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IFRS 16 Webinar
Accelerate your IFRS 16 project
__________
27 June 2018
© 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number 33263682, is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(‘KPMG International’), a Swiss entity. All rights reserved. 2
Introduction
Ruben RogPartner
Sam CurwenAssistant Manager
Twan BakkerManager
Matthijs LugtenTax Senior manager
© 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number 33263682, is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(‘KPMG International’), a Swiss entity. All rights reserved. 3
Agenda
2. Transition considerations and key judgements
1. Project planning 4. Processes & controls
3. Data extraction and systems
5. Insight on tax
6. Wrap up
Project planning
© 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number 33263682, is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(‘KPMG International’), a Swiss entity. All rights reserved. 5
IFRS 16 business impacts
IFRS 16
accounting
change
Systems & Processes
― System solution
― ERP integration
― Future process design
Finance
― Transition options
― Data collection
― Tax
― KPIs
Investor relations
― External communication
― Analyst queries
Other impacts
― Management reporting
― Management remuneration
― Training
Strategy
― Lease vs buy
― Lease structuring
― Sale and leasebacks
Treasury
― Covenants
― Credit rating
― Discount rates
© 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number 33263682, is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(‘KPMG International’), a Swiss entity. All rights reserved. 6
IFRS 16 transition project tips
Commit resources
Setup work streams
Schedule regular status updates
Involve the right stakeholders
1
2
3
4
5 Educate
© 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number 33263682, is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(‘KPMG International’), a Swiss entity. All rights reserved. 7
Project work streams
PMO
Processes and controls
Data and systems
Accounting and reporting
Change management
© 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number 33263682, is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(‘KPMG International’), a Swiss entity. All rights reserved. 8
Project planning – activities
Processes and controls
Data and systemsAccounting and reporting
Change management
― Impact assessment and transition approach
― Develop accounting policies and guidance
― Discount rate approach and model
― Technical accounting training
― Engage with tax and planning teams
― Data extraction plan
― Selection of IT tool
― Data extraction
― Tool implementation
― Data load
― Develop controls for initial data extraction
― Design detailed lease accounting process
― Lease completeness check
― Validate process and controls with auditor
― Embed new process in organistion
― Identify and map all stakeholders
― Create awareness
― Communications
― Organise and deliver training
PMO
― Project definition
― Team mobilisation
― Project management
© 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number 33263682, is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(‘KPMG International’), a Swiss entity. All rights reserved. 9
Project planning – illustrative planActivities
PMO
― Project definition
― Team mobilisation
― Project management
Data and systems
― Data extraction plan
― Selection of IT tool
― Data extraction
― Tool implementation
― Data load
Process and controls
― Develop controls for initial data extraction
― Design detailed lease accounting process
― Lease completeness check
― Validate process and controls with auditor
― Embed new process in organistion
Accounting and reporting
― Impact assessment and transition approach
― Develop accounting policies and guidance
― Discount rate approach and model
― Technical accounting training
― Engage with tax and planning teams
Change and engage
― Identify and map all stakeholders
― Create awareness
― Communications
― Organise and deliver training
Transition considerations and key judgements
© 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number 33263682, is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(‘KPMG International’), a Swiss entity. All rights reserved. 11
Transition options
Full retrospective 1 January 2018Best
Modified
retrospective –
Option 1
(asset recalculated)
1 January 2019ModerateHigher
Modified
retrospective –
Option 2
(asset = liability)
1 January 2019WorstLower
Higher
ApproachEffort/data
requirement
Impact on
financial metrics
Date of equity
adjustment
Restate
Comparatives?
© 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number 33263682, is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(‘KPMG International’), a Swiss entity. All rights reserved. 12
Impact assessment – modelling transition options
B/S – liability on transition
B/S – asset on transitionP&L expense under each option
© 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number 33263682, is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(‘KPMG International’), a Swiss entity. All rights reserved. 13
Key accounting judgements and policiesIdentify key lease accounting judgements and policies to be determined and documented
Lease term
Discount rates
Variable payments
Sub-leases
Lease definition
Re-assessment
Impairment Provisions
Leases of ‘low value’ Short term leases
Fixed or in-substance fixed
payments
Modifications
Treasury Tax Real Estate IT
© 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number 33263682, is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(‘KPMG International’), a Swiss entity. All rights reserved. 14
Key accounting judgementsLease definition
Is it a lease or a service?
Is there an embedded lease?
Discount rate
Incremental borrowing rate?
