The new revenue recognition standard – Financial Reporting Update (Deloitte Canada)

Hi everyone, welcome to Deloitte Financial Reporting Update, our webcast series for issues and developments related to the various accounting frameworks Today, we present bringing clarity to an IFRS world – IFRS 15 Revenue from Contracts with Customers I am Jon Kligman, your host for today’s webcast, and I am joined by Maryse Vendette, Cindy Veinot, and Joyce Lam I will tell you more about our speakers a little later on Before we get to our agenda, a few housekeeping items In the lower right hand corner of your screen, you will see the webcast links including a link to download and print today’s slides and links for webcast assistance, Deloitte updates, upcoming sessions, and archive sessions If you have a pop-up blocker on your computer, you will need to disengage it in order to download the slides and participate in our polling questions If you know of colleagues who could not attend today’s live event, they can simply register at any time the same way you did and they will be able to view the archived webcast within 48 hours So, invite your colleagues to take advantage of this feature Although you are on a listen-only mode, you can ask our presenters content related questions at any time by entering your question in the box at the bottom of the screen and clicking on submit We will do our best to respond to your questions and comments during the presentation We also have interactive polling questions that will appear on your screen throughout the webcast We invite your participation by simply answering these questions A summary of the results will be provided on the screen shortly afterwards Okay, let us get to our agenda First you will hear from Maryse Vendette, who will provide us with an introduction to the new standard and to speak to a scope As well Maryse will begin walking us through the steps of new revenue model After Maryse, Joyce Lam will continue to walk us through the remaining steps of the new revenue model, will then be joined by Cindy Veinot, who provide us with some guidance and some of the other matters related to the standard and to speak to some of the expected impacts, challenges and issues We will conclude by highlighting some resources for future reference and with a brief question and answer session You can read the bios of our presenters and access the agenda and technical support in the navigation area of your screen We have a lot of material for a 90-minute webcast, so we will need to keep the discussion at a fairly high level I would like to remind our viewers that our comments on this webcast represent our own personal views and do not constitute official interpretive accounting guidance from Deloitte Before taking any action on any of these issues, it is always a good idea to check with a qualified advisor Okay, to kick things off, let us start with our first polling question We are going to ask everyone online to participate in this webcast by answering the polling question Can we have the question please, there we go Okay, so the question is, have you started assessing the impact of IFRS 15 – Revenue from Contracts with Customers and the answers are: • Project plan is in place • Aware of the new Standard and will start assessment in the near term • No plan to commence work at this time • Not applicable After you select your answer, which is the best in your circumstances, please remember to hit submit answer to register your response While we are waiting for the responses, I would like to remind you that today’s webcast maybe counted towards your continuing professional education If you stay with us for the whole webcast, you can credit yourself with one-and-a-half hours towards your yearly total This applies to those in public practice and those working in industry We do not issue certificates for the webcast, but your email registration confirmation conform part of your documentation in support of your attendance Okay, let us see if we have the responses please There we go Okay almost 45% are going to start their assessment in the near term and 11.7% have a project plan in place, that is a very healthy percentage of folks online who are either already started or near starting As you will hear on this webcast, the new standard can have significant impact on both the accounting and on the information requirements

Okay, I would now like to welcome our first two speakers, Maryse Vendette and Joyce Lam Maryse Vendette is a Partner at our National Office and is a co-deputy leader of the Canadian IFRS Centre of Excellence She is the National subject matter authority in the field of revenue recognition as well as a member of Deloitte’s Global Expert Advisory panel on revenue Joyce Lam is a Senior Manager in the Advisory Services Group of Deloitte and specializes in providing accounting advisory services to clients in all industries Joyce has extensive experience in assisting clients on accounting matters in the areas of revenue recognition, business combinations and share-based payments under IFRS and US GAAP Over to you Maryse Thanks Jon Good afternoon, I guess good morning for some of you across the country Let us start with some background information on IFRS 15 We received what I would refer to exciting news in the accounting world on May 28, 2014, when IFRS 15 was finally issued It was issued concurrently with Accounting Standards Update ASU 2014-09 it is US GAAP equivalent The issuance of IFRS 15 completes a long-standing project that began back in 2002 between the IASB and the FASB to develop a high quality global accounting standard For all intents and purposes, IFRS 15 and US GAAP are converged There are minor differences between the two standards and those have been identified in an appendix to the standard in the basis for conclusions This standard addresses how to account for all contracts of customers using one model of accounting that will apply to all types of transactions in all industries in capital markets Currently, we have diverse pieces of guidance under IFRS over some 200 pieces of literature dealing with specific transactions or industries under US GAAP This new standard will replace all or most of that by one model We will have to wait and see how it is interpreted how it is interpreted and implemented, but the objective is that the new standard will increase comparability, reduce diversity in accounting for similar transactions across industries We wanted to highlight that the IASB and FASB have created a joint Transition Resource Group So, the members of the resource group have been announced and they include financial statement preparers, auditors, users, obviously the boards and members of the regulator community, people in various industries and geographic locations The purpose of the Transition Resource Group is not to issue guidance, but is really to solicit, analyze and discuss issues arising from implementation, inform the boards about the issues that are being dealt with so that the boards can take decisions about actions that need to be taken, provide a form for stakeholders to learn about the new standard The boards expect that the Transition Resource Group will meet twice in 2014 and four times in 2015 and the first meeting is scheduled July 18 All the meetings will be public and anybody can submit a potential implementation issue for discussion at the Transition Resource Group meetings The boards will evaluate those submissions and prioritize the issues for discussion I realize that the text maybe a bit small on the slide, but we have here, to the left of the screen, the requirements currently found in IFRS on revenue in the main standards as well as in the interpretations and this contrasts with the new requirements to the right of the screen A couple of points to bring to your attention here broad scope It has guidance on a number of aspects that are now included in various pieces of literature under IFRS IFRS currently has guidance on construction contracts in IAS 11, sales of goods, sales of services under IAS 18, construction of real-estate under IFRIC 15 and IFRS 15 will replace all of that and IFRS 15 will not distinguish explicitly or does not distinguish explicitly between sales of goods or serves, but rather it provides guidance on whether revenue should be recognized overtime similar to a service or long-term construction contracts or revenue should be recognized at a particular point in time similar to a sale of good and we will

