kpmg revenue recognition august 2010 final
TRANSCRIPT
CONSUMER MARKETS
KPMG INTERNATIONAL
Proposed New Guidance on Revenue RecognitionThe impact on Food, Drink and Consumer Goods companies
IntroductionWilly Kruh, Global Chair, Consumer Markets, KPMG in Canada
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm
vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
3
Administration
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© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm
vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
4
Agenda
Welcome and AdministrationWilly Kruh, Global Chair – Consumer Markets, KPMG in Canada
Why is the proposed standard important to Food, Drink and Consumer Goods (FDCG) Companies? Mark Baillache, Global Audit Sector Lead – FDCG, KPMG in the UK
FASB/IASB Exposure Draft: Revenue from Contracts with CustomersBrian O’Donovan, KPMG International Standards Group (ASPAC/EMA webcast) Phil Dowad, International Standards Group, KPMG in Canada (Americas/EMA webcast)
Impact of the Revenue Recognition Exposure Draft on the FDCG sectorTrent Duvall, Audit Partner, KPMG in Australia (ASPAC/EMA webcast)Paul Munter, Department of Professional Practice, KPMG in the US (Americas/EMA webcast)
QuestionsModerated by Mark Baillache
POLL QUESTION:Have you read the Exposure Draft yet?
a) Yes
b) No
Why is the proposed standard important to Food, Drink and Consumer Goods (FDCG) companies?Mark Baillache, Global Audit Sector Lead – FDCG, KPMG in the UK
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm
vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
7
Diversity in existing practice
IAS 18 is an older standard and very general in its guidance
Objectives of the proposed standard:
Remove weaknesses in existing revenue recognition standards
Provide a more robust framework for addressing revenue recognition issues
Improve comparability of revenue recognition practices
POLL QUESTION:What impact do you expect the Exposure Draft to have on your company’s revenue recognition policies?
a) Significant impact
b) Moderate impact
c) No impact—our current policies are consistent with the requirements of the ED
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm
vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
9
Impact on all preparers
An accounting issue and a business issue:
Thorough analysis of a supplier’s relationship with its retailers and distributors will be required
Potentially significant changes for entities currently reporting under IFRS
Suppliers must have systems in place to capture required information to comply with the proposed standard
Must have ability to estimate stand-alone selling prices for all distinct performance obligations
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm
vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
10
Consideration needed under proposed standard
Customer incentives Payments to customers Volume rebates / early settlement discounts Free or discounted goods Options for additional goods Customer loyalty programs
Right of return Product warranties Consignment arrangements Bill-and-hold arrangements Collectability / credit risk
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm
vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
11
Wider implications to the business from the changes in accounting
For consumer organizations, sales is a key measure in assessing a business’s performance
Companies should consider how the proposed standard, and its impact on revenue reported, will impact::
Organic growth calculations
Operating expenses / margins
Existing contracts (e.g. sales-led contracts such as licensing agreements and debt covenants)
Stakeholder management
POLL QUESTION:To what degree do you expect the proposed standard to impact how your CEO and CFO communicate your company’s performance with the financial markets/investors?
