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  • Welcome to Deloitte Financial Reporting Updates, our webcast series for issues and developments

  • related to the various accounting frameworks.

  • This presentation is bringing clarity to an IFRS world, Clarifications to IFRS 15, Revenue

  • from Contracts with Customers, Understanding the Final Standard.

  • I’m Jon Kligman, your host for this webcast and I’m joined by others from our Advisory

  • and National Accounting Groups.

  • A couple of housekeeping items before I tell you about our agenda.

  • If you would like a copy of the slides, they are available for download on the same webpage

  • as where you accessed this webcast.

  • You can direct colleagues to the webcast link by referring them to the Deloitte Canada Center

  • for Financial Reporting, which is accessible from the IAS Plus website at iasplus.com.

  • Simply select Canada English from the dropdown menu at the top right of the webpage.

  • Ok, let’s get to our agenda.

  • First, youll hear from Nura Taef who will set the stage by providing us with a brief

  • summary of the new revenue recognition standard and some of the topics discussed by the Joint

  • Transition Resource Group.

  • Then, Nura and Maryse Vendette will speak to guidance and examples set out in the recently

  • issued IFRS 15 clarifications.

  • Maryse will also provide a comparison of IFRS in US GAAP amendments to the respective standards

  • and to provide some insight on implementation considerations for IFRS 15.

  • Cindy Veinot will then walk us through the case study.

  • Our comments on this webcast represent our own personal views and don’t constitute

  • official interpretation of accounting guidance from Deloitte.

  • Before taking any action on any of these issues, it’s always a good idea to check with a

  • qualified advisor.

  • No professional development certificates will be issued for attending this webcast.

  • We encourage you to check with your provisional institute or ordre regarding professional

  • development credits.

  • I now like to welcome our first two speakers, Nura Taef and Maryse Vendette.

  • Nura is a senior manager in our national office and part of our IFRS Center of Excellence.

  • Nura’s main area of focus is on determination of final technical positions on interpretations

  • and application matters for revenue recognition issues both, for other IFRS centers and client

  • service teams in Canada.

  • Maryse Vendette is a partner with our national office and is the co-leader of the Canadian

  • IFRS Center of Excellence.

  • She is a national subject matter authority in the field of revenue recognition as well

  • as the member of Deloitte’s Global Expert Advisory Panel on Revenue.

  • Thanks Jon.

  • Before we get started in to more detailed discussions regarding the amendments to IFRS

  • 15, I just want to start off by providing a brief recap on some of the more significant

  • events related to the standard that have led up to this point.

  • So, just over 2 years ago on May 2014, the IASB issued IFRS 15, which was the result

  • of the joint project with the US National Standard Setters, the FASB.

  • Concurred with the release of IFRS 15, the FASB issued Topic 606 US GAAP equivalent and

  • in issuing this new standard, the board’s objective was really to address stakeholder

  • concerns around inconsistencies and weaknesses in existing revenue standards by providing

  • a comprehensive and robust revenue recognition framework.

  • Subsequently, the IASB and FASB jointly established the transition resource group for revenue

  • recognition referred to as the TRG.

  • With the intention to support implementation of this new standard and provide a form to

  • solicit, analyze and discuss stakeholder concerns.

  • Since the issuance of the standard, this joint TRG met 6 times.

  • As a result of these ongoing discussions, the boards are made aware of a number of requirements

  • in the new standard where different interpretations were emerging as to how these requirements

  • should be implemented and practiced.

  • In light of these ongoing discussions, the boards felt it appropriate to defer the effective

  • date of the standard by one year.

  • So, from an IFRS 15 perspective, this meant moving from mandatory effective date of annual

  • reporting periods beginning on or after Jan 1, 2017, to annual reporting periods beginning

  • on or after Jan 1, 2018.

  • This ongoing discussion also highlighted for the boards the need to clarify certain requirements

  • of the standard.

  • So, in April 2016, the IASB issued targeted amendments to the standard and introduced

  • some transitional relief as well.

  • With the issuance of these amendments, the IASB is of the view that the stakeholders

  • must focus on their implementation efforts as IFRS 15 will not be subject to further

  • changes.

  • In light of the IASB’s comments, we wanted to get sense of where our listeners are at

  • in terms of their implementation process.

  • When you registered for this webcast, you were asked to complete a number of survey

  • questions, one of which was where you are at in the process of adopting IFRS 15.

  • As you can see on the screen, the majority of our listeners were either in very early

  • stages of assessment or had not yet begun any sort of preliminary assessment.

  • Although 2018 may seem far away at this point, given the potential breadth of impacts of

  • the standard, I think it is important to empathize that we really need to shift focus to the

  • standard and its potential applications.

  • IFRS 15 includes some specific scoping considerations that may present some differences with the

  • existing revenue recognition guidance, which makes it important to be mindful of the details

  • of this guidance.

  • The scope of the standard is intended to cover all contract customers with the exception

  • of those contracts that are leasing contracts, insurance contracts, financial instruments

  • or other contractual rights or obligations and non-monetary transactions between entities

  • in the same line of business to facilitate sales to customers or potential customers.

