IFRS 16 Webinar - assets.kpmg© 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

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



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



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



IFRS 16 transition project tips

Commit resources

Setup work streams

Schedule regular status updates

Involve the right stakeholders

1

2

3

4

5 Educate



Project work streams

PMO

Processes and controls

Data and systems

Accounting and reporting

Change management



Project planning – activities


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



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



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?



Impact assessment – modelling transition options

B/S – liability on transition

B/S – asset on transitionP&L expense under each option



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



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





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





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)

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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



Processes & 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



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



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



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

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© 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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Documents

IFRS 16 Webinar - assets.kpmg© 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