a) Significant impact
b) Some impact
c) No impact
d) I have not yet considered what impact the proposed standard might have on our company’s investor communications
FASB / IASB Exposure Draft:Revenue from Contracts with CustomersBrian O’Donovan, KPMG International Standards Group (ASPAC/EMA)Phil Dowad, International Standards Group, KPMG in Canada (Americas/EMA)
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm
vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
14
Scope of the proposals
Revenue arising from contracts with customers:
i.e. enforceable rights and obligations
Entity CustomerContract
Scope exclusions proposed for lease contracts, insurance contracts and financial instruments – subjects of other projects
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm
vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
15
A five-step approach to revenue recognition
Step 1: Identify the
contract
Step 2: Identify the separate
performance obligations in the contract
Performance obligation 1
Performance obligation 2
Step 3: Determine the
transaction price
Step 4: Allocate the
transaction price to the separate performance obligations
Transaction price
allocated to performance obligation 1
Transaction price
allocated to performance obligation 2
Step 5: Recognize
revenue as eachperformance obligation is
satisfied
Recognize revenue
Recognize revenue
Contract Transaction price for the
contract
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm
vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
16
Step 1: Identify the contract
A contract can be oral or implied by the entity’s customary business practices, but needs to meet all of the following requirements to exist for the purpose of applying the proposed standard:
It has commercial substance The entity can identify each party’s enforceable rights
The parties have approved the contract and are committed to
satisfying their respective obligations
The entity can identify the terms and manner of settlement
Individual contracts may be: Combined – if their prices are interdependent Segmented – if some goods or services are priced independently
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm
vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
17
Step 2: Identify the separate performance obligations in the contract
Is promised good or service distinct from other goods or services in the contract ?
Yes
Separate performance obligations
No
Combine good or service with other goods or services
A promised good or service is distinct from others if the entity or another entity sells an identical or similar good or service
separately, or the entity sells the good or service separately, because it has
a distinct function a distinct margin
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm
vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
18
Step 3: Determine the transaction price
“The amount of consideration that an entity receives, or expects to receive, from a customer in exchange of transferring goods or services (excluding amounts collected on behalf of third parties)”To determine transaction price, consider: the effect of customer’s credit risk; the effect of time value of money (payment before or after
goods/services transferred) if the contract includes a material financing component;
the fair value of non-cash consideration; the nature of consideration paid to a customer (discount and/or
payment for other goods or services); and the estimates of variable consideration.
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm
vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
19
Step 3: Determine the transaction price – estimate variable consideration
Can transaction price be reasonably estimated because the entity has experience with similar types of contracts (or access to
experience of other entities), and the entity’s experience is relevant since the entity does not expect
significant changes in circumstances?
Yes
Variable consideration included in transaction price
No
Only fixed amount included in transaction price
Factors that reduce the relevance of an entity’s experience include: Consideration amount is highly susceptible to external factors; Uncertainty about amount not expected to be resolved before long time; Entity’s experience with similar contracts is limited; and Contract has large number of possible consideration amounts.
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm
vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
20
Step 4: Allocate the transaction price to the performance obligations
A
Transaction price allocated based on relative stand-alone selling prices
B C
Performance obligations
How to estimate the stand-alone selling price?
Best evidence
Observable price
If not available
Estimated price
Adjusted market assessment approach
Expected cost plus margin approach
If not available
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm
vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
21
Step 5: Recognize revenue when a performance obligation is satisfied
A performance obligation is satisfied when the customer obtains control of a good or service.
The customer has legal title
The customer has an
unconditional obligation to pay
The customer has physical possession
The design or function is
customer-specific
Indicators that the customer has
obtained control of a good or service
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm
vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
22
Contract costs
Direct costs that would be eligible for capitalization if other criteria are met
Direct labor (e.g. employee wages)
Direct materials (e.g. inventory to customer)
Allocation of costs that relate directly to the contract (e.g. depreciation and amortization expenses)
Cost that are explicitly chargeable to the customer under the contract
Other costs that were incurred only because the entity entered into the contract (e.g. subcontractor costs)
Costs expensed when incurred
Costs of obtaining a contract (e.g. marketing, bid and proposal, commissions)
Costs that relate to satisfied performance obligation (i.e. transfer of control already occurred)
Abnormal amounts of wasted materials, labour, or other contract costs
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm
vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
23
Onerous performance obligations
Onerous test performed at the level of performance obligations
Transaction price allocated to performance
obligationIf <
Present value of probability-
weighted direct costs to satisfy performance
obligation
Performance obligation deemed
onerous and contract loss to be
recognized
Contract loss recognized first as an impairment loss against any recognized asset relating to the contract and then as a separate liability for onerous obligations
Subsequent changes in the liability recognized as an expense or as a reduction of an expense
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm
vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
24
Presentation
A contract asset or contract liability is recognized when: the entity performs by transferring goods or services, or the customer performs by paying consideration to entity.