discuss that in more detail later on IFRIC 13 is superseded and replaced by broader guidance on options granted to customers to acquire additional goods or services or at a discount and provides broad guidance on breakage, customer unexercised rights IFRIC 18 and 631 dealing with Transfers of Assets from Customer and Advertising Barter Transactions are superseded and IFRS 15 includes guidance on how to deal with noncash consideration and nonmonetary exchanges generally and finally where are previously IAS 18 contains specific guidance on accounting for interest and dividends These are now scoped out of IFRS 15 and dealt with by IAS 39 and IFRS 9 Consequential amendments were made to those two standards to incorporate guidance that was previously included in IAS 18 and its appendices Moving onto effective date and transition options IFRS 15 is effective for annual reporting periods beginning on or after January 1, 2017 including interim periods For an entity with a calendar year-end, it would apply IFRS 15 in the first interim period and on March 31, 2017, early application is permitted under IFRS 15, but it is not permitted under US GAAP The boards have provided a bit of relieve by way of transition methods An entity can choose between two transition options So it can elect to either apply the standard fully retrospectively or apply it retrospectively but taking into account three practical expedients to retrospective application, which are identified obviously in standard and if any of the practical expedients are used, they have to be applied consistently to all reporting periods They have to be disclosed to the extent that it is possible an entity will have to include a qualitative assessment of the likely effect of applying the practical expedients or an entity can also choose to apply the standard using a modified approach, so that means that it would apply the revenue standard retrospectively, but only to contracts that are not completed as of the date of initial application of the standard so that is again January 1, 2017 and it would recognize a cumulative catch-up adjustment to retained earnings as of that date without restating comparative figures The use of the modified approach may reduce the cost and complexity of adopting the standard because there is no need to make an assessment of contract completed prior to the year of adoption, but it also has its drawbacks and that some revenue will not be presented in profit and loss, but instead would be included in the beginning retained earnings as a cumulative catch-up adjustment and obviously some parallel accounting will be required in 2017 to be able to disclose the information that is required by the standard The following slide provides a tabular example that is intended to illustrate visually the two transition methods Under the full retrospective approach, it is clear from here that for new contracts and existing contracts you have to apply IFRS 15 in the current year, but also in the prior that is presented and also to produce our opening balance sheet that would be required under IAS 1 when you apply a new standard Under the modified approach, the standard would be applied to any new contracts entered into on or after the initial application date of January 1, 2017 for a calendar year-end example contracts that are not complete at the date of initial application using the new revenue model and determine the cumulative catch-up adjustment to be recorded to beginning retained earnings and finally any contracts completed prior to the year of adoption would not need to be re-evaluated or accounted for under the modified approach, that means that revenue from these contracts recognized in prior periods presented would not be restated under this approach If an entity decides to employ this modified transition approach, it is required to provide some additional disclosures, of course, to show to users how they transition from the legacy guidance to IFRS 15 The first of which is to present the financial statement line items and the related amounts

that are affected in the current year in 2017 because of the application of the standard and second a description of significant changes between the new standard and the legacy guidance As mentioned previously, IFRS 15 has a broad and all-encompassing scope It applies to contracts with customers except those that are within the scope of other IFRSs It is important to understand how IFRS 15 defines a contract and defines a customer Under IFRS 15, a contract is defined as an agreement between two or more parties that creates enforceable rights and obligations and a customer is defined as a party that has contracted with an entity to obtain goods or services that are an output of the entity’s ordinary activities in exchange for consideration IFRS 15 includes in its scope transfers of assets that are not an output of the entity’s ordinary activities For instance, transfers of sales of property, plant and equipment, real-estate or intangible assets would be within the scope of certain aspects of the IFRS 15 model Specifically, the criteria for determining the existence of a contract, measurement and control principles would apply to these transfers or sales of non-financial assets to determine when and for what amount the asset should be derecognized With respect to contracts with collaborators or partners, during the re-deliberations, the boards acknowledge that parties to collaborative arrangements, which are common in certain industries such as in the pharmaceutical industry or biotechnology industry could represent customers and that therefore certain collaborative arrangements would be within the scope of IFRS 15 To determine whether a transaction or a collaboration arrangement is in or out of scope of IFRS 15, an entity would consider the structure and purpose of the arrangement to determine whether the transaction is for the sale of goods and services as part of the entity’s normal business activities and whether the counterparty represents a customer and if that is the case then the collaborative arrangement would fall within its scope The revenue model does not apply to contracts within the scope of other IFRSs, so IAS 17 contracts those within the scope of IFRS 4 for insurance contracts, those within the scope of financial instruments and other contractual rights or obligations, which would be in the scope of IFRS 9, IFRS 10, IFRS 11 for instance and finally nonmonetary exchanges between entities in the same line of business whose purpose is to facilitate self to customers On this one, I believe this requirement is a bit different from the scope exception currently found in IAS 18, which would exclude non-monetary exchanges of goods and services that are of a similar nature and value There could potentially be differences there in terms of accounting for non-monetary exchanges to watch out for Moving on the core principle of IFRS 15 that you see highlighted here at the top of the screen is to recognize revenue to depict the transfer so the transfer of control of goods or services in an amount that an entity expects to be entitled to The word expects seems to bring in some element of potential variability and we will touch up on that a bit later There is a five-step approach to applying this principle, which is not too unfamiliar in terms of an approach and we name all these steps here, but we will cover those in turn in more detail 1 Identify the contract 2 Identify the performance obligations in that similar to separating a multiple element arrangement into different units of account 3 Determine the transaction price so that would be the amount the entity expects to be entitled to under the contract 4 Allocate the transaction price amongst the performance obligations identified 5 Recognize revenue when or as performance obligations are satisfied, so that is when control of the goods and services is transferred to the customer Note that this is not exactly how the standard itself is laid out It is not necessarily laid out sequentially in terms of steps It deals with recognition first, so steps 1, 2, and 5 and then measurement pieces that is step 3 and 4 and then presentation disclosure and effective date We have highlighted that for you on the slide