Lease term
What is ‘reasonably certain’?
Rent-free
period
Main lease
period
Extension
period
customer is
reasonably
certain to
exercise
Termination
period
customer is
reasonably
certain not to
exercise
Lease term
Data extraction and systems
© 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number 33263682, is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(‘KPMG International’), a Swiss entity. All rights reserved. 16
© 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number 33263682, is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(‘KPMG International’), a Swiss entity. All rights reserved. 17
Data collection – a project in it’s own right!
Data extraction plan
Data questions Data extraction activities
1. Where is the data held?
2. Completeness of lease population?
3. What data points and what format to collect the data
points in?
4. Resourcing requirements?
― Data collection
― Project management and tracking
― Data aggregation
― Data validation
― Data cutover
© 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number 33263682, is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(‘KPMG International’), a Swiss entity. All rights reserved. 18
© 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number 33263682, is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(‘KPMG International’), a Swiss entity. All rights reserved. 19
Considerations for your IFRS 16 solutionConsiderations for IFRS 16 solutions
― Data input/extraction
― Data validation/identification
― Contract management
― Dual reporting (IFRS / USGAAP)
― Audit trail
― Internal controls
― Data output/automated postings
― Lessee / sub-lease / lessor accounting
― Deployment (Cloud/SaaS vs. on premise)
― Integration with existing systems
― Support
― Fit for the Future
― Implementation effort
― Cost (implementation and going forward)
© 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number 33263682, is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(‘KPMG International’), a Swiss entity. All rights reserved. 20
1
IFRS 16 systems – things to watch out for
2
3
4
5
Be sure to engage with the right teams within your organisation
Cloud versus on site solution
Transition accounting
Lessor accounting
Integrations
Processes & controls
© 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number 33263682, is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(‘KPMG International’), a Swiss entity. All rights reserved. 22
Processes & controls
Processes and controls
New leasesLease modifications and
reassessments
― Process to identify new leases
― Process to input the leases into
the system
― Calculation of discount rates
― Controls and reviews of key
accounting judgements
― Controls and checks of the
calculation outputs
― Monitoring of lease renewals and
rent reviews
― Recalculating the lease liability
― Recalculation of discount rates
― Controls and checks of
modification journals
Reporting
― Journal posting process
― Reconciliation with payments
― Process to gather disclosure
information
Tax perspective
© 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number 33263682, is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(‘KPMG International’), a Swiss entity. All rights reserved. 24
Local GAAP remains leading for tax – deferred taxLocal GAAP in most countries starting point for computation of taxable income - Exceptions may exist!
Netherlands Other countries
― No changes expected or
announced “Leasebesluit”
continues to be in place
― NL GAAP to allow reporting based
on IFRS16 principles - so also
relevant for Dutch Tax?
― Limited activity, but cannot be
ruled out that tax authorities take
over IFRS concepts!
Deferred tax
― No impact Local GAAP vs. tax
books
― New temporary differences in
IFRS vs. tax books
― Front loaded effect = net deferred
tax asset during the lease
Tax rulesLocal GAAP Tax Return
© 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number 33263682, is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(‘KPMG International’), a Swiss entity. All rights reserved. 25
New rules on interest deductions ….Dutch implementation of the European Anti Tax Avoidance Directive
― Net interest costs will be deductible up to 30% of the tax payer’s EBITDA
― Based on tax books!
― Entry into force: 1 January 2019
― EUR 1m net interest costs are always deductible
― No group escape so no relevance consolidated accounting financial statements (may be relevant in other EU countries!)
Is the lease liability a loan for tax purposes?
Is the interest element included in the tax definition of interest?
Initial conclusions (if IFRS is applied for tax purposes):
― IFRS16 increases tax EBITDA, so increased ability to deduct interest,
― But additional interest as a result of the lease liability.
Mismatch between finance lease in and operational lease out may result in adverse effects under new provision
Wrap up
© 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number 33263682, is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(‘KPMG International’), a Swiss entity. All rights reserved. 27
ResourcesPublications
First Impressions Transition Options Lease Definition Discount Rates Lease Payments Illustrative Disclosures
Media
IFRS 16 Webinar (Podcast) IFRS 16 Leases website IFRS 16 Update mail
E-learnings
IFRS 16 E-
learnings
Thank you
KPMG on social media KPMG app
The KPMG name and logo are registered trademarks of KPMG International.
© 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number 33263682, is a member firm of the KPMG network
of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
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