(net) contract assetif rights > obligations
(net) contract liabilityif obligations > rights
Rights and obligations
or
Contract costs capitalized are presented according to their nature and separately from contract assets. Liability for onerous obligations is presented separately from contract liabilities.
Unconditional right to consideration is presented as a receivable and accounted for in accordance with financial instruments standards.
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm
vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
25
Disclosure
High level disclosure objective
Intended to assist users to understand amount, timing and uncertainty of revenue and cash flows arising from contracts with customers
Disclosures about contracts with customers
Disaggregation of revenue
Reconciliation from opening to closing aggregate balances of contract assets and liabilities
Information about onerous performance obligations including a reconciliation from opening to closing balance of liability from onerous performance obligations
Information about performance obligations including a maturity analysis of remaining performance obligations in contracts longer than one year
POLL QUESTION:If the Boards publish a new revenue standard in June 2011 based on the ED and require full retrospective application, when would your organization be ready to apply the new standard?
a) Immediately
b) Accounting periods beginning in 2012
c) Accounting periods beginning in 2013
d) Later
Impact of the Revenue Recognition Exposure Draft on the FDCG sectorTrent Duvall, Audit Partner, KPMG in Australia (ASPAC/EMA)Paul Munter, Department of Professional Practice, KPMG in the US (Americas/EMA)
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm
vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
28
Key Issues
Two traditional routes to market:
Retailers
Distributors with other routes such as business to business
FDCG companies should thoroughly evaluate all elements of their contracts with retailers
Determination of transaction price will be a key issue, specifically:
Payments made to customers
Potential variability in transaction price
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm
vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
29
Customer incentives
Examples of customer incentives
Upfront payments to customers
Volume rebates / early
settlement discounts
Free or discounted goods
or services included in a
sales transaction
Customer options for additional goods or services
Accounting issues
Reduction of transaction
price or payment for
distinct goods or services?
Estimate of the transaction
price
Separate performance
obligations? How to allocate
transaction price?
Does the option provide a
material right to the customer?
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm
vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
30
Slotting fees
Payments made to a retailer to secure product placement
Payment is for a distinct good or service
Fair value of good/service reflected as expense or asset, remaining balance treated as a reduction in revenue
If fair value cannot be estimated, the payment is treated as a reduction in revenue
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm
vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
31
Slotting fees (continued)
Example
A coffee company sells 1,000 jars of coffee to a retailer for $10,000
The coffee company pays $1,000 to the retailer in exchange for aproduct placement service, including stocking, displaying and supporting the products
FDCG company determines it is receiving a distinct service with a fair value of $600
Expense = $600
Revenue = $9,600 [$10,000 – ($1,000 - $600)]
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm
vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
32
Early settlement discounts
Early settlement discounts are an example of variable consideration.
An entity is required to estimate the transaction price by assessing the likelihood of settlement discounts being earned. This is deducted from the consideration.
If the consideration cannot be reasonably estimated (eg due to inherent uncertainty around what deductions will be taken), the FDCG company recognizes those amounts that can be reasonably estimated, e.g. fixed amounts. Effectively, the entire settlement discount would be deferred as a reduction to revenue if an entity can not reliably estimate it at the time of the transaction.
Subsequent adjustments are to revenue
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm
vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
33
Early settlement discounts
Example A tobacco manufacturer sells 1,000 packs of cigarettes to retailer at $5 ea. Early settlement discount of 2 percent if payment is made within 30 days of
invoicing Experience with similar contracts is deemed relevant Transaction price is estimated by identifying the following possible
outcomes and related probabilities:
Possible outcomes Probabilities Expected consideration
$5,000 (1,000 x $5) 25% $1,250$4,900 [(1,000 x $5) – (1,000 x $5) x 2%] 75% $3,675Estimated transaction price at contract inception $4,925
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm
vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
34
Customer incentives - Option to acquire additional goods or services
The FDCG company grants the customer an option to acquire additional goods or services
Could the customer obtain the right to acquire additional goods or services without entering the sale agreement?
