customer receives auto-

parts and notifies

supplier they have

accepted them

Performance Liability is

cleared and the Revenue and

COGS amounts are booked

February March April


Satisfied

New Standard

Revenue and COGS

Recognized

Current Process

Revenue and COGS

Recognized

New Standard

Performance Liability for Revenue and

COGS


JDE EnterpriseOne 9.2 Solution


Invoice Entered Invoice sent to RR process

Performance Liability booked

in GL

Performance Obligation Complete

Revenue and COGS

Recognized

Source of Invoice• A/R• Sales Order• Contract Billing• Service Billing

Invoices are sent to the Revenue Recognition process based on trigger processing

AAI/DMAAIs determine the Performance Liability account

Determined by Customer’s business process

Performance Liabilities cleared from G/LRevenue booked in G/LCOGS booked in G/L

Revenue Recognition Process Flow



Agreement made between

supplier and customer for

the sale of auto-parts

Sales Order

Created

Auto-parts Shipped to Customer

Invoice created

Customer pays the invoice

Supplier receives payment

Customer receives

auto-parts and notifies

supplier they have accepted

them

Performance Liability is

cleared and the Revenue and

COGS amounts are booked

February March April


Satisfied

New StandardRevenue and COGS

Recognized

New StandardPerformance Liability for Revenue and

COGS -

RevenuePerformance

LiabilityCOGS Performance

Liability Cost of Goods Sold

$200.00 $175.00

$200.00 $200.00 $175.00 $175.00


Revenue Recognition Set Up1. System Setup:

• Setting Up the Revenue Recognition Constant• Set up new OBJ.SUB accounts in COA for Revenue

Recognition Process• RP AAI: To determine the Performance Liability Account

(PLA)• DMAAI 4225 Setup: Cost of Goods Sold PLA• RQ AAI Setup: COGS PLA Adjustment Account• UDC 03B/SR: Current revenue recognition status of an

invoice pay item

2. Trigger Setup• Revenue Recognition Trigger Setup for A/R Invoices• Revenue Recognition Trigger Setup for Sales Orders• Revenue Recognition Trigger Setup for Contract Billing• Revenue Recognition Trigger Setup for Service Billing


Revenue Recognition Trigger Setup

• Triggers the system uses to determine whether to send an A/R invoice to the revenue recognition process

• You must define all three triggers (Hierarchy, Date and Configuration records) for each required system

• There are separate trigger configurations for: A/R invoices Sales Order invoices Contract Billing invoices Service Billing invoices


• Use the Revenue Recognition program (P03B116) to recognize revenue for an individual invoice, for multiple invoices, or by batch. You can recognize more, less, or all of the COGS for a sales order invoice.

• Optionally, to automatically recognize revenue and COGS for invoices, you can use the Revenue Recognition - Blind report (R03B116).

Recognizing Revenue & COGS at Performance Obligation Completion


Revenue Performance Obligations (RPO) in Job Cost

• Setup RPO AAIs to define Cost and Revenue Accounts• Define Revenue Performance Obligation Master (P5202) for a

Job

• Record the progress of the job – Update % Complete at RPO level

• Profit Recognition Build (R51800) for RPO• Create Profit Recognition Journal Entries for RPO (R51444)


Benefits of new Revenue Recognition features in EnterpriseOne:• Comply with Revenue Recognition Accounting Standards

‐ Identify and track your contracts and Performance Obligation‐ Recognize revenue only when the performance obligation is

complete‐ Accurately reflect the performance liability and revenue in your

Balance sheet and Income statement• Minimize impact to current business processes

‐ The system determines which invoices need to go to Revenue Recognition process versus the staff

• Flexible Set Up‐ Choose which companies use the functionality based upon your

business needs‐ Flexibility to identify those invoices that need to go to the RR

process based upon your company’s business process


Thank you!Follow Circular Edge for Additional FASB/IASB

Resourceswww.circularedge.com

@circular_edgehttps://www.linkedin.com/company/circular-edge

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fasb/iasb for jd edwards

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