It is also important to point out that this revenue recognition model is based on a control approach and that differs from the risks and rewards approach that you are still applying under current IFRS The boards decided that an entity should assess the transfer of good or service by considering when a customer obtains control of that good or service as opposed to when the supplier gets that control or when the risks and rewards have been transferred Okay, now that we have gone through scope, transition, effective date and the overall model, let us get started with the first step in applying the model, which is to identify the contract with customer This is basically identifying the unit of the account to which the IFRS 15 analysis will apply We mentioned previously that a contract creates a legally enforceable rights and obligations A legally enforceable contract would only be deemed to exist if the criteria on the slide here are all met 1 The parties to the contract have approved the contract that can be in writing, orally or in accordance with customer business practices and the parties are committed to perform under the contract 2 The entity can identify the payment terms for the goods and service 3 The entity can identify each party’s rights 4 The contract has commercial substance in the sense that future cash flows are expected to change because of the contract 5 Finally, it is probable, which means more likely than not under IFRS that the entity will collect the consideration to which it is entitled in exchange for the goods and services This collectability threshold is assessing the customer’s credit risk and you may recall that in the exposure draft, there was no collectability threshold In this final standard, they reintroduced the collectability threshold of probable It is also important to note that there is a difference between consideration from a customer not being collectible and the entity offering a concession to a customer and the standard goes into some discussion about that and we will provide an example of that later If the arrangement fails to meet these criteria that we have just gone through for identifying a contract, the entity will have to reassess every reporting period whether it subsequently meets this criteria However, an entity would not be able to recognize revenue from a contract as serves this step until either it reassesses its collectability and concludes it becomes probable and/or the amounts received are non-refundable and either the entity has satisfied all its performance obligations and all the consideration has been received and it is not refundable and the contract has been terminated or canceled and whatever consideration has been received is non-refundable As well as the final point on this step, IFRS 15 also includes guidance under step 1 and how to determine whether contracts need to be combined when they are entered into at or near the same time with the same customer and also deals with some questions about contract modifications and we will discuss that a bit later as well Step 2, identifying the performance obligations This is basically identifying that deliverables are identified, the elements of the arrangement that maybe terms that you are more used to What is a performance obligation under IFRS 15? It is a promise to transfer to the customer a good or service or a bundle of goods or services that is distinct The first thing to do is to identify all the promised goods and services in the contract IFRS 15 provides a list of typical promises you may find in a contract, but this list is not all-inclusive These promises in a contract can be explicit or they can be implicit, meaning that they are implied by customary business practices, published policies or specific statements that create valid expectations on the part of the customer that they will receive those goods and services An example of that maybe a practice of offering a free one-year maintenance with a sale of a product The second thing you need to do is to determine whether the promised goods and services that you have identified are distinct from other goods and services in the contract and there is two criteria that have to be met to conclude that they are distinct The first one to the left of the screen there in the light blue box is, is the good or service capable of being distinct Basically, the question is can the customer benefit from the good or service on its own or together with other readily available resources? So that is similar to the standalone value that we may be familiar with and we do not necessarily expect change in practice in this regard

The second criteria is, is a good or service distinct in the context of the contract? Is the good or service separately identifiable from the other promised goods and services in the contract and that is a new requirement that goes over and above the standalone value test IFRS 15 sets out a number of factors to consider in making that determination and we expect a lot of discussion around this application of the second criteria, which could lead to more combining of promises than it is currently the case If the good and service is deemed to be distinct than you would account for as a performance obligation If not than you would have to combine two or more promised goods and services and re-evaluate what is the lower level that you can find that is distinct within the arrangement Final point on this that I would like to make here is IFRS 15 also identifies that it is possible that you have a promise to transfer to a customer a series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer and the guidance explains what is meant by that exactly and they say that in that case if you meet this criteria then you should account for the series of distinct goods and services as a single performance obligation An example of that is contract by a payroll provider to provide weekly payroll services over a 12-month period One might conclude this is really 12 months of different services or 365 days of services, but in this case IFRS 15 would lead you to a conclusion that is only one performance obligation The contract includes one because the entity is providing a series of distinct services that are substantially the same and have the same pattern of transfer throughout the year Let us know look at an example, here we have an example of how step 2 might apply to a specific fact pattern, so the facts are working with an entity’s manufacturer enters into a contract to sell a customer a printer and a ink cartridge that is shipped two weeks later The printer cannot work without the ink cartridge, but both the printer manufacturer and the sellers of generic ink cartridges sell ink cartridges for the printer separately The question is, are these performance obligations? The entity here would identify two promises, the printer and the cartridge and two performance obligations in this fact pattern Both the printer and the cartridge represent distinct goods because first of all it is clear that the customer can benefit from the good on its own or together with other resources that are readily available to the customer and secondly the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract The customer does not need to buy the cartridge or the printer from the entity in order to use the other good There is a point of caution here though this conclusion is based on our current understanding of the IASB’s intention for interpreting this requirement However, there is some debate among preparers, users and auditors as to whether in this case the two products are separable in the context of the contract because of the notion of are the goods and services highly dependent or are they highly interrelated So, we expect further discussion on this issue and it may actually be an issue that will be raised at an upcoming Transition Resource Group meeting later this year So that is all from me for step 2 I think I will hand it over to Joyce to go through the next steps in the model Thanks Maryse The third step of the revenue model is to determine the transaction price Under IFRS 15, transaction price is defined as the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to the customer In determining the transaction price companies will need to consider the amount of fixed consideration, variable consideration as well as any non-cash consideration in the contract An example of non-cash consideration can be shares of the customer common stock Under the new standard, we are required to adjust the transaction price to exclude the fact of time value of money if there is a significant financing component embedded in the contract price

Also the transaction price should be adjusted for any consideration payable to the vendor, to the customers This last requirement to adjust a transaction price by consideration payable to the customers is essentially the same as what we are used under EIC 156 under the old Canadian GAAP We should also note that in determining the transaction price, we do not adjust for the effect of customer credit risk As Maryse has mentioned and also you may recall, back in 2010 exposure draft it was proposed that the transaction price be measured based on the amount that the entity expects to receive, which effectively requires the entity to reflect the customer’s credit risk in measurement of the transaction price; however, because nearly all respondents expressed concerns about applying that concept, the boards decided to not adopt that proposal The boards later came up with another proposal in 2011, but proposing to have the fact of the credit risk presented as an adjacent item to the revenue line in the statement of earnings, which they have also later abandoned that proposal One of the main concern is that they were concerned company may be grossing up the revenue balance with an offsetting impairment loss In the new standard, the boards ultimately decided that they would include the consideration of collectability in step 1 of the revenue model and the reason for including that in step 1 essentially provides a critical consideration point in determining whether or not the contract is valid What constitutes variable considerable? Variable consideration is any consideration that is subject to uncertainty other than collectability For example, discounts, rebates, sales credits, sales incentives, performance bonuses or price concessions When the transaction price is variable, the standard requires the entity to estimate the variable consideration using one of two methods, the expected value method or the most likely amount method The expected value method is calculated using the probability weighted method, which is appropriate when the entity has a large number of contracts with similar characteristics The most likely amount method is appropriate when the contract only has two possible outcomes For example, the entity is entitled to a performance bonus only if it achieves a specified outcome However, if there is a high probability that a subsequent change in the variable consideration estimate will lead to a significant revenue reversal, the variable consideration should be excluded from the determination of transaction price In assessing the likelihood and the magnitude of a potential revenue reversal, company should consider the following factors: Whether the consideration is highly susceptible to factors outside the company’s control or influence For example, for an asset management company, usually they will have a portion of the fee earned on the investment portfolio based on the performance at a certain point in time, which in their case there may be a lot of factors effecting the value or the performance of investment portfolio and those factors are typically outside of the control of the asset management company We also need to look at whether or not there is any uncertainty relating to the amount of consideration and whether or not that uncertainty will take a long time to resolve As you may expect, the longer the time it takes to resolve the uncertainties around the variable consideration, the higher the likelihood that those estimate is going to change Also we should consider whether or not the entity has limited experience with similar contract and therefore limiting their ability to estimate variable consideration Also if the entity has a significant historical experience in offering a broad range of price concessions or made significant changes to the payment terms of the contracts as well as any relevant provisions, it will also increase the likelihood of changes in the future The last indicator is whether or not the contract itself contains a large number and a wide