No Yes
Does the option give the customer the right to acquire additional goods or services at their
standalone selling price?
Yes
The option does not give rise to a separate performance obligation
No
The option is a material right that gives rise to a separate performance obligation
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm
vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
35
Coupons/discount vouchers
Example
Sell cereal for $5 Voucher for 40 percent off next purchase 80 percent redemption expected Estimated FV of voucher = $1.60 [$5 x 40% x 80%]
If voucher is not redeemed, revenue is recognized at expiration Changes in estimate of redemption rates is reflected as an
adjustment to revenue
$3.79 $5 - $5 x [$1.60/($1.60+$5)] Recognize on sale
$1.21 $5 x [$1.60/($1.60+$5)] Recognize when redeemed
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm
vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
36
Customer loyalty programs
Rewards or points granted are an option to acquire additional goods or services
Represent a separate performance obligation A portion of the transaction price must be allocated to the rewards or
points Likelihood of redemption must be estimated Relative fair value method is used to allocate transaction price
between the sale of goods and the rewards or points granted
POLL QUESTION:Do you believe that your current systems for managing and controlling trade spend will provide you with sufficient information for accounting in accordance with the proposed standard?
a) Yes, using our existing systems
b) Yes, with some modification to our systems
c) No, significant modifications will be required
d) I have not yet considered whether our systems will be adequate to comply with the proposed standard
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm
vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
38
The power of retailers
Retailers may exert their influence over suppliers by: taking deductions from invoiced amounts assessing penalties based on Service Level Agreements
Consider whether there is an identifiable benefit arising from such payments treat as purchase of good or service
The probability-weighted amount expected to be collected should be recognized as revenue
Deductions from revenue to be estimated by FDCG companies based on historical experience
Subsequent changes in estimates are reflected as adjustments to revenue
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm
vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
39
Rights of return
Revenue not recognized for goods expected to be returned
Liability recognized for refunds and credits to customers
Asset recognized for the right to recover goods
Refund liability and asset remeasured at the end of each reporting period
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm
vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
40
Not a separate performance obligation. FDCG company determines the likelihood and extent of defective
products.
If FDCG company required to replace defective
products, then related revenue is deferred.
Product warranties and product liabilities
If FDCG company required to repair defective
products, then a portion of revenue related to
components to be repaired is deferred.
Cover for latent defects (quality assurance warranty)
Cover for faults post-delivery
(insurance warranty)
Separate performance obligation
Transaction price allocated is recognized as revenue
when obligations are satisfied (e.g. over the
warranty period).
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm
vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
41
Product warranties
Example Sell 1,000 washing machines (cost = $600 each) for $1,000 each Replace defective machines if returned within 90 days 1 percent expected defect rate
Recognize an asset (inventory) of $6,000 (1,000 x $600) for goods not transferred
Revenue recognized $990,000Liability recognized $10,000
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm
vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
42
Consignment arrangements
Goods are delivered to an intermediate party
The FDCG company may retain title and/or the right to recover the goods
Dealer/distributor may be a principal or agent
Right to recall products
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm
vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
43
Bill-and-hold arrangements
Customer is billed but product is not shipped
When does control pass?
