A practical overview of new FASB/IASB rules, who they effect, and guidelines for JD Edwards customers to follow to adopt these new rules. Presentation by Circular Edge's finance expert Yogesh Godbole.

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FASB/IASB for JD Edwards – What to Expect
Presenter:
Yogesh Godbole
Principal Consultant, Finance
Circular Edge
+1-732-915-7610
yogesh.godbole@circularedge.com

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Agenda
1. What are FASB & IASB?
2. Relevance of IFRS and US GAAP in US Market
3. New Accounting Standard on Revenue Recognition
4. Deadline to adopt to changes in Revenue Recognition
5. Main Provisions under Revenue Recognition
6. JDE EnterpriseOne 9.2 Solution
7. Benefits of the Revenue Recognition process

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What are FASB & IASB?

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•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?

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Relevance of IFRS and US GAAP in US Market

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•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

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New Accounting Standard on
Revenue Recognition

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•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

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Deadline to adopt to changes in
Revenue Recognition

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•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

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Main Provisions under Revenue Recognition Standard

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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).

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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.

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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

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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
transaction
January 5
No Changes Required to
Current Business Process or
Accounting Entries
Performance
Obligation
Satisfied
Revenue and
COGS
Recognized

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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

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Example: Shipping of Goods to Customer
Agreement
made between
supplier and
customer for the
sale of auto-
parts
Sales
Order
Created
Auto-parts
Shipped to
Customer
Invoice
created
Custo
mer
pays
the
invoic
e
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
Performance
Obligation
Satisfied
New Standard
Revenue and
COGS
Recognized
Current Process
Revenue and COGS
Recognized
New Standard
Performance
Liability for
Revenue and
COGS

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JDE EnterpriseOne 9.2 Solution

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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/L
Revenue booked in
G/L
COGS booked in G/L
Revenue Recognition Process Flow

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Example: Shipping of Goods to Customer
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
Performance
Obligation
Satisfied
New Standard
Revenue and
COGS
Recognized
New Standard
Performance
Liability for
Revenue and COGS -
Revenue
Performance
Liability
COGS Performance
Liability Cost of Goods Sold
$200.00 $175.00
$200.00 $200.00 $175.00 $175.00

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Revenue Recognition Set Up
1. 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

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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

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• 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

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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)

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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

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Thank you!
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