range of possible consideration amounts If any of these factors exist, it is an indicator that there is a high probability that a significant revenue reversal will occur and that the entity should not include the variable consideration in the determination of transaction price Let us go through an example to illustrate the point In this example, the entity sells a prescription drug for a $1 million payable in 90 days to a customer located in a country that is experiencing economic difficulty At the time when the contract was entered into, the entity determines that there is a significant risk that the customer will accept the product and also there is a high probability that the customer will ask for a price reduction, which is a customary business practice in that country The entity estimates that the parties will ultimately settle on a price of $400,000, which the entity is willing to accept as it will still make a profit at that price The entity also assesses that it is probable that it will collect the $400,000 In this example: • Is the transaction price variable? • Does this contract meet the criteria laid out in step 1 of the revenue model? With respect to the first question, the transaction price contains a variable consideration component because both the customer and the entity expects to ultimately settle at $400,000, which is, in fact, means the entity expects to offer a price concession of $600,000 The transaction price is variable In terms of whether the criteria in step 1 are met? • You can see on the slide that we have concluded all criteria are met Based on the case facts, both parties have approved the contract and are committed to perform under the contract The entity has transferred the drug and expects the customer to pay a portion of the contract price • The entity believes that it is probable that it will collect, however expects to offer a price concession based on the expected amount to collect • The contract has commercial substance • The entity has identified each party’s rights regarding the prescription drug • The payment terms is also identified in the contract The important point that we want to highlight in here is that the entity has adjusted the transaction price for the estimated price concession and not for the customer credit risk Also, the criteria relating to collectability is assessed based on the amount that the entity expected to be entitled to, which in this case is the amount after the adjustment for the price concession and because this is probable that the entity will collect the $400,000 transaction price, therefore collectability criterion along with the other criteria in the step 1 are met The reason that we address the criteria in the step 1 in this example is to reiterate that the consideration of collectability should be based on the entity’s transaction price after adjusting for any variable consideration and not necessary based on the contractual price If the assessment is based on the collectability of the contractual price, the entity would not meet the collectability criteria in step 1 of the revenue model Let us move on to step 4 of the revenue model allocating transaction price model Under the IFRS 15, transaction price will be allocated to the different performance obligations identified in step 2 based on the relative stand-alone selling prices If the stand-alone selling price are not observable either because this is a new product or a new service or the entity has never sold those products or service on the stand-alone basis, the entity is required to estimate the stand-alone selling price To estimate stand-alone selling price, there are a few acceptable methods under the standard The expected cost-plus margin method, which we are all familiar with The adjusted market assessment method, which is estimated by reference to prices of similar goods or services in the market and adjusted for the entity specific cost and margins or the residual method

Note that the residual method is expected to be used if the price is highly variable or uncertain In situations where the transaction price changes from the initial allocation, for example due to change in estimate of variable consideration, the changes should be allocated to the performance obligations based on the relative selling prices unless the change in the transaction price related entirely to one or more, but not all of the performance obligations Also the initial allocation of transaction price does not need to be adjusted if the stand-alone selling prices of those performance obligations change in subsequent periods This concept is the same as the current practice The Standard also provides guidance for situations where it would be appropriate to allocate the discount or any other variable consideration to one or more, but not all of the performance obligations For example, in transactions where the entity sells the customers three different products, product A, B and C for $430 The entity sells each of those products on a stand-alone basis and has a stand-alone selling price for each of them at $50 each In this transaction, the sum of the stand-alone prices equals to $150 Comparing to the $130 transaction contract price, there is a discount of $20 in this arrangement The entity also sells product B and C in a bundle on a stand-alone basis and also usually thrice the bundle at $80 The bundle itself contains a discount of $20 In this case, because the discount that typically offered for the bundle of product B and C is equal to the discount being offered in the current transaction, the entity would under IFRS 15 allocate the entire $20 discount to product B and C only Once the transaction price is allocated, the entity will have to determine when to recognize revenue for each performance obligation Note that there is only one single model for recognizing revenue for goods and services The new standard does not distinguish recognition of revenue for goods or for services Under IFRS 15, revenue is recognized when control of the good or service is transferred to the customer, sounds simple There are actually many situations where it is not clear as to when control is transferred particularly when the arrangements involve construction of an asset or rendering of services over a period of time The standard does provide some indicators to help companies in their determination of whether performance obligation is satisfied over time or at a point in time It is considered that the entity satisfies a performance obligation over time if one of the following indicators exist: 1 The first indicator is that the customer receives and consumes the benefit as the entity performs An example of such contract is when an entity provides cleaning service to a customer where the customer is simultaneously receiving and consuming the benefit of the cleaning service as the entity renders the service 2 The second indicator is that the entity’s performance actually creates or enhances an asset that is controlled by the customer An example is a home addition contract, where the entity is contracted by the customer to renovate the customer’s house 3 The last indicator is the situations where performance by the entity does not create an asset that has alternative use meaning there is limitation as to the entity’s ability to use the asset created for another customer or redirect the asset without having to incur significant cost and that the entity has an enforceable right to payments for performance completed to date and expects to fulfill contract as promised The amount that the entity is entitled at any point in time during the term of the contract should approximate the selling price for the asset created or partially created We will illustrate this point in an example in the later slide When the performance obligation is considered to be satisfied over time, the entity would

