IFRS16

IMPLEMENTING SAP RE-FX

FOR LEASE ACCOUNTING

[email protected]
Fredrik Warne www.linkedin.com/in/fredrik-warne

Tuomo Repo [email protected]

AGENDA

Telia Company
Introduction to IFRS16
SAP RE-FX key components and solution for Telia
Project considerations
Lessons learned
Summary

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 TELIA COMPANY PROVIDES
COMMUNICATION SERVICES HELPING
MILLIONS OF PEOPLE TO BE CONNECTED
AND COMMUNICATE, DO BUSINESS AND BE
ENTERTAINED. BY DOING THAT WE FULFILL
OUR PURPOSE TO BRING THE WORLD
CLOSER

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TELIA COMPANY IN BRIEF

RESULT OF A MERGER
THE BEST MOBILE NETWORK
WITH TELIA &
IN 5 OF 7 MARKETS
SONERA 2002

HEADOFFICE IN TELIA BRAND IN ALL

2017 NET SALES SEK STOCKHOLM MARKETS

79.9 BILLION IN
CONTINUING
MARKET CAP SEK
OPERATIONS 171.4 BILLION 19,600 EMPLOYEES
JULY 2018

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FOCUS ON THE NORDICS AND BALTICS

16.8 MILLION 2.0 MILLION

MOBILE FIXED VOICE #2 #2
SUBSCRIPTIONS SUBSCRIPTIONS Mobile Internet

#3
TV
#2
Mobile
#1 #1
2.5 MILLION Mobile Internet
#1 #1 #2
1.8 MILLION Mobile Internet TV
BROADBAND #2
TV SUBSCRIPTIONS
SUBSCRIPTIONS
TV
#1
Mobile
#3 #5 (43%)
Mobile Internet
#4
#2
TV
#2
Mobile
#1
Internet
#1
TV
TV

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LIKE ALL LARGE COMPANIES, SOME IT LEGACY STILL
EXISTS…

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IFRS16 FOR TELIA – WHAT ARE WE LEASING IN

Cars

Shops
Office space

Technical space

Ducts Fiber

Copper
Land

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DIFFERENT TYPES OF LEASE CONTRACTS ACCROSS
SEVERAL COMPANIES AND TYPES OF BUSINESSES
Legend

Office space

Shops

Land

Cars

Technical space

Copper lease

Fiber lease

Ducts

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+ 40 additional legal entities
INTERNATIONAL FINANCIAL REPORTING STANDARDS

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Source: Pocket Guide to IFRS Standards (214p) https://www.ifrs.org/-/media/feature/around-the-world/pocket-guide/pocket-guide-2017.pdf
INTRODUCTION TO IFRS16 ACCOUNTING STANDARD –
WHAT WILL CHANGE
IFRS 16 becomes effective Jan 1st, 2019 A
Contract The key events for IFRS16 calculations
• Lessee shall include all leases on the A. Contract commencement
balance sheet. Vendor
B. Vendor invoicing
• A lessee is required to recognize an asset Invoices
for the right to use the leased item and a
liability for the present value of its future “Lessee” “Lessor”
lease payments. B
• The intent is to have transparency on lease
liability obligations on financial statements.

A – Asset and Liabilities, SAP RE-FX

Vendor Lease Expense Balance Sheet postings B1 – Liability amortization, SAP RE-FX
IAS17 Income Statement postings B2 – Interest payment, SAP RE-FX
(B) 3200 (B) 3200 B3 – Asset depreciation, SAP AA
Clearing postings
B4 – Invoice posting, SAP VIM

RoU Assets Lease Liabilities Vendor Interest Paid Depreciation Cost Lease Clearing

(A) 303300 (A) 303300

IFRS16 (B1) 3200 (B1) 3200
(B2) 1250 (B2) 1250
(B3) 10700 (B3) 10700
(B4) 3200 (B4) 3200

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SAP PROVIDES SAP RE-FX (FLEXIBLE REAL-ESTATE) FOR
IFRS16 LEASE MANAGEMENT

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CONTENT OF CONTRACT MASTER DATA IN SAP RE-FX

Generic information IFRS16 information Value information

• Start and end • Part of IFRS16 valuation? • Lease vs non-lease components
• Termination and extension • Interest rate • Unit prices
options • Probable end date • Indexes and other adjustments
• Fix term or unlimited?
• Payment method

Postings information Contract type information Other information

• In advance or in arrears? • Asset class • Notes and memos
• Posting cycle: monthly, quarterly, • Cost object • Reference to scanned copy of
yearly, once in advance? signed contract
• Invoice based or self-billing?

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HOW IT ALL LOOKS IN SAP RE-FX
Contract Objects

Contract details: Contract object details:

• start and end dates • asset class
• extension and • cost center / WBS
termination options
• part
Part of
of IFRS16
IFRS16
valuation?

Conditions Valuations

Contract condition details:

IFRS16 valuation factors:
• lease vs. non-lease
• start dates
• unit price
• end dates
• start and end dates
• interest rates
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BI FRONTEND TOOL – SAP ANALYSIS FOR OLAP
BI FRONTEND TOOL – SAP ANALYSIS FOR OFFICE
THERE IS A MAJOR BUSINESS CHANGE IN INVOICE
APPROVAL Contract Tolerance outcome Invoice
• SAP RE-FX does not use Purchase Contract # 101234567 Contract # 101234567
orders and Goods receipt for invoice Lessor John Smith Ab Lessor John Smith Ab
Lessee Telia Company Ab Lessee Telia Company Ab
approval Start date 1.5.2018 Invoice period 1.5.2018 - 30.5.2018
End date 30.4.2028 Due date 30.6.2018
• Instead, the lease invoices are Signed date 15.4.2018
matched against approved contract
master data Net Min Max Net
Object 1 Site1
Lease rent 10 000 9 900 10 100 Lease rent 10 000
• Invoice matching is based on: Electricity 2 000 1 600 2 400 Electricity 2 200
• Contract ID on invoice Subtotal 12 200
Object 2 Site2
• Tolerances Lease rent 12 000 11 880 12 120 Lease rent 12 000
Maintenance fee 3 250 3 087 3 412 Maintenance fee 3 250
• A match or match within tolerances is Subtotal 15 250
automatically selected and cleared Object 3 Site3
Lease rent 8 000 7 920 8 080 Lease rent 8 000
Maintenance fee 1 000 950 1 050 Maintenance fee 1 500
Electricity, fixed 1 500 1 500 1 500 Electricity, fixed 1 500
Subtotal 11 000
TOTAL 37 750 36 837 38 662 TOTAL 38 450
• SAP RE-FX is flexible in supporting
other contract modelling. Examples: Tolerance configurations
Condition type Tolerance
• Portfolio contracts Periodical contract total
Lease rent +-1 %
• Aggregated invoice contracts Lease components have with tolerances is matched
Maintenance fee +- 5%
tighter tolerances than against the invoice total
Electricity +- 20%
non-lease components
Electricity, fixed -
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SAP RE-FX SOLUTION FOR TELIA – SUPPORTING BOTH
SAP AND NON-SAP COMPANIES
Contracts through Excel Customer Master Customer Master Customer Master Customer Master
Data Data Data Data

SAP ERP SAP BI

Customer Master
Data
Telia
BP FI COPA PCA
Consolidation
Business Partner
Contract system BW Cognos
AR Cognos

Contract system AP
RE RE VM AA WBS
Object Contract Invoice BCC/
Contract system Management Management Management ICC
GL
RE-FX
Object
system

Object
system PS AA CO Non-SAP
WBS Element Asset Master Data Controlling companies GL
Object
system

Legend

Group Sweden local Finland local Norway local Denmark local

domain domain domain domain domain SAP internal SAP external Manual input

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 IFRS16 PROJECT MAIN ACTIVITIES AND TIMEPLAN
2017 2018

Q3 Q4 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

IT architecture
and staffing
Pre-study
IT pre-
RFP
study

Accounting questionnaires Accounting requirements

Accounting Materiality assessment Disclosure requirements

Accounting use1cases 2

Implementat Design 1 2 1 Train 2 3

ion
Build PT UAT

Data analysis & design Mock 1 ST SIT RT

Migration
Data collect & cleansing Mock 2 Mock 3 Migr
Post Go-Live
Post GoLive Support
Support

Impl. start GoLive

Feb 5th Nov 16th
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LESSONS LEARNED AND SUMMARY
• What is a lease? - Accounting questionnaires and material assessment support in understanding what shall
be considered as leases under IFRS16
• Telia guidelines - Establishing common guidance on interpreting lease terms and interest rates is important
ACCOUNTING
since it has great impact on RoU assets and liabilities
• Accounting design - Accounting use cases for each IFRS16 trigger will help in deriving the IT requirements

• Lots of info needed - IFRS16 accounting and disclosures are raising new needs on contract master data
• System landscape may be messy - Different types of contracts were maintained in different systems, e.g. in
contract management systems, contract registries or excel
CONTRACT DATA
• Data capture is time consuming - It is a major activity to capture all the needed contract master data, but it
will pay of via renewed business processes and new control points

• New IT system - SAP RE-FX is a new module for Telia and is integrated with many existing SAP modules
• Impact on other processes - With the IFRS16 solution is impacting on several existing business processes,
IT e.g. contract management and invoice maintenance
COMPLEXITIES • Change management - IFRS16 also introduces new business processes for contracts, index maintenance,
etc. A more centralized and systematic approach requires change management internally and towards
vendors, and new roles & responsibilities.

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APPENDIX

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SAP VERSIONS AT TELIA

BW on HANA 7.50 SP12

SAP ERP 6.0 Enhancement Pack 8

SAP Invoice Mgmt by OpenText 7.5

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IFRS16 BI CHANGES

RE-FX reporting – Master data

• Reports covering contract master data including objects, partners, conditions, terms etc plus business entity repository

RE-FX reporting – Transactional data

• Reports covering actuals and forecasts of RE-FX cash-flows (valuation, partner and object) plus actual FI-GL postings

RE-FX reporting – Disclosures

• Reports defined to support disclosure requirements where no direct flow SAP ERP  SAP BW  Cognos exists

Existing financial reporting

• Ensure that existing reporting dimensions are populated as applicable from SAP RE-FX data

• Update mapping of SAP ERP postings (Asset Accounting and Profit Center Accounting) to appropriate Cognos accounts and forms