The customer would obtain control of the product before delivery if the arrangement meets all of the following conditions:
The customer has requested the contract to be on a bill-and-hold basis
The product is identified separately as the customer’s
The product is currently ready for delivery at the time and location specified or to be specified by the customer
The FDCG company cannot use the product or sell it to another customer
Custodial services could be a separate performance obligation
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm
vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
44
Collectability/credit risk
Consideration of collectability impacts measurement of revenue and would not be a criterion for whether revenue is recognized
Suppliers would have to assess the credit risk of all customers (i.e. retailers and distributors) based on their ability to pay
Contract price of consideration expected to be received, incorporating credit risk, would be recognized as revenue
Subsequent changes to assessment of collectability would be reflected as income/expense rather than revenue
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm
vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
45
Collectability / credit risk (continued)
Example
Invoice $1,000 for chocolate bars
10 percent likelihood of non-payment due to credit risk
Revenue of $900 is recognized on satisfying performance obligation [(90% x $1,000) + (10% x $0)]
Subsequent change of collections of receivable recognized as expense/contra-expense – not revenue
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm
vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
46
Deferred settlement
The time value of money is required to be taken into account in measuring the fair value of consideration
This will be relevant where an arrangement includes a financing component (implicitly or explicitly) eg extended credit/payment terms
Where the time value of money (effectively impact of discounting) is material to the individual contract it is to be recognised as a reduction to revenue
The applicable discount rate is the rate that would be used in aseparate financing transaction between the entity and the customer (and shall include credit risk)
The reversal of discounting is recognised separately as finance income in the P&L
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm
vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
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Presentation and disclosures
Requirement to disclose:
significant judgements and related changes in judgement
judgements in determining the transaction price and allocating it to performance obligations
the methods, inputs and assumptions used to:
estimate the transaction price
estimate stand-alone selling prices
measure obligations for returns, refunds, etc., and
measure the liability for onerous performance obligations
POLL QUESTION:After attending this webcast, how has your perception of the ED changed?
a) I believe the ED will have more of an impact on my company than initially expected
b) I believe the ED will have less of an impact on my company than initially expected
QuestionsModerated by Mark Baillache
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm
vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
50
Presenters
Both sessions:Willy KruhKPMG in Canada
Willy is KPMG’s Global Chairman of Consumer Markets, the Global Head of Food, Drink and Consumer Goods, and the National Leader for High-Growth Markets in Canada.
Mark BaillacheKPMG in the UK
Mark is KPMG's Global Audit Sector Lead for Food, Drink and Consumer Goods, providing audit and advisory services. He led a number of IFRS implementation projects when EU-listed companies were required to transition to IFRS.
ASPAC/EMA session:Brian O’DonovanKPMG International Standards Group
Brian is a partner with KPMG’s International Standards Group, based in London. Brian is a member of KPMG’s global IFRS Revenue Recognition and Provisions leadership team.
Trent DuvallKPMG in Australia
Trent is an audit and advisory partner specializing in the food, drink and consumer goods and retail sectors. He led IFRS implementation projects for a number of retail and consumer products organizations on IFRS transition in Australia in 2005.
Americas/EMA session:Phil DowadKPMG in Canada
Phil is an audit partner in Vancouver and is the leader of KPMG’s global revenue recognition topic team. Phil’s client responsibilities are across Canada and include companies in various segments of the consumer goods industry.
Paul MunterKPMG in the US
Paul serves as the lead technical partner for the US firm’s international accounting and IFRS activities. He is involved in the development of firm positions in response to proposals from the IASB, IFRIC, FASB, SEC and other standard setters.
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm
vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
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Presenters – contact information
Both sessions:
Willy KruhGlobal Chair, Consumer MarketsKPMG in Canada+1 416 777 [email protected]
Mark BaillacheGlobal Audit Sector Lead, FDCGKPMG in the UK+44 20 [email protected]
ASPAC/EMA session:
Brian O’DonovanKPMG International Standards Group+44 20 76948393brian.o'[email protected]
Trent DuvallAudit PartnerKPMG in Australia+61 (2) 9335 [email protected]
Americas/EMA session:
Phil DowadInternational Standards GroupKPMG in Canada+1 604 691 [email protected]
Paul MunterDepartment of Professional PracticeKPMG in the US+1 212 909 [email protected]
To download the replay or to register for future webcasts visit:www.kpmg.com/CCwebcasts
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm
vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
53
Disclaimer: about this presentation
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 endeavor 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.
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity.