INFORMATION, COMMUNICATIONS & ENTERTAINMENT
Impact of IFRS: Media
KPMG INTERNATIONAL
Contents
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ess
RS conversion proc
Overview of the IF
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porting issues
Accounting and re
usic
Publishing and m
Advertising
mes
television program
otion pictures and
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m
Fil
Broadcasting
Cable television
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n of IFRSs
First-time adoptio
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ancial statements
Presentation of fin
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considerations
logy and systems
Information techno
sources
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differences to infor
From accounting
ation systems
e impact on inform
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How to identify th
GAAP to IFRS repo
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Harmonisation of
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Business and repo
tions
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Stakeholder analy
considerations
board of directors
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Audit
S risks to mitigate
Other areas of IFR
Benefits of IFRSs
re developments
Appendix 1 – Futu
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al Network
nced Team, a Glob
KPMG: An Experie
© 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
Foreword
A common feature between a teenager in Tokyo who uses a hand-held device to watch television and
a middle-aged banker in London who uses it to look for financial information and news is – they want
information when they want it, where they want it on a real-time basis and delivered on the platform
most convenient to their personal lifestyles. Around the world, media is playing a crucial role in our lives.
Countries around the world are taking the important step towards adopting a single set of high quality, global
accounting and financial reporting standards. With many countries having converted to International Financial
Reporting Standards (IFRSs) in 2005, conversion is imminent for other countries such as Brazil in 2010,
and Canada, India, Mexico and South Korea in 2011 and 2012. Additionally, Japan has permitted the early
adoption of IFRSs by listed companies from 1 April 2009, and is requiring adoption for such companies from
2016. The US likely will announce in 2011 its plan as to how IFRSs might be incorporated into the financial
reporting requirements for US domestic issuers.
IFRSs not only offer global transparency, but also easy access to foreign capital markets and investments,
and that itself may facilitate cross-border acquisitions, ventures and spin-offs.
This publication looks into some of the key accounting issues across sub-industry groups such as publishing,
advertising and broadcasting among others within the media industry. It also analyses how conversion may
affect information technology and systems, people, and business processes and reporting.
IFRS adoption may affect operations in areas such as the following:
• Accounting policies and procedures
• Financial reporting and disclosures
• Information technology systems and processes for accumulating and reporting financial information,
including IFRS-compliant data and calculations
• Business processes and supporting controls, including internal controls
• Contractual and legal obligations, such as financial covenants, human resources policies and employee
incentive plans
• Finance and non-finance staff training in new policies, procedures and basis of judgements
• Communications with and education of all stakeholders, including the investment community
and analysts.
No doubt your conversion process will be significantly more detailed than merely addressing the issues
discussed in this publication. However, making a head start in identifying the accounting and business related
issues upon conversion to IFRSs can avoid the accounting crisis in the years to come. We hope this publication
will assist you in assessing the potential impact on your organisation, provoke you to initiate conversations with
the various departments in the organisation, stakeholders, audit committee, and trade unions.
Sean Collins
Global Chair of the Media sector
KPMG in Singapore
Anne Schurbohm
Partner – Media sector
KPMG in Germany
© 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
© 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
IMPACT OF IFRS: MEDIA
Overview of the IFRS
conversion process
All IFRS conversions have consistent themes and milestones to them. The key
is to tailor the conversion specifically to your own issues, your internal policies
and procedures, the structure of your group reporting, the engagement of your
stakeholders and the requirements of your corporate governance. While media
entities may be similar in many respects, there always will be differences in the
corporate DNA that makes one media project different from the next.
KPMG’s IFRS Conversion Management Overview diagram below presents a holistic
approach to planning and implementing an IFRS conversion by helping to ensure that
all linkages and dependencies are established between accounting and reporting,
systems and processes, people, and the business. The conversion must address
proactively the challenges and opportunities of adopting IFRSs across your business.
This includes, for example, the consideration of the impact of IFRS transition on the
regulatory aspects of your operations, which may vary depending on state, federal,
product, reporting or competitive requirements.
Systems and Processes
Accounting and Reporting
• Identify GAAP differences
• Quantification of differences
• Identify IFRS disclosure
requirements
• Select and adopt accounting
policies and procedures
• Assess impact on legal entity
reporting
• Tailor financial reporting templates
mplates
• Revise and/or design and implemplethering
g
ment templates for data gathering
How to link?
• Tools
• Templates
• Identify information “gaps”
for conversion
• Assess impact on internal
controls/processes
• Identify current system
functionality/suitability, related
new information technology (IT)
system needs and period-end
close contingency
plans
co
• Tailor chart
cha of accounts considering
acc
IFRS accounting
needs
How to link?
• Communication
How to link?
• Process changes
• Training
Business
P
People
• Develop communication plans
ans for
all stakeholders including:
• Develop and execute training plans:
– IFRS technical
te
topics
– New ac
accounting policies and
reporting procedures
– Changes in processes and controls
– Regulator
– Audit Committee
– Senior Management
– Investors
– External Auditors
• Assess internal reporting and key
performance indicators
• Assess impact on general business
issues such as contractual terms,
treasury practices, risk management
practices, etc.
How to link?
• Change
Management
• Revise performance evaluation
targets and measures
• Communication plans
• Consider impact on incentive
compensation programs
• Focus on key functions that will
undergo change (e.g. Research &
Development group)
© 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
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IMPACT OF IFRS: MEDIA
© 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
IMPACT OF IFRS: MEDIA
ACCOUNTING AND REPORTING ISSUES
Accounting and reporting issues
Those in the media business are aware that the industry is made up of several
sub-industry groups such as publishing, advertising, broadcasting etc. Based
on our firms’ experience, we have taken the approach of discussing the key
accounting issues that are relevant to each sub-industry group as listed below.
We believe that using this approach and focusing on the key issues relevant to
the individual sub-industry group is a better way of understanding the impact of
IFRSs on the media industry.
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5
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Publishing and music
2
Advertising
3
Film production, motion pictures
and television programmes
4
Broadcasting
5
Cable television
While the business risks and rewards, operations, and regulatory norms are different
for each of these sub-industry groups, there are some common accounting issues.
Though this publication discusses some of the key areas such as revenue and cost
recognition, inventories, leases, property, plant and equipment, intangibles including
goodwill and impairment, it does not cover other areas that media companies need
to consider. Owing to their generic and non-media specific nature, accounting topics
such as defined benefits pension scheme accounting, share-based payments,
segment reporting and financial instruments have not been considered in this
publication. The discussion that follows is based on currently effective IFRSs;
see future developments in Appendix 1.
1
Publishing and music
The publishing and music industry is in a period of transformation due to dramatic industry-wide changes, largely
driven by changing customer habits, the availability of information
on a real-time basis and digital distribution. The content produced
by publishing and music companies is received by more customers
than ever before, but not necessarily in its traditional format. More
and more customers are getting their desired content through the
internet or through hand-held electronic devices. Revenue recognition
and cost capitalisation are gaining importance while more classical
accounting issues such as the right of return are declining.
Publishing and music companies generally follow a business model whereby upon
entering into a contract, the author/artist undertakes to submit a manuscript or
record (a “work”) and grants the publisher/music company the right to publish the
work. The publishing/music company publishes, promotes and distributes the work
through various media, in physical (i.e. books and music CDs) and/or digital form.
The publishing/music company remunerates the author/artist through royalties on a
lump-sum basis and/or per unit of sales.
© 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
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IMPACT OF IFRS: MEDIA
ACCOUNTING AND REPORTING ISSUES
Revenues
There are a number of criteria that must be met in order for revenue to be recognised, both for the sale of goods and the provision of services. In terms of the sale
of goods, the key requirement for a media company is that the risks and rewards
of ownership have been transferred; typically, this occurs at a single point in time.
In terms of services provided, the key requirement for a media company is analysing the timing of when the service is provided; therefore, revenue generally is
recognised by reference to the stage of completion of the service.
Rights of return
For publishing and music companies converting to IFRSs, a key issue likely is
determining an appropriate accounting policy for the rights of return. The nature
of different arrangements with customers such as book and music stores will
determine whether it is appropriate to recognise revenue under a consignment
sale model, i.e. only as the book or music store sells the goods to the end customer, or whether it is appropriate to recognise revenue in full at the date of
shipment to the book or music stores less a provision for expected returns.
Embargoed goods
Prior to recognising revenue, a key criterion that publishing and music companies
must meet is that they no longer should maintain effective control over goods
transferred to the buyer. Due to the creative and ever-changing ways of managing inventories of books and music CDs, publishing and music companies often
ship goods to retail stores in advance of their actual release dates.
In these situations, a practical issue arises as to whether revenue can be recognised upon shipment even though the goods are embargoed until release date,
assuming that the sales are not on consignment (see above Rights of return).
The outcome will depend on an analysis of the underlying agreements. If the
publishing or music company effectively retains control of the goods until the
release date, then revenue would not be recognised until that date.
Online downloads and e-books
A fast-growing medium of distribution is through online downloads, whereby the
customer pays a fee to download content, such as books (e-books) and music,
over the internet onto portable devices.
For music, risks and rewards generally are transferred upon the payment of fees and
download of the file by the customer, and revenue would be recognised at that point.
Publishers selling e-books will require careful analysis of contractual terms of the
arrangement prior to recognising revenue in order to reflect the substance of the
arrangement. In our firms’ experience, e-book providers generally adopt either:
• the purchase model, whereby content is transferred to the customer in exchange
for an upfront price. In this case, revenue is recognised upon download; or
• the licensing model, whereby the customer is offered access to individual
e-books or a series of titles during the licence period. Typically in that case
revenue is recognised on a straight-line basis over the licence period.
The concept of e-books is relatively new and since publishers use various channels
for the distribution of e-books, such as e-retailers, a careful analysis of the overall
arrangement is required prior to recognising revenue.
© 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
IMPACT OF IFRS: MEDIA
ACCOUNTING AND REPORTING ISSUES
Subscription revenue
Publishing companies primarily derive revenue from the sale of books and
through subscriptions to newspapers, professional journals and magazines.
Subscription revenue generally is recognised on a straight-line basis. However,
questions arise in practice when items such as books and educational materials
in a subscription-based arrangement vary in price. In that case, it may be appropriate to recognise revenue based on the value of the specific content provided
in each period. On converting to IFRSs, judgement will be required in analysing
the underlying arrangements with customers and the products being sold as part
of the subscription service.
Bundled arrangements
Publishing companies often sell both print and online products for a single price,
such as in the case of educational or professional products. While print products
have a fixed edition status at the time of sale, the online product often includes
regular updates to the information contained in the printed product for a certain
period of time. A key practice issue is determining when to separate the various
components in a bundled arrangement.
Under IFRSs, if it is determined that (1) the component has stand-alone value to
the customer; and (2) its fair value can be measured reliably, then generally the component is accounted for separately. In our firms’ experience, a large number of these
transactions will be separated into individual components under IFRSs, with only the
attributable revenue recognised as each component is delivered.
Once the individual components have been identified, the next step is to allocate
the consideration among these components. IFRSs allow the relative fair value
method or the fair value of the undelivered components (residual method) as a
basis for allocating revenues to the separable components.
© 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
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IMPACT OF IFRS: MEDIA
ACCOUNTING AND REPORTING ISSUES
© 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
IMPACT OF IFRS: MEDIA
ACCOUNTING AND REPORTING ISSUES
Sales incentives
Publishing and music companies often provide sales incentives such as cash
discounts, volume rebates, free/discounted goods or services and vouchers
to customers directly or through third parties. When an incentive programme
is based on the volume or price of the products sold, the cost of these programmes generally is deducted from revenue when the corresponding sales are
recorded. When the incentive is based on offering free goods or services prior
to or concurrent with the existing sales transaction, then the arrangement is analysed to determine if it includes separately identifiable components. In order to
increase their sales, publishing and music companies often develop unique sales
promotion programmes that will require careful consideration and exercise of
judgement under IFRSs prior to recognising revenue.
Costs – capitalisation versus expense
Purchased rights
Generally, publishing, title and distribution rights are acquired either separately or
through a business combination. The costs incurred to acquire these rights are
capitalised as intangible assets, provided that they meet the definition thereof as
well as the recognition criteria under IAS 38 Intangible Assets.
Music companies incur significant artist costs such as signing fees, artist contracts etc. When assessing whether to capitalise these payments under IFRSs,
music companies often ask whether the artist has a proven track record versus
is considered new will have any impact on the recognition of these costs.
Although this issue may be relevant in assessing the probability of future economic benefits (one of the recognition criteria under IAS 38), this test is assumed
to be met when rights are purchased. Therefore, payments made towards artist
contracts, music catalogues etc generally are capitalised as intangible assets.
Internally developed rights
Publishing companies often incur significant expenditure on internally generated
intangible assets such as developing publishing rights and publishing titles. IFRSs
include specific requirements in respect of such costs, and companies will need
to carefully review their internal capitalisation policies on converting to IFRSs.
The internal cost of developing an intangible asset is classified into the research
phase and the development phase. Only directly attributable costs incurred
during the development phase are capitalised from the date that the publishing
company can demonstrate that certain criteria are met. In our firms’ experience,
the key criteria for publishing companies are (1) the ability to demonstrate the
probability of generating future economic benefits; and (2) the ability to reliably
measure the expenditure incurred. Capitalising costs incurred during the
development phase is not optional.
IFRSs specifically prohibit capitalising expenditure on internally generated intangible assets such as internally generated brands, mastheads, publishing titles and
customer lists. This is because such expenditure cannot be distinguished from
the costs of developing the business as a whole. Publishing companies often
develop and publish magazines and incur significant costs in their research and
development. These costs are not capitalised under IFRSs, since in practice publishing companies find it difficult to determine future economic benefits that will
accrue on its sale. Publishing companies on converting to IFRSs should
carefully review their internal capitalisation policies.
© 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
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IMPACT OF IFRS: MEDIA
ACCOUNTING AND REPORTING ISSUES
Development of database content
Developing content for a database and then selling the related access rights
often is the main business for publishers, especially those in the business
of developing and publishing professional and scientific material. Developing
this content is similar to internally developed rights, and costs that are directly
attributable to the development of the database content typically are capitalised
as an intangible asset.
Launch costs
Publishers can expect to incur significant costs towards the promotion and
marketing of newly published titles and magazines. Under IFRSs, all advertising
and promotional expenditure, including launch costs, are expensed as incurred.
Intangible assets – amortisation, impairment and reversals
Amortisation
IFRSs do not require a specific method of amortisation, and publishing and
music companies can choose between the straight-line, diminishing balance,
unit-of-production method, or another method that appropriately reflects the
pattern of consumption of the asset’s economic benefits.
In our firms’ experience, some publishing and music companies adopt a revenuebased method of amortising intangibles such as publishing rights, music catalogues, content in databases etc. In our view, use of this method requires the
ability to reliably estimate future revenues. Therefore, care is required before
adopting a policy of revenue-based amortisation.
Impairment of non-financial assets
Under IAS 36 Impairment of Assets, publishing and music companies are required
to assess at the end of each reporting period whether there are any indicators,
external or internal, that an asset is impaired. In our firms’ experience, some of
the indicators that publishing and music companies should consider include:
• the unexpected release of rival publications or albums;
• changes in the requirements within the advertising environment affecting
publications that rely heavily on advertising;
• the adaptation of publications or music records to reflect the wishes of
target groups;
• substantial differences between the quantities originally planned and those
actually sold; and
• expected losses on a project as a whole.
© 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
IMPACT OF IFRS: MEDIA
ACCOUNTING AND REPORTING ISSUES
Whenever possible an impairment test is performed for an individual asset;
otherwise, assets are tested for impairment in cash-generating units (CGUs).
A CGU is the smallest group of assets that generates cash inflows from
continuing use that are largely independent of the cash inflows of other
assets or groups thereof.
In identifying whether cash inflows from assets or CGUs are largely independent
of the cash inflows of other assets or CGUs, various factors are considered. These
include the manner in which management monitors operations and makes decisions
about continuing or disposing of assets and/or operations. However, the identification of independent cash inflows is the key consideration. Since many publishing and
music companies offer bundled arrangements to customers (see above), this means
that in many cases that the CGU could be larger than if the items had been offered
to customers as separate packages. The identification of CGUs requires significant
judgement on part of management and can be one of the most difficult areas of
impairment accounting.
Under IFRSs, companies are required to test goodwill (and intangible assets with
indefinite useful lives or that are not yet ready for use) for impairment at least
annually, irrespective of whether indicators of impairment exist.
Impairment reversals
At each reporting date, companies should assess whether there are indicators
that a previously recognised impairment loss has reversed as a result of an
increase in the recoverable amount, although there are limits on the extent to
which impairment reversals can be recorded. However, impairment losses related
to goodwill cannot be reversed.
Property, plant and equipment
Component accounting
Some publishing companies, in particular those with printing plants, have significant
property, plant and equipment in their statement of financial position. Such assets
often include individual components, either physical or non-physical (e.g. a major
inspection or overhaul). If different depreciation rates or methods are appropriate
due to the nature of each component, then the component is depreciated separately.
Component depreciation is compulsory when applicable. Component accounting
for inspection or overhaul costs is intended to be used only for major expenditure
that occurs at regular intervals over the life of the asset and routine repairs and
maintenance are expensed as incurred. Media companies, on converting to IFRSs,
will have to carefully review their capitalisation policies.
© 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
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ACCOUNTING AND REPORTING ISSUES
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Advertising
Turning shoppers into buyers – management in
advertising companies is always on the look out
for ways to expand market share and achieve top-line growth.
Revenue recognition requires careful consideration of the
applicable guidance.
Advertising companies offer a variety of services to advertisers, such as manufacturers and retailers, ranging from buying advertisement space in print and
digital mediums, producing advertisements, and performing corporate and market
research related activities. Advertisements produced by an advertising company
are displayed in printed materials such as newspapers, magazines and outdoor
billboards, or broadcast through digital media such as television, radio and internet.
These advertisements are either conceptualised and produced in-house by advertising companies or produced by the advertising company based on an idea developed
by the advertiser. Advertising companies generally act as a middleman between the
advertiser and the suppliers, such as artists and publishers.
Revenues
Producing advertisements
Advertising companies primarily earn commissions and fees from media services,
such as media space buying services, producing advertisements, and offering public
relations, corporate and financial communications as well as market research.
All of the above are service contracts to which IAS 18 Revenue applies. This
standard requires revenues relating to service contracts to be recognised based
on the stage of completion, provided that certain criteria are met. An advertising
campaign usually is drawn up in the form of project milestones, such as design
layout, illustrative art work etc. However, significant judgement is required when
attributing contract consideration to each of these milestones or when measuring
various service performance levels. IFRSs do not prescribe a particular method and
advertising companies can use either the output method (e.g. an assessment of
the milestones reached) or the input method (e.g. costs incurred as a percentage
of total expected costs) for assessing the stage of completion.
Additionally, incentive-based advertising contracts need to be analysed in order to
determine when it is appropriate to recognise the additional incentives: only upon
meeting the criteria in full; or based on milestones as progress is made.
© 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
IMPACT OF IFRS: MEDIA
ACCOUNTING AND REPORTING ISSUES
Gross versus net presentation
Although the concept of presenting revenues gross versus net appears
straightforward, application of the principles in the advertising industry can
be challenging. Many questions have arisen in practice, such as whether
advertising companies are actually acting as agencies in transactions with
advertisers. Sometimes this is because of a lack of clarity in the contractual
agreements and the complex relationship shared between the advertiser
and advertising company. Each advertising contract includes a variety of
remuneration mechanisms, including up-front payments, progress payments
at key milestones and/or settlement upon completion of the contract.
In determining whether revenue should be presented on a gross or net basis,
key questions that an advertising company should consider include the following:
• Who bears the credit risk? The advertising company may be required to furnish
all costs of production and the advertiser settles the account at the end. Included
in the fees is a premium for taking on the credit risk of the advertiser.
• Is there latitude in passing on increased costs to the advertiser?
• Does the advertising company have primary responsibility for fulfilling the order
or providing goods and services to the advertiser?
Similarly, judgement is required when advertising companies buy media
space in newspapers and magazines and subsequently are compensated by
the advertiser. Determining whether the advertising company is acting as an
agent or principal is based on an evaluation of the risks and responsibilities
undertaken by it.
Production in progress
Production in progress comprises technical, creative and production work
(graphic design, TV and radio production, editing etc) incurred towards the
production of advertisements that are in progress at period end and billable
to advertisers. Assuming that the work is being carried out under contract,
then in our firms’ experience, production in progress is classified as inventory
or as receivables.
Under IFRSs, inventory is recognised on the basis of costs incurred, but
at an amount not greater than its net realisable value.1 When assessing net
realisable value, inventory and costs billable to clients are reviewed on a
case-by-case basis and written down, if appropriate, based on criteria such as
the existence of client disputes and claims.
1
N
et realisable value is the estimated selling price less the estimated costs of completion and sale.
© 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
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ACCOUNTING AND REPORTING ISSUES
3
Film production, motion pictures
and television programmes
Accounting for production costs, revenue
recognition, joint or co-production arrangements, and the amortisation and impairment of
intangible assets continues to remain in the
spotlight for many film, motion picture and
television programme producing companies.
Film, motion pictures and television programme producing companies
(collectively referred to as “film companies”) can expect to incur significant
costs, such as costs of signing artists, the cost of the script etc, when producing
a film or a television programme. These costs are capitalised as intangible assets
and amortised over their estimated useful lives. Film companies generate revenues
from exhibiting these films and television programmes as well as from selling the
exhibition rights to others. Often film companies enter into joint or co-productions
with others in the industry for producing big budget films.
Cost recognition
Production costs
In our firms’ experience, the conversion to IFRSs leads many film companies to
perform a comprehensive analysis of the legal terms and conditions of their
contractual arrangements in order to better reflect the substance of the underlying
arrangement.
Depending upon the contractual terms of the arrangement, film companies will
apply the principles of IAS 11 Construction Contracts for projects on behalf of third
parties, or IAS 38 Intangible Assets for in-house projects for own exploitation.
A contract production wherein the film company produces films or television
programmes on behalf of a third party is accounted for on a stage of completion
basis under IAS 11, based on milestones as described on page 10 in the
section on advertising. Therefore, contract costs, revenues and resulting profit
are recognised in the period that the work is performed. Expected losses are
recognised immediately.
On the other hand, production costs for in-house projects are capitalised as an
intangible asset, provided that the film company is able to demonstrate probable
future economic benefits and can reliably measure the cost of production.
Borrowing costs
Borrowing costs incurred that are directly attributable to the production of a qualifying
asset2 are capitalised in accordance with IAS 23 Borrowing Costs. This means that
film companies will capitalise interest on films that take a substantial amount of
time to produce. IFRSs do not define how long a “substantial period of time” is,
and judgement is required in determining whether interest can be capitalised when
producing shorter-term projects, such as documentaries and short films.
2
A qualifying asset is an asset that necessarily takes a substantial period of time to be made ready for its intended
use or sale.
© 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
IMPACT OF IFRS: MEDIA
ACCOUNTING AND REPORTING ISSUES
Intangible assets – amortisation and impairment
Amortisation
The amortisation of film rights or television programmes should appropriately reflect
the pattern of consumption of the asset’s economic benefits. Film companies can
choose between the straight-line, diminishing balance, unit-of-production method,
or another method that appropriately reflects the pattern of consumption of the
asset’s economic benefits. Revenue-based amortisation is discussed on page 8
in the section on publishing and music.
Impairment
The general requirements for the impairment of non-financial assets are discussed
on pages 8 and 9 in the section on publishing and music.
In applying that guidance, in our firms’ experience some of the indicators that film
companies should consider include:
• an adverse change in the expected performance of a film prior to release;
• substantial delays in completion or release schedules;
• changes in release plans, such as a reduction in the initial
release pattern;
• insufficient funding or resources to complete the film
and to market it effectively; and
• actual performance subsequent to release fails to
meet management’s budgeted plans.
Revenues
Co-production arrangements
As a result of the competitive pressure on margins as well as
to make big budget films, film companies often collaborate with
others in order to share the financial burden and risks necessary
to compete in the industry. One strategy is to enter into co-production
arrangements with others in the media industry, whereby the co-producers
share the cost of producing the film. Various models of remunerating
co-producers exist, some more complex than others.
When a film company agrees to compensate the co-producer based on a percentage
of the fees received from exhibition, questions arise as to whether the fees received
on exhibition of the films should be recorded gross or net of payments made by the
film company to the co-producer. Some of the indicators used to determine whether
revenue should be presented on a gross or net basis are discussed on page 11 in
the section on advertising. However, it is key to develop a clear understanding of the
contractual arrangement, and the rights and obligations of the parties thereto. This is
because revenue recognition is based on an evaluation of the rights and obligations
undertaken by the film company, including the right to determine the price to be
charged to the customer, the substance of the arrangement with co-producers etc.
© 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
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IMPACT OF IFRS: MEDIA
ACCOUNTING AND REPORTING ISSUES
Joint ventures
Film companies often enter into alliances with other media companies for the
joint exploitation of assets, for example, music compositions or songs of famous
singers or artists in films. Alliances can take various forms; here we discuss joint
ventures.
IAS 31 Interests in Joint Ventures distinguishes three types of joint ventures:
• Jointly controlled operation. A joint venture carried on by each venturer using
its own assets in pursuit of the joint operation.
• Jointly controlled assets. A joint venture carried out with assets that are
controlled jointly, regardless of the ownership of the assets.
• Jointly controlled entity. A joint venture that involves the establishment of a
corporation, partnership or other entity in which each venturer has an interest.
On conversion to IFRSs, companies will need to carefully review their existing
contractual relationships, and in some cases amend future contract terms in order
to better reflect the underlying economics and substance of the arrangement.
Accounting under each of the arrangements is briefly discussed below:
Jointly controlled
operation
Jointly controlled
assets
Jointly controlled
entity
The venturer includes in its
financial statements the
assets that it controls and
the liabilities and expenses
that it incurs in the course of
pursuing the joint operation,
plus its share of the income
from the joint operation.
The investor includes in
its financial statements its
share of the jointly controlled
assets, the liabilities and
expenses that it incurs and
any income from the sale
or use of its share of the
output of the joint venture.
In addition, it recognises any
owned assets or liabilities
that it controls alone.
Either the equity method
or the proportionate consolidation method is used
to account for interests in
jointly controlled entities.
© 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
IMPACT OF IFRS: MEDIA
ACCOUNTING AND REPORTING ISSUES
4
Broadcasting
Broadcasting companies generate significant revenues from the exploitation of programme assets.
Programme assets generally are significant to the statement of
financial position of broadcasters.
Broadcasters enter into licensing agreements with film and television programme
producing companies for the right to broadcast films and television programmes
on their networks. Depending upon the nature of the programme asset, such
as sports broadcasting rights or television series, these rights allow either for
a single broadcast or multiple broadcasts. If the programme asset is a package
consisting of several programmes, then a separate licence typically is required
for each programme within the package. These licences generally expire at the
earlier of the last telecast or at the end of the licence period. Broadcasters generate revenues from advertisements broadcast on their networks. As advertising
revenues come under pressure, television broadcasting companies are shifting to
other non-sport revenues, such as sponsored programmes and internet income.
Programme assets
Classification
An area involving significant subjectivity is the classification of programme assets
in the statement of financial position. Currently there exists diversity in practice,
whereby some broadcasters account for the entire collection of programme assets
either as inventory or as intangible assets, and others account for programme assets
partly as inventory and partly as intangible assets. Classification is important since
the related consumption will impact gross margins and key performance indicators, e.g. EBITDA.3 Therefore, judgement is required in determining the appropriate
classification in the financial statements; a company first determines whether the
definition of inventory is met (assets held for sale in the ordinary course of business)
before classifying assets as intangible.
Method of amortisation
For programme assets classified as intangible assets that are intended for multiple
broadcasts, significant judgement is required to determine the appropriate method
of amortisation. The methods of amortisation are discussed on page 8 in the section
on publishing and music.
Typically, the value is highest on first broadcast and falls with subsequent broadcasts
or repeats. In making an assessment of the consumption of economic benefits, it is
important to take into account the business model, management’s assumptions in
the budgeting process, historical experiences with similar assets, and the nature of
the programme asset. For example, if the programme asset is a detective series that
will be broadcast on a special-interest channel and will be used in numerous repeat
shows, then the straight-line method of amortisation may be appropriate in the
circumstances. All facts and circumstances should be considered when making an
assessment of the method of amortisation.
3
Earnings before interest, tax, depreciation and amortisation.
© 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
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IMPACT OF IFRS: MEDIA
ACCOUNTING AND REPORTING ISSUES
Onerous contracts
A broadcasting company may purchase expensive broadcasting rights, such as a
sporting event or a blockbuster film for exhibition on its network. However, it does
not expect to generate sufficient future economic benefits in the form of advertising
or other income to cover the cost of the asset. Broadcasters enter into such onerous
transactions for several business reasons, including maintaining or building a reputation, attracting additional viewers, or other strategic reasons. Under IFRSs, a loss is
recorded immediately in profit or loss.
Revenues
Broadcasting companies generate revenues primarily from advertising
commercials on television or radio.
Advertising revenues – free or bonus advertising time
Television broadcasters sometimes guarantee their advertising customers certain
minimum audience ratings in their target group. If the audience ratings are not
achieved, then the television broadcaster has a contractual obligation towards the
customer and often grants price reductions on future advertising or offers free
advertising time on its network. Under IFRSs, revenue is partially deferred based
on the fair value of this obligation and is recognised when the free or discounted
advertising is utilised or upon expiry of the period of utilisation.
In order to attract advertisers, broadcasting companies often enter into arrangements whereby free or bonus advertisement spots are offered during non-prime
time on the television or on the internet/radio for full price paid advertisements on
the television. Under IFRSs, the total consideration is allocated to all advertising
spots, i.e. paid as well as free, based on the relative fair value method or the
residual method (see page 5 in the section on publishing and music). At the end
of the reporting period, the revenue for the services that have not yet been
provided is deferred.
Barter transactions
Barter transactions are common in the industry and are an area in which significant
estimates are made for accounting purposes, e.g. the exchange of the right to
exhibit certain popular films by film companies for airtime on television stations or
channels. Under IFRSs, revenues with respect to barter transactions are recognised,
provided that:
• dissimilar services are exchanged; and
• the amount of revenue can be measured reliably.
Revenue is measured at the fair value of the goods or services received, adjusted
for any cash or cash equivalent received or paid, unless the fair value cannot be
measured reliably. In such cases revenue is measured at the fair value of goods
and services given up, adjusted for cash or cash equivalents received or paid.
© 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
IMPACT OF IFRS: MEDIA
ACCOUNTING AND REPORTING ISSUES
Cable television
5
Cable television and telecommunication companies share
common accounting issues, such as the accounting for
capacity transactions and bundled arrangements.
Cable television companies generally provide customers with access to television
programmes and generate revenues in the form of subscription fees. Cable television companies are continuously redefining entertainment for their customers
and have introduced products such as “pay-per-view”, “high-definition television
programmes” etc. In order to increase subscriber base and related fees, cable
television companies also offer customers internet and telephone through the
cable network.
Revenues
Cable television companies provide customers with a “one-stop shop” experience
whereby bundled products such as internet, television, as well as telephone are
provided for a single package price.
Accounting for these bundled or multiple component arrangements is increasingly
complex since not all goods and services included in the package are delivered
at the same time. The separation of an arrangement into its various components
and the allocation of revenue to each component are discussed on page 5 in the
section on publishing and music. This is a key area for cable television companies
to consider upon conversion to IFRSs.
Costs
Cable television companies can expect to incur substantial direct costs towards
signing up new customers. These costs include incentives paid to retail stores,
commissions to external dealers or agents etc. Such costs, commonly referred to
as subscriber acquisition costs, are capitalised as intangible assets under IAS 38
Intangible Assets, if the definition and recognition criteria are met.
In determining whether these criteria are met, the nature of the contract is key.
The accounting conclusion will vary significantly between contracts that are
determined to be of a fixed term and require minimum consideration including
those that are open-ended and include a penalty clause, as compared to others
that are open-ended with no penalty clause or minimum commitment.
© 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
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IMPACT OF IFRS: MEDIA
ACCOUNTING AND REPORTING ISSUES
Capacity transactions
Cable television companies often use specific line or transmission capacity
provided by telecommunication companies, such as underground cable bandwidth
or satellite transponder capacity, to connect with customers. While the telecommunication company retains ownership of the infrastructure, the right to use the
capacity is assigned to the cable television company. While some agreements
grant the right to use a specific identifiable physical asset, others only state that
a certain amount of capacity within the overall infrastructure is available for use
by the cable television company. Cable television companies should analyse these
transactions carefully and determine whether these transactions constitute or
contain a lease. Guidance in respect of this is provided in IFRIC 4 Determining
whether an Arrangement contains a Lease. This issue is routinely faced by
telecommunication companies. See KPMG’s publication Accounting under IFRS:
Telecoms for further discussion on the accounting treatment.
Inventory
Cable television companies provide customers with set-top boxes, routers and
related equipment. Depending upon the customary business practice and terms
of the arrangement, cable television companies either charge the customer a fee
for the use of the equipment or provide them free of charge for use during the
term of the subscription.
When entering into these transactions with customers, cable television companies
are faced with the issue of whether to account for the equipment as a sale under
IAS 18 Revenue, or to treat them as assets on loan. Due to the complex nature
of the contractual relationships between the cable television company and the
end customer, the question arises of the point at which these set-top boxes are
considered sold/acquired. In many instances, this comes down to the evaluation
of facts and circumstances to determine whether the risks and rewards of
ownership have been transferred. As contractual arrangements with customers
differ in practice, what matters is the substance of the arrangement and cable
television companies should examine these arrangements on a case-by-case
basis using the relevant guidance in IAS 18 or IAS 17 Leases.
© 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
IMPACT OF IFRS: MEDIA
FIRST-TIME ADOPTION OF IFRS
First-time adoption of IFRSs
An early understanding of the numerous mandatory and optional
exemptions from the retrospective application of IFRSs that are
available to first-time adopters of IFRSs is key for a successful
transition to IFRSs.
Selecting accounting policies at the time of preparing the opening statement of
financial position not only affects the first IFRS financial statements but also the
financial statements for subsequent periods.
IFRS 1 First-time Adoption of IFRSs allows a company converting to IFRSs a number
of reliefs from the requirements that otherwise would apply if IFRSs were adopted
as if they had always been applied by the company. Without any relief, a company
would be required to retrospectively implement IFRSs from the start of its corporate
history. As such, the standard helps ensure that a company’s first IFRS financial
statements contain high-quality information that is transparent for users and comparable over all periods presented. Furthermore, the guidance in IFRS 1 provides a suitable starting point for subsequent accounting under IFRS that can be generated at a
cost that does not exceed the benefits.
IFRS 1 is not sector-specific. As such there are no media-specific provisions in
the standard on first-time adoption that would not be considered by other sectors.
Media companies will need to go through each of the available options in IFRS 1
and decide which are the most appropriate for them based on the corporate
profile they have. We note a couple of examples below to consider.
One of the most commonly used elective IFRS 1 exemptions for media
companies is the option not to restate pre-IFRS business combinations.
Here, acquisitive media companies are not required to revisit their acquisition
accounting under previous GAAP.
A second exemption that media companies should consider is the deemed cost
election under IFRS 1, whereby the fair values of certain assets can be brought
onto the company’s first IFRS statement of financial position. Here, the carrying
amount of an item of property, plant and equipment may be measured at the date
of transition based on a “deemed cost”. The exemption applies to individual items
of property, plant and equipment, investment property and intangible assets, subject
to meeting certain criteria. Deemed cost may be (1) fair value at the date of transition; (2) a prior GAAP revaluation broadly similar to fair value under IFRSs or cost
or a depreciated cost measure under IFRSs adjusted to reflect changes in a
general or specific price index; or (3) an event-driven fair value. Unlike other
optional exemptions, the event-driven fair value exemption under IFRSs may
be applied selectively to the assets and liabilities of a first-time adopter if specific
criteria are met, i.e. the exemption is not limited to a particular asset or liability.
For more information on the relief available upon the adoption of IFRS, we
recommend that you refer to KPMG’s publication IFRS Handbook: First-time
Adoption of IFRS.
© 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
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IMPACT OF IFRS: MEDIA
PRESENTATION OF FINANCIAL STATEMENTS
Presentation of financial
statements
Regardless of accounting gaps that emerge from the assessment
of accounting policies, media companies need to review the
presentation of their financial statements prepared under IFRSs.
IAS 1 Presentation of Financial Statements does not prescribe specific formats to
be followed. Instead, it provides the minimum requirements for the presentation
of financial statements, including its content and guidelines for their structure.
In our firms’ experience, media companies consider the presentation adopted by
other media companies in the industry.
Under IAS 1 entities present “complete” financial statements along with
comparatives, which comprise:
• Statement of financial position.
• Statement of comprehensive income presented either in a single statement
of comprehensive income that includes all components of profit or loss and
other comprehensive income; or in the form of two statements, one being
the income statement and the other the statement of comprehensive income,
which begins with the profit and loss as reported in the income statement and
displays separately the various components of other comprehensive income.
• Statement of changes in equity.
• Statement of cash flows.
• Notes comprising a summary of significant accounting policies and other
explanatory information.
In addition, a first-time adopter is required to present the statement of financial
position at the start of its earliest comparative period. Subsequent to the
adoption of IFRSs, this third statement of financial position is presented only
in certain circumstances.
Probably the most sensitive of these financial statements is the statement of
comprehensive income. Here, IFRSs stipulate required line items, but calls for
management to select the method of presentation that is most reliable and
relevant. The standard provides companies the option to present an analysis of
expenses either on the basis of their nature (e.g. depreciation, purchases
of material, transport costs, advertising costs etc.) or based on their function
(e.g. selling costs, administrative costs, research and development, cost of
sales). However, a media company that discloses information based on function
is still required to disclose, in the notes to the financial statements, expenses
by nature including depreciation and employee benefits expense. Within these
parameters, the actual format of media company’s statements is quite varied.
© 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
IMPACT OF IFRS: MEDIA
INFORMATION TECHNOLOGY AND SYSTEMS CONSIDERATIONS
Information technology
and systems considerations
A major effect of converting to IFRSs will be the increased burden throughout
the organisation to capture, analyse, and report new data to comply with IFRS
requirements. Making strategic and tactical decisions relating to information
systems and supporting processes early in the project helps limit unnecessary
costs and risks arising from possible duplication of effort or changes in approach
at a later stage.
Much depends on factors such as:
• the type of enterprise system and whether the vendor offers IFRS-specific
solutions
• whether the system has been kept current – older versions may need updating
• the level of customisation – the more customised the system, the more effort
and planning the conversion process likely will take.
© 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
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IMPACT OF IFRS: MEDIA
INFORMATION TECHNOLOGY AND SYSTEMS CONSIDERATIONS
From accounting differences to information sources
The foundation of the project, as described earlier, is to understand the IFRS to
local GAAP accounting differences and the effects of those differences. That initial
analysis is followed by determining the effect of those accounting gaps on internal
information systems and internal controls. What organisations must determine is
which systems will need to change and translate accounting differences into
technical system specifications.
One of the difficulties organisations may face in creating technical specifications is
to understand the detailed end-to-end flow of information from the source systems,
such as billing and sub-ledgers such as artist advances (including work-around
models) to the general ledger, and further to the consolidation and reporting
systems. The simplified diagram below outlines a process that organisations
can adopt to identify the impact on information systems.
Process for identifying the effects of IFRSs on information systems
Accounting and Disclosure Gaps
Data
warehouse
General
ledger
• Identify the general ledger accounts
to which the gaps relate.
Source
systems
• Trace the general ledger transactions
back to their source:
– directly to source systems
– through the data warehouse(s).
Front-end
applications
• Trace the transactions back to the
front-end application, where appropriate.
© 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
IMPACT OF IFRS: MEDIA
INFORMATION TECHNOLOGY AND SYSTEMS CONSIDERATIONS
How to identify the impact on information systems
There are many ways in which information systems may be affected, from
the initiation of transactions through to the generation of financial reports.
The following table shows some areas in which information systems change
might be required under IFRSs depending upon facts and circumstances.
Change
New data requirements
New accounting disclosure and recognition requirements may result
in more detailed information, new types of data, and new fields,
and information may need to be calculated on a different basis.
Changes to the chart of accounts
There will almost always be a change to the chart of accounts due to
reclassifications and additional reporting criteria.
Reconfiguration of existing systems
Existing systems may have built-in capabilities for specific IFRS
changes, particularly the larger enterprise resource planning (ERP)
systems and high-end general ledger packages.
Modifications to existing systems
New reports and calculations are required to accommodate IFRS.
Spreadsheets and models used by management as an integral part of
the financial reporting process should be included when considering
the required systems modifications.
New systems interface and mapping changes
When previous financial reporting standards did not require the
use of a system or when the existing system is inadequate for IFRS
reporting, it may be necessary to implement new software.
When introducing new source systems and decommissioning old
systems, interfaces may need to be changed or developed and there
may be changes to existing mapping tables to the financial system.
When separate reporting tools are used to generate the financial
statements, mapping these tools will require updating to reflect
changes in the chart of accounts.
Consolidation of entities
Under IFRSs, there is the potential for changes to the number and type
of entities that need to be included in the group consolidated financial
statements. For example, the application of the concept of “control” may
be different under IFRSs; see also future developments in Appendix 1.
Reporting packages
Reporting packages may need to be modified to:
• gather additional disclosures in the information from branches or
subsidiaries operating on a standard general ledger package; or
• collect information from subsidiaries that use different financial
accounting packages.
Financial reporting tools
Reporting tools can be used to:
• perform the consolidation and the financial statements based
on data transferred from the general ledger; or
• prepare only the financial statements based on receipt of
consolidated information from the general ledger.
Action
Modify:
• general ledger and other reporting systems to capture new or
changed data
• work procedure documents.
Create new accounts and delete accounts that are no longer
required.
Reconfigure existing software to enable accounting under IFRSs
(and parallel local GAAP, if required).
Make amendments such as:
• new or changed calculations
• new or changed reports
• new models.
Implement software in the form of a new software
development project or select a package solution.
Interfaces may be affected by:
• modifications made to existing systems
• the need to collect new data
• the timing and frequency of data transfer requirements.
Update consolidation systems and models to account for changes
in consolidated entities.
Modify reporting packages and the accounting systems used by
subsidiaries and branches to provide financial information.
Modify:
• reporting tools used by subsidiaries and branches to provide
financial information
• mappings and interfaces from the general ledger
• the consolidation systems used to report consolidated financial
statements based on additional requirements such as segment
reporting.
© 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
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IMPACT OF IFRS: MEDIA
INFORMATION TECHNOLOGY AND SYSTEMS CONSIDERATIONS
Parallel reporting: timing the changeover from local GAAP to IFRS
reporting
Conversion from local GAAP to IFRSs will require parallel accounting for a certain
period of time. At a minimum, this will happen for one year as local GAAP continues
to be reported, but IFRS comparatives are prepared prior to the go-live date of IFRSs.
Parallel reporting may be created either in real-time collection of information through
the accounting source systems to the general ledger or through “top-side” adjustments posted as an overlay to the local GAAP reporting system.
The manner and timing of processing information for the comparative periods in realtime or through top-side adjustments will be based on a number of considerations:
Parallel accounting option in comparative year
Parallel accounting
through top-side
adjustments
Effect
Considerations
• No real-time adjustments
to systems and processes
will be required for the
comparative period.
• Less risky for ongoing
local GAAP reporting
requirements in the
comparative year.
• Local GAAP reporting will
flow through sub-systems
to the general ledger
(i.e. business as usual).
• Available for all, but
more typical when the
volume of transactions
to consider is less.
• Comparative period
will need to be recast in
accordance with IFRSs, but
can be achieved off-line.
• More applicable to small/
less complex organisations
or when few changes are
required.
• Migration of local GAAP
to IFRSs happens on the
first day of the year in
which IFRS reporting
commences.
Real-time parallel
accounting
• Consideration needed for
“leading ledger” in the
comparative year being
local GAAP or IFRSs
(i.e. which GAAP will
management use to
run the business).
• If the leading ledger is
based on IFRSs in the
comparative year, conversion back to local standards
is necessary for the usual
reporting timetable and
requirements.
• Changes to systems and
information may continue
to be needed in the comparative year if the IFRS
accounting options have
not been fully established.
• Real-time reporting of two
GAAPs in the comparative
year has benefits, but puts
more stress on the finance
group.
• Typically used when
tracking two sets of
numbers for a large
volume of transactions.
• More applicable for large/
complex organisations
with many changes.
• Strict control on system
changes will need to be
maintained over this
phased changeover
process.
• Migration to IFRS ledgers
needed prior to the first day
of the year in which IFRS
reporting commences.
© 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
IMPACT OF IFRS: MEDIA
INFORMATION TECHNOLOGY AND SYSTEMS CONSIDERATIONS
Most major ERP systems (e.g. Oracle®, Peoplesoft®, SAP®) are able to handle
parallel accounting in their accounting systems. The two common solutions
implemented are the Account solution or the Ledger solution.
Depending on the release of the respective ERP systems, one or both options
are available for the general ledger solution.
Account solution
Ledger solution
General Ledger
Only
Local
Only
IFRS
IFRS
IFRS = Local GAAP
Common
Accounts
Local
GAAP
Features
Features
• Accounting general ledger balances
with no differences between IFRSs
and local GAAP will be posted only
once on a common account.
• One common chart of accounts
for IFRS and local GAAP.
• Define additional accounts for only
IFRSs and only local GAAP when
there are accounting differences.
• IFRSs and local GAAP will be posted
on different accounts.
• Delta differences between IFRSs and
local GAAP accounts or full re-posting
into both IFRSs and local GAAP will
need consideration.
Only IFRS posting
Only Local GAAP
posting
• Two separate ledgers.
• Differences between IFRSs and local
GAAP will be posted to the different
ledgers on the same accounts
(postings 1 and 3).
• Accounting postings with no differences
between IFRSs and local GAAP will be
posted only once and transferred to
both ledgers on the same accounts
(posting 2).
© 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
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IMPACT OF IFRS: MEDIA
INFORMATION TECHNOLOGY AND SYSTEMS CONSIDERATIONS
Harmonisation of internal and external reporting
Organisations should consider the impact of IFRS changes on data warehouses
and relevant aspects of internal reporting. In many entities, internal reporting is
performed on a basis similar to external reporting, using the same data and
systems, which will therefore need to change to align with IFRSs.
The following diagram represents the possible internal reporting areas that may be
affected by changing systems to accommodate the new IFRS reporting requirements.
External reporting
Management reporting
• IFRSs
• Stand-alone financial reporting per
local GAAP
• Tax reporting
• Regulatory reporting
• Business key performance indicators
• Business unit reporting
• Product service reporting
• Cost accounting
Compliance
Performance
improvement
Shareholder value reporting
Planning and budgeting
• Economic value-added (EVA)
• Annual budget
• Cash value-added
• Rolling forecast
• Management incentives
• Operational forecast
• Stock compensation plans
• Strategic plans
• Closing preview forecast
The process of aligning internal and external reporting typically will involve the
following:
• When mappings have changed from the source systems to the general ledger,
mappings to the management reporting systems and the data warehouses also
should be changed.
• When data has been extracted from the source systems and manipulated by
models to create IFRS adjustments that are processed manually through the
general ledger, the impact of these adjustments on internal reporting should
be carefully considered.
• Alterations to calculations and the addition of new data in source systems,
as well as the new timing of data feeds, could have an effect on key ratios
and percentages in internal reports, which may need to be redeveloped to
accommodate them.
© 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
IMPACT OF IFRS: MEDIA
PEOPLE: KNOWLEDGE TRANSFER AND CHANGE MANAGEMENT
People: Knowledge transfer
and change management
When your company reports for the first time under IFRSs,
the preparation of those financial statements will require IFRS
knowledge to have been successfully transferred to the financial
reporting team. Timely and effective knowledge transfer is an
essential part of a successful and efficient IFRS conversion
project.
People impacts range from an accounts payable clerk coding invoices differently
under IFRSs to audit committee approval of disclosures for IFRS reporting. There
is a broad spectrum of people-related issues, all of which require an estimation of
the changes that are needed under the IFRS reporting regime.
The success of the project will depend on the people involved. There needs to
be an emphasis on communications, engagement, training, support and senior
sponsorship, all of which are part of change management.
Training should not be underestimated and many entities often do not fully
appreciate the levels of investment and resource involved in training. Although
most conversions are driven by a central team, you ultimately need to ensure the
conversion project is not dependent on key individuals and is sustainable into the
long-term across the whole organisation. Distinguishing between different audiences and the nature of the content is key to successful training. Some useful
knowledge transfer pointers are as follows:
• Training tends to be more successful when tailored to the specific needs of the
company. Few companies claim significant benefit from external non-tailored
training courses.
• Geographically disparate companies often use web-based training as a cost and
time-efficient method of disseminating knowledge.
• More complex areas such as impairment testing and artist advances tend to
be best conveyed through “workshop” training approaches in which companyspecific issues can be tackled.
• Many companies manage their training through a series of site visits – typically partnerships of one member of the core central team along with a second
technical expert, often an external advisor.
• Some companies use training as an opportunity to share their data collection
process for group reporting at the same time.
Even with the best planning and training possible, it is critical that an appropriate
support structure is in place so that the business units implement the desired
conversion plans properly. IFRS knowledge only really becomes embedded in
the business when the stakeholders have the opportunity to actually prepare
and work with real data on an IFRS basis. We recommend building “dry runs”
into the conversion process at key milestones to test the level of understanding
among finance staff.
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BUSINESS AND REPORTING
Business and reporting
One of the challenges of IFRS conversion stems from the
number of stakeholders that have a vested interest in the financial
performance of the organisation. Your project will have to deal
with a large number of internal and external stakeholders so as
to manage one fundamental issue – the operational performance
stays the same but the “scoreboard” of the financial statements
gives a different result under IFRSs.
Measurement of operational performance cuts across all parts of an organisation
and effects the internal business drivers and external perceptions of the company.
The assessment of who those affected groups are and the appropriate time for
communications will be a key component of an IFRS conversion project.
Stakeholder analysis and communications
A thorough review of the internal and external stakeholders is an essential first
step. Certain less obvious internal stakeholder groups may be engaged only in the
conversion process at a late stage but the awareness of when to engage those
groups is necessary. For example, union representatives will need to be involved
in changes to compensation schemes if, for example, bonuses are based on
earnings per share measures that will alter under IFRSs. However, there is little
point bringing the unions or human resource (HR) groups into detailed accounting
discussions early on in the conversion process.
In a similar context, external stakeholders should be properly identified and communicated with throughout the IFRS conversion. Examples include groups such as
banks, rating agencies, tax authorities, regulators, industry analysts and the financial
media. Every identified group must be factored into the timing of when and how to
present changes in operational reporting because of IFRSs. Furthermore, for internal
stakeholders, project related deliverables need to be incorporated into the IFRS
project objectives to help ensure their successful achievement.
A common failure is the lack of a communications strategy through which
companies ensure that all key stakeholder groups are fully informed of the project’s progress. At a minimum this includes the quarterly and annual disclosures
in the financial reports, but may need a much broader ranging
communications strategy.
Audit committee and board of directors considerations
The audit committee and board of directors should be actively informed and
included in the process so that they are appropriately engaged in the conversion
process and do not become a bottleneck for certain key decisions. All IFRS
conversions should ensure that board and audit committee meetings are
acknowledged on the project plan as these meetings can drive key deliverables
and provide incentive for timely delivery.
© 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
IMPACT OF IFRS: MEDIA
BUSINESS AND REPORTING
Senior management groups (as well as the audit committee and board) also need to
have tailored and periodic training to suit their knowledge requirements so as to not
overwhelm them with accounting theory on IFRSs. Clearly there is a balance to be
struck between the accounting understanding required and the responsibilities of
the group undergoing the training.