recognize revenue based on the progress towards completion, which the progress can be measured using either the input or output method On the other hand, if the performance obligation is not considered to be satisfied over time, revenue should be recognized at a point in time, which is at the time when control of the asset is transferred to the customer The determination as to when control of the asset has been transferred can be made based on the following indicators: • When the entity has a present right to the payment for the asset • When the customer has legal title to the asset When the entity has transferred physical possession of the asset, when the customer has significant risks and rewards of ownership of the asset or when the customer has accepted the asset To illustrate whether revenue should be recognized at a point in time or over time Let us walk through an example A manufacturer enters into a contract with a customer to produce 52,000 units of a customized part, which cannot be sold to any customer without substantial rework The entity expects to produce and ship 1000 units per week Under the contract, if the customer cancels the arrangement for reasons other than entity’s failure to perform The customers require to pay the entity and amount equal to cost plus a reasonable margin for each unit produced or partially produced, but not yet delivered So, should the entity recognize revenue at a point in time or over time? To help make this assessment, we should ask ourselves two questions 1 Does the product have an alternative use? 2 Does the entity have an enforceable right to payment? For the first question, because the parts produced or customized and cannot be sold to other customer without substantial rework, these products deemed to not have alternative use the contract, the customers require to pay the entity an amount equals to cost plus a reasonable margin for each unit produced or partially produced, but not yet delivered if the customer cancels the contract As such, the entity has an enforceable right to be reimbursed for each unit produced or partially produced even if the product has not been delivered to the entity prior to its cancelation Therefore, in this example, our conclusion is that the entity will recognize revenue over time on the basis that the asset produced does not have an alternative use and that the entity has an enforceable right to payment that approximates the selling price of the goods produced to date What if we change the fact of the previous example and stated that their contract terms require the customer to pay the entity an amount equal to just the cost for each product or each unit produced or partially produced Should the manufacturer recognize revenue over time or at the point in time? With this change, the entity does not have an enforceable right to payment that approximates the selling price of the goods transferred to date It does not meet the criteria to recognize revenue over time Therefore, revenue would be recognized at a point in time The entity would recognize revenue when control of the product is transferred to the customer To make this assessment, the five indicators laid out on this slide should be considered and determining at what point has control been transferred to the customer Whether or not it would be at the time when the entity has present right to payment for the asset or when the customer has the legal title to the asset When the entity transferred the physical possession of the asset, when the customer has the significant risk and worth of ownership of the asset or when the customer has accepted the asset Now, I am going to turn it back to Jon for a second polling question Thank you very much Joyce and thank you Maryse and let us move onto our second polling question What step of the revenue model do you think will have the most significant impact on your organization? Identifying the performance obligations, determining the transaction price, allocating the transaction

price to the performance obligations and the contract or determining when to recognize revenue? Once you select your answer, remember to click on submit answer to register it While we are waiting for the boats to come in, I have a question here for Maryse and it deals with the scope of IFRS 15 The question is how about those contracts that are only partly in scope For example, leases, financial instruments and similar kind of subject areas How will these fit under IFRS 15? Sure Jon That is a good question As you mentioned, a contract with the customer maybe partly within the scope of IFRS 15 and partly within the scope of another standard and the examples you gave are good examples, so leases could be one of them So, you could have lease with the service element or you could have even in maybe an investment banking situation where you have a mini-deal, you could have an investment banker that enters into some type of financing arrangement, but also has other services like M&A services So, the idea is that if the other standard that applies specifies how to separate or initially measure any parts of contract while the entity first applies those separation and/or measurement requirement so that other standard takes precedence over IFRS 15 If the other standard is quiet on that topic, so it does not specify how to separate or initially measure any parts of the contract, then entity would apply the recurrence of IFRS 15 to separate and initially measure those parts and consideration based on a relative stand-alone selling price method I hope that answers the question Jon It certainly does Thank you very much Let us see if we can get our results of polling question #2 up there I finally guess, which will be the most popular one, but as 41% is determining when to recognize revenues, people views are the most challenging with the third saying allocating the transaction price of the performance obligations and the contract Eileen this is going to depend very much on the nature and complexity of our particular business, exciting, it might actually vary Okay I will now welcome our next speaker Cindy Veinot Cindy Veinot is a Partner in Toronto and has over 20 years of public accounting experience with Deloitte in both Toronto and the United States She has worked with clients on revenue recognition issues under multiple different accounting frameworks over the last 15 years, has currently focused on working with clients and assessing the impact of the new revenue recognition standard Over to you Cindy Thanks Jon Okay, now that we walked through model Let us talk about aspects of the standard that provide new or more specific items of the number of areas First area that we have selected to focus on is contract modifications Modifications to contracts have been rarely in some industries, but actually happen quite regularly and others So, think about your own cellphone contract, maybe of added features to it You are now data sharing with someone You have added some additional bells and whistles There were modifications there or you can think about a home renovation or a major construction contract for a highway or a new manufacturing plan where there can be numerous change orders and a standard has specific guidance to deal with the accounting for modifications Depending on the nature of the medication, the impact can be to treat the modification prospectively or to record accumulative ketch up in revenue So, started the top of the slide, when you have a modification, you need to determine whether the additional goods or services are distinct, so that is for Maryse talked about in step 2 and whether they been priced at their stand-alone selling price So, Joyce touched on that a little bit in terms allocating the transaction price If both of these conditions are met, then the new performance obligations and the transaction price associated with them are accounted for as a separate contract, but if that is not case, then the contract modification is accounted for on a combined basis with the original contract, but the impact on that accounting still depends on whether goods and services in the modification are distinct If they are, we are on the far left at the bottom of the slide There is no impact on revenue already recognized, but the remaining performance obligations are allocated revenue based on the remaining revenue not yet recognized under the original contract and the revenue from the modification We will go through an example of this If the goods and services are not distinct, which maybe the scenario in the case of a change order for a construction project where there may just be a single performance obligation,

they have to look at the modified contract in its entirety and determine if there was a cumulative catch up at the date of modification regarding the amount of revenue already recognized Based on applying either an input method or an output method or whatever the appropriate model is as Joyce touched on Finally, down there on the right hand bottom side, you could have a combination of these two types of modifications and you have to apply judgment to account for modification in a way that is consistent with the principles that we just discussed So, let us walk through an example into a three-year contract to provide daily cleaning services The customer pays the stand-alone selling price of $100,000 at the beginning of each year So, at $300,000 contract in total At the end of the second year, the contract is modified and the fee for the third year of services is reduced to $80,000 plus an additional $200,000 to extend the contract for three additional years The stand-alone selling price of the services at the beginning of the third year is $80,000 per year and the entity stand-alone selling price multiplied by the number of years is deemed to be an appropriate estimate of the stand-alone selling price of the multiyear contract So, in other words, if you take the stand-alone selling price for four years, which is four times $80,000 that stand-alone selling price would be $320,000 So, in terms of determining how to account for this modification, there are two steps First, are the services in the modification district and second is the additional consideration reflective of the stand-alone selling price of the services So, when I start looking at the chart on the top right corner of the slide and so in the first column of that chart we have got all the years, so now it is a 60-year contract after the modification was three years to begin with and an additional three years were added In the middle column, we have got the initial amount of revenue that was agreed to buy the party, which was $100,000 in each year of the first three years Then, in the last column, we have got the modified amount, so as we noted on the previous slide, at the end of year 2, the price for year 3 was reduced to $80,000 and there was an extension to the contract for three additional years at $200,000 now Let us go back to the questions now First are the services distinct We would say yes Daily cleaning services that is something that customer can benefit on its own and it would be separately identifiable on the contract The second question is, is the additional consideration reflective of the stand-alone selling price of the services In this case, we would say no because the amount of the additional consideration or the remaining consideration to be paid is $280,000, $80,000 for this third year and $200,000 extension, and this does not reflect the stand-alone selling price if the services to be provided So, in this case, it does not meet the requirement to account for as a separate contract and you have to account for this as a termination of the original contract and the creation of a new contract with the consideration of $280,000, which is $80,000 left from the third year and $200,000 for the remaining new three years, to recognize the over the four remaining years of cleaning services or $70,000 per year The closing thought on modifications is there is now a lot of detail guidance, so it is going to take some work to ensure that the processes and controls are in place to monitor them and then determine what the appropriate accounting should be? Next we are going to talk about licenses The main point here is that a license depending on its attributes can be accounted for in one of two ways It can be accounted for as a performance obligation that the entity satisfies at a point in time or it can be an obligation at the entity satisfies over time So, Joyce touched on those two different models of recognizing revenue and depending on the circumstances, both can apply when you are talking about licenses The first step is to consider whether the license is distinct or included in a bundle of goods, so back to step 2 So, an example that you might think about as I walked through the rest of the slide is a software license and in the software industry, often an entity also sells maintenance contract, which provides the customer with one of available upgrades So, the license is evaluated as distinct from the maintenance contract and is only the initial license that we are talking about in terms of making this next assessment The key question is what is the nature of the entity’s promise? They have a right to access the intellectual property of the company throughout the license

term or just to use the intellectual property as it exists when the license is granted A few consideration points that are noted there on the right hand side of the slide, is there an explicit or implicit understanding that the entity will undertake activities that significantly affect the intellectual property due to rights granted by the license expose the customer to any positive or negative effects to the activities result in a transfer of a good or service to the customers if those activities occur I would say there are some very interesting examples in the standard that cover the licensing of intellectual properties in various forms So, I touched on software, which we just thought about the software license, you might come to the conclusion that it would be satisfied at a point in time when you are only thinking about the license like license to use Word or Excel or something like that in this example, but there are also other examples that cover things like patterns for drug compounds, franchise rates, images, music recording, movies, logos, so if you are in the business of licensing intellectual property, I would certainly take a look at those examples, because I think it is going to be a challenging determination in some cases to determine what the appropriate model is This next area might be a bit of a sleeper, but there actually is guidance in IFRS 15 in terms of how to treat cost and those include cost to obtain a contract and cost to fulfil a contract With respect to cost to obtain a contract either capitalized if they are incremental and expected to be recovered So, the most frequent example of these types of cost are sales commissions There is a practical experience in the standard where if you expect that you would amortize the cost over one year or less, you do not have to capitalize it Then, we have got cost that are encouraged to fulfil a contract and these costs are accounted in accordance with other standards to the extent that they are within the scope of another standard, so inventory or property, plant, and equipment would be accounted for under their respective IFRS’s, but if they are not within the scope of another standard, then this guidance applies and this guidance requires an entity to capitalize the cost of fulfil a contract if they relate directly to a contract or anticipated contract, if they generate or enhance a resource that will be used to satisfy obligations in the future and if they are expected to be recovered There are specific exclusions in the standard for types of costs cannot be capitalized, so things like general administrative cost, waste of materials, there are a number of things to think about, like cost to obtain a contract once capitalized These costs are amortized on a basis consistent with the transfer of the goods or services In addition to standard does include guidance on assessing these costs for impairment and then potentially reversing the impairment charge if the circumstances change This slide includes mattering of other matters, so just things we wanted to bring to your attention in terms of guidance being in the standard I am going to talk about them, starting at the top left and going clockwise So, product warranties There is guidance in the standard on accounting required for standard, assurance, warranties, so the type of warranty you would get if you bought a product and it basically has a warranty that says we will perform based on the status for a year and if it does not recover by warranty Those types of warranties will continue to be accounted for using a cost accrual method, but there are other types of warranties like extended warranties or things that are called warranties, but they are more extended service contracts and those will be accounted for as separate performance obligations Moving on to the box on the top right, we will talk about options to acquire goods or services This is the guidance in the standard that requires you to assess whether something in the contract provides the customer with the right acquire future goods or services for free or at a discount So, this is where the guidance from IFRIC 13 fits into this new standard regarding wealthy point programs Now to the bottom right Customers unexercised rights, this is the concept that we refer to as breakage So, a simple example is if I sell a prepaid phone card and I sell thousands of these cards and I know from historical experience that customers do not use up all of the reminisce, the question is when to recognize revenue for those minutes that will never be used and the standard basically pointed to evaluate the same criteria as Joyce talked about when looking at variable consideration to determine if you can recognize that expected revenue as the delivered service or whether you have to wait until it is remote that the customer

is going to exercise at its rates Finally, the last box is repurchase agreement and so, if an entity has an obligation or right repurchase the asset, then generally the customer has not obtained control over the asset and therefore, you do not have a revenue contract to account for what you have a least or financing arrangement A final topic in the other matters section I am going to touch on is disclosures So, the disclosure requirements with respect to revenue recognition have increased significantly We have bucketed the disclosure requirements into three different categories and the first is at the top, groups those are related to disclosures with contracts customers So, first step disaggregation of revenue This then requires more granular detail about revenue to be disclosed and to determine how you actually go about that, you need to consider information presented about revenue and other documents such as investor presentations and also consider how the chief operating decision maker looks at the information The disaggregation could be by type of service, by geography, by type of customer, by contract duration It really depends on how the contracts are impacted by economic factors With respect to contract balances, there is required disclosure for what is sitting on your balance sheets, so receivables, contract assets, contract liability balances if they are not already separately presented As long as what I would refer to as information about transactions that stand over multiple periods So, for example, there is a requirement disclosed, revenue recognized in the current period, that was included as a contract liability at the beginning of the period There is also requirement to disclose revenue recognized in the period from performance obligations that were satisfied in prior period So, if you think of the variable consideration that Joyce is talking about, you could be constrained and recognizing that until the uncertainties resolved, but the performance obligation could have been recognized long ago, so this standard is requiring you to provide disclosure with respect to that There are also several required disclosure about performance obligations including what remained at standing at the end of the period and when the entity expected to recognize that revenue as long as general information and the entity satisfies performance obligations You might typically satisfy performance obligation upon statement of good or upon delivery Also, information about significant payment terms as well as other items such as types of warranties Then looking at the bottom row, there is disclosure quite a bit significant judgments including those related to timing of recognition of revenue as well as transaction price and its allocation Finally, there is required disclosure about policy decisions, for example if you utilize any of the practical experience as an example that when I touched on in terms of not having to capitalize costs of obtaining a contract of the amortization period would be less than one year We have to disclose information about the contract cost themselves whether they be cost to obtain a contract or cost to fulfil a contract including both closing balance information by category of asset as well as methods and amounts of amortization and that is a number of examples with respect to disclosure, I would just say that there are many many more, so I think it is an area to start thinking about early Even if you do not think, you are going to have that many impacts from the standard in terms of timing or measurement, I think you will impacts from disclosure Jon, I will turn it back to you Okay Thanks Cindy and we will pause there for another polling question Do you believe the new standard will require significant changes to current IT systems and processes? Potential answers are; 1 Yes 2 No 3 Not assessed at this time 4 Not applicable Remember to click on submit answer While we are waiting for the polling question to accumulate the results, there is a question here for you Cindy and it relates to contract cost What if I sell a bundle that includes a lost leader, though I still capitalize the cost to fulfil related to the lost leader? Well I would say that probably the first thing you need to do is go through your allocation process in terms of allocating revenue to your deliverables because if you have a lost leader, then I guess I would first question in terms of how you are allocating fair value to your transaction, but then there are requirements in the standard to consider impairment analysis for contract cost, so I think that would be the second step of working through that analysis

to determine whether you would have contract cost to capitalize Okay Let us see if we got the results for this third polling question Well, 44% says that this is not yet assessed and almost there is statistically insignificant difference between those who think that will have an impact on IT systems and processes and those who do not On this subject, Cindy is going to now speak about some of the impacts on processes and systems Okay, thanks Jon So, we walked through a lot of technical material over the last hour and a bit We have never going to spend some time on recapping and thinking about how to begin implementing the impact of this new standard Certainly, I think as Jon mentioned earlier given the diversity and in terms of how organizations generate revenue and how they contract with their customers, the impacts of adopting this new standard will be just as diverse, but on this slide we have tried to highlight some of the significant impacts from the standard and I think step 1 from any organizations will be figuring out at a high level where the hot spots are for your organization So, for example, do you have contracts with multiple performance obligations and there is a separation guidance in this standard, going to change how you currently separate those obligations or is that going to change how you allocate consideration to the performance obligations that you have identified? Do you have contracts with variable consideration and how are you accounting for that variable consideration today? In some cases, depending on the nature of the variable consideration, the standard may require you to come up with an estimate and Joyce talked about the two methods that exist either expected value are most likely amount and actually record that or once you goes through all of those criteria that need to be taken into consideration in terms of assessing whether you might have a significant revenue reversal, you may find that you actually have to delay recognition of variable consideration as compared to what you are doing now I am just touched on contract costs and you may need to rethink what you are doing there in terms of capitalization and if you have to capitalize those costs, then you need to think about how you are going to amortize them and how you would assess them for impairment and I think the guidance from my perspective on modifications and licenses is fairly complicated, so if those are areas that impact your business, I would take a good look at those new provisions and the examples Finally, as I noted, earlier disclosures really going to impact every organization that has material transactions within the scope of the standard and I think for the most part that is going to be almost every organization, certainly there will be a view that how all their contracts with customers or revenue transactions within another standard, but most organizations are going to be hit someway by this new standard and we often leave sorting out disclosure until after we figured out the accounting, but because there are so many new disclosure requirements, I will drive the need to collect data is probably something to make sure you touch on in terms of doing your initial assessment So, there are many ways to approach working to the impact of a new standard like IFRS 15 and these are just some initial thoughts on one approach, so, across the top of the slide, we got three different I would say steps, so the assessment phase, business analysis phase and then implementation phase and then just start down the column on the left hand side of all the various things that you would want to be thinking about Technical accounting, we probably will all have, but I think data and systems definitely could be impacted and will be impacted for many organizations looking at controls and then just program management and other things like taxes, communication, training, all those things need to put in place, so during the assessment phase, you might start that by, first of all going through a completeness check for scope to ensure you have captured all the revenue that will be subject to the requirements of IFRS 15 and then maybe taking a sample of contract or revenue streams and just walking them through the standard to ensure that views identified all of the areas of potential change I am also at the good time to start identifying system impacts and once you have done that, then I think you would be in a position to develop a preliminary project plan including your communication requirements In the second stage, I think you start to delve deeper and start to develop policies and determine the adoption methods and restarts done earlier in the presentation, about the different alternatives that are available and you might want to think through what method you want to flexed because I think especially if you are doing full retrospective, you might

want to get started earlier rather than later and then figuring out the system requirement So, what rules the system is to recognize the revenue now and if your timing and recognition changes, can your system actually accommodate that or what you need to do in terms of building a bridge or doing something different in terms of ensuring that your system is going to be able to handle these changes I am thinking about impact on controls though, again all these modifications as an example, do you have controls in place to capture modifications and look at the impact of modifications because the accounting can be different depending on the type of modification I think this is the good time to also start evaluating training requirements, update stakeholders and to consider any tax implications that may result from the standard Finally, implementation By this time, you will be into preparing disclosures ensuring that your auditor is up-to-date with all of the decisions you have made to date and concurs with them certainly well into systems testing, rolling out training and updating stakeholders, so, I think it is quite a process to go through and of course, we need each of those steps There are numerous other steps too to consider Finally, we will just touch on what we will call the broader impact, so on this slide, we have identified a number of stakeholders down the left hand side that will be potentially interested and understanding what the impact will be So, you have got lenders, market, investors, employees, the board and across the top, the different types of impact that actually could come into place, though things like perception and understanding of analysts and broader market impacts Certainly, the markets will want to know if your revenue recognition model is going to change significantly Does it impact the availability of profits for distribution? Does it change key performance indicators and other metrics that you might use to manage our business internally? If you could just advance the slide Are there things like potential noncompliance with loan covenants? You are going to have new assets and liabilities on your balance sheet, you are going to have potentially different timing in terms of revenue recognition, so how does that impact the covenants that you may have in place and then finally last but not least, if you have compensation and bonus plans in place that relate to financial performance and financial performance is going to change, then those are things that you are also going to want to look at in terms of thinking through what these impacts are, so I think once you get started in terms of assessing the impacts and I know you are going to be starting that soon I think about the fact that the impacts maybe broader than initially thought and it is worthwhile spending some time to think through all of those stakeholders that maybe impacted Jon, I will turn it back to you Thank you very much Cindy I think we have our final polling question now What level of impact you believe the new revenue standard will have? 1 Will that be a significant change to current practice 2 Any material change to current practice 3 Not assessed 4 Not applicable Remember to click on submit answer So, we are waiting for the results There is another question for you Cindy and it relates to implementation The question is: Why can start it now? The standards mandatory effect to date is still more than two years away It seems like a quite a bit of time I think that that maybe true for some entities, but if you look at the way that some industries that are impacted like the telecom sector They have actually been working on this for at least a year, if not more So, I think you got to start at least thinking about how bigger an impact is this on your organization and how are you going to actually implement a standard If you do full retrospective, which you may want to do maintain trends, then you are going to have to sort out what the impact is on your contracts in the near term I think to give big system implications related to the scanner, those take a lot of time to deal with So, I think from our experience certainly some larger companies and that all started to deal with it prior to the finalization of the standard, but I think what we talked to more and more companies about it, they are getting started now The standard is final and it is a good time to at least do a preliminary assessment and figure out how much work it is going to do to implement to standard Thanks a lot Let us see, we have got the results This is an interesting split 38% have not yet assessed, 28% think that the change will be immaterial and almost a

quarter say it will be significant Again, it is going to take some time to figure all of this out and I guess the devils going to be in the details Okay, please do not hesitate to take advantage of our global publications and resources related to IFRS 15 and look out for the Canadian versions of IFRS 15 industry insights for a number industries that will be headed your way soon Also, please do not hesitate to contact any of our experts and you will see the names on screen A couple of them should be familiar to you now They will be more than happy to assist you with any questions or concerns that you might have This is the formal part of our presentation, but before we begin our question and answer period, just a note to say that we do appreciate your feedback and kindly ask that you fill out our survey You should expect to see a pop-up survey appear on your screen shortly This has some development of our future webcast, we take these surveys very seriously, so please continue to send us suggestions and feel free to also let us know what we are doing well so we can keep it up We do have quite a few questions in the queue today, so we will not be able to get all of them, particularly those related to specific fact patterns for your organizations I would recommend that you discuss your questions with your Deloitte Partner or Deloitte Contact, so they can help you resolve any questions or concerns that you might have So, I think getting to the questions, let me just get to the queue here The first one is for Maryse and the question is: On a long-term construction contract, with the revenue recognition be based on a milestone schedule for example Is that of measuring percentage of cost completed? Good question I guess with IFRS 15, I think similar to what we had under IAS 11 on construction contracts, the standard acknowledges there are different methods of measuring the extent of satisfaction of performance obligation and the standard basically says that there are different methods that might include output method and input method In output method, it is well acknowledge that there are different methods again, so it could be a milestone method, it could be units produced or some type of measure based on some output I think the idea is that although IFRS 15 acknowledges that you can use and input and output method that encourages or tells you that the method chosen, needs to reflect faithfully, the entity’s performance in satisfying a performance obligation It also indicates that you have to challenge yourself on that, so if you do choose an output method and the example given in the standard based on units produced that may not necessarily reflect the entity’s performance and satisfying the performance obligation, if for example there is work in progress or there are some finished goods that are controlled by the customer, that are included in that measure of progress So, we have to take a note of that and also the standard highlights that certain costs need to be expensed and costs that related to satisfy performance obligations or partially satisfied performance obligations in a contract also need to be expensed So, those are things that I would put out there as consideration points Jon Okay, thanks Maryse Actually we have Lloyd in question for Joyce The question is any fundamental changes to construction contract, revenue recognition under the new standard I mean currently under the existing IFRS guidance when you have a construction contract, you are following scope of IAS 11 and it gives the revenue recognition guidance and there are typically as over time and taken to consideration, recoverability of the consideration to be received and that will dictate how you account for the construction contracts from the revenue perspective Under the news, there is extensive guidance that talks about whether or not you would recognize revenue at a point in time or over time and particularly with constructing an asset or construction contract, in situations where you are not delivering benefits to the customers throughout the construction process, then you fall under the section where you

need to consider whether or not and what you have constructed, has alternative use and whether or not the entity is able to enforce payment and an amount that is approximating the purchase price or the selling price of that asset whether or not it is fully constructed or partially constructed So, in order to be able to recognize revenue over time, we need to meet those two conditions, which is not something that we currently need to assess in terms of the amount that you can enforce payment for I would say in applying the new standard, company would need to look at all their contracts, how it is being structured particularly around the payments term, the amount that has been paid and whether or not at any point during the contract term the entity is entitled to an amount that approximate the selling price of the assets in progress in order to be able to support revenue recognition over time; otherwise, then the center would pursue that you would need to recognize that at the point in time and you need to then assess when that happen, you need to assess when control has been transferred to the customer Okay Thanks Joyce What would consider at or near the same time i.e. what period related to contract combinations? Another very common question I think that we previously had as well in application of prior GAAP So, under IFRS 15, I think there is no clear or explicit threshold or guidance to look to in terms of determining what time proximity you need to consider I think the closer the time period, the more likely that some contracts will need to be combined to further away the time period Obviously, at the other end of the spectrum less likely that the contracts will be combined, but it is not just a question of time proximity, the standard talks about a number of criteria and they say, if contracts are negotiated at or near the same time with the same customer and you meet one of the following criteria then you should combine those contract and those criteria are that the contracts are negotiated as a package, so we will need to do one single project, the amount of consideration in one is dependent on the price of performance of another contract and the goods or the services promised in the contracts or a single performance obligation in accordance with assessing the other pieces of the literature that would cover today So, hope that helps Jon Yes Thank you There is a question here for Cindy What are the significant differences between this new standard and equivalent US GAAP standard? Okay Actually, I think the boards did a nice job and actually in laying out those differences, so, there is an appendix to the basis for conclusion, which lists five different areas where IFRS 15 differs from FASB Topic 606 in terms of a new standard They are first of all related to collectability threshold, so as we have about on this webcast, there is a requirement to assess probability of collectability because probable has a different meaning under IFRS and US GAAP that is identified as a difference There is some different disclosures required with respect to interim disclosures, the US having additional disclosure requirements There is a difference with respect to being able to adopt a standard early, so, I think as Maryse mentioned under IFRS you can and under GAAP you cannot There is a difference related to impairment reversals though I touched on having to assess contract cost for impairment and then having to assess whether or not those impairment charges could be reversed when you can reverse them under US GAAP and then finally there is different requirements in terms of dealing with non-public entities So, those are then listed differences The only other thing I would point out is when you are dealing with like this standard and another standard So, Maryse touched on if you have contracts under multiple standards The other standards could be different rate So, you could run into actually differences in treatments not because of what is an IFRS 15, but because of how IFRS 15 relates to the other standards or the equivalent US standard related to the other standards One more question for you Cindy

The question is, I have read through these disclosure requirements of the standard, and we use the word shell, what does that mean Does that mean that all disclosures are required? If you read through all the disclosures, there are a lot and I think that you certainly have to into consideration what material and the guidance does talk about some objectives with respect to disclosure requirement So, I am not sure at the point where we would say everything go and line item is required from an IFRS perspective that is certainly you need to go through them to assess how they apply to your organization and whether they provide meaning information to the readers of the statements Thank you Thanks again to our speakers, Maryse Vendette, Joyce Lam and Cindy Veinot Also thanks to our behind scenes team Nura Taef, Karen Dooley and Elise Beckles We hope you found this webcast helpful and informative If you want additional information, please visit our website at www.corpgov.deloitte.com and to all of you viewing our webcast today, thank you for joining us and happy Canada Day This concludes our webcast bringing clarity to an IFRS world – IFRS 15 revenue from contracts with customers