  • In addition, the guidance and the standard as it relates to the transfer control will

  • need to be applied not just contracts with customers within the scope of IFRS 15, but

  • also to some transfers or sales of non-financial assets.

  • So, collaborators or partners or those that fall partially within the scope of IFRS 15

  • and partially within the scope of other standards will require additional consideration and

  • assessment.

  • I also wanted to emphasize that IFRS 15 has a broadened scope, as it not only addresses

  • revenue recognition but also addresses the requirement for contract costs, being incremental

  • cost of obtaining a contract and cost of fulfilling a contract.

  • As I mentioned earlier, the effective date of standard is now annual reporting periods

  • beginning on or after Jan 1, 2018, including interim periods.

  • Earlier application is permitted under both IFRS and US GAAP, however, as noted on the

  • slide, US GAAP prepares can only adopt as of the original effective date of standard

  • which should be annual reporting periods beginning after December 15, 2016.

  • I won’t spend too much time on this next slide and will refer listeners to our July

  • 2014 webcast available at our Center for Financial Reporting, where we provide a more detailed

  • analysis of the new revenue model, if you require further context on the 5-step model

  • and some of the basic requirements of the standard.

  • What I will highlight is that the IFRS 15 model for revenue recognition is based on

  • 5 steps, starting with identifying the contract with the customer, identifying the performance

  • obligation, determining the transaction price, allocating the transaction price to the performance

  • obligations and finally, recognizing revenue whenever the entity satisfies the performance

  • obligation.

  • The application of this 5-step model results in recognition of revenue in a manner to depict

  • that transfer of promised goods or services in an amount that reflects the consideration

  • that an entity expects to be a entitled to in exchange for these goods or services, which

  • is the core principle of IFRS 15.

  • In addition to the 5-step model, the standard includes application guidance to clarify how

  • the principles in IFRS 15 should be applied, including how those principles should be applied

  • to the features found in a number of typical contracts with customers.

  • Some examples are sales with the right of return, licenses, warranties and customer

  • options for additional goods and services amongst others.

  • As mentioned earlier, subsequent to the issuance of the new standard, the IASB and FASB jointly

  • established the TRG.

  • Although non-authoritative and the TRG does not issue guidance, TRG members will share

  • their views on issues that have been raised by stakeholders as they work through implementation.

  • The TRG may make recommendations to the board to further discuss and consider specific implementation

  • issues which have in fact occurred as demonstrated by the amendments most recently issued.

  • Up to the end of 2015, the TRG discussed in their joined meetings an approximate 48 papers,

  • the majority of which the TRG members determine to be sufficiently addressed by the existing

  • requirements and guidance in the standard.

  • Although not a comprehensive list, some of these topics are listed on the slide to provide

  • you with some context on the array of issues being discussed.

  • I do want to highlight an important announcement that was made earlier this year by the IASB.

  • When the board completed their decision making process, being their decisions around the

  • clarifications, the board also confirmed that they do not plan to further schedule any meetings

  • of the IFRS constituent to the TRG.

  • Nonetheless, the IASB will continue to use other forums such as their website, as a mechanism

  • for the stakeholders to submit any further potential implementation issues to ensure

  • that they continue to support the consistent and faithful implementation of IFRS 15.

  • Although not scheduled to meet, the IFRS constituent of the TRG are not disbanded and if necessary,

  • they can be re-called to discuss an issue.

  • This past April, another TRG meeting was held; however, for the first time, this meeting

  • was only amongst the US GAAP constituents of the TRG.

  • Some IASB board members and the IASB staff did participate as observers in this meeting

  • and may continue to do so for future meetings.

  • It is the IASB’s intention to continue to collaborate with the FASB and therefore monitor

  • these discussions that the FASB may have with the US GAAP constituents of TRG.

  • The papers discussed and the minutes of the TRG meetings are all publicly available and

  • we encourage you to be informed and educated on these discussions.

  • The topics of collectability, performance obligations, gross versus net, identifying

  • promised goods or services, licenses, non-cash consideration received from a customer, shipping

  • services and specific transition considerations are topics whereby the TRG concluded that

  • additional discussion was required on the part of the boards, as different views merged

  • from the TRG discussions on the implementation of these requirements.

  • Now, getting into the clarifications, throughout 2015 the boards discussed the topics from

  • the previous slide that were brought to their attention by the TRG and concluded that certain

  • amendments would be required which resulted in the issuance of clarifications to IFRS

  • 15 issued in April 2016 by the IASB and a number of accounting standard updates issued

  • by the FASB throughout 2016.

  • The IASB has reiterated the objective of these amendments is not to change the underlying

  • principles of IFRS 15 but rather to clarify the board’s intentions when they initially

  • developed the requirements of IFRS 15.

  • In the decision to issue these clarifications, the IASB applied a high hurdle in considering

  • what amendments were required in order to minimize changes where possible and reduce

  • disruption to the implementation process.

  • The board acknowledged that anytime new standards are issued, a number of initial questions

  • arise, these questions generally get resolved over time as they are worked through.

  • However, the board wanted to balance this belief with the need to be responsive to the

  • issues and concerns raised that are challenging entities in their implementation efforts.

  • As such, the amendments are really focused on the areas whereby the IASB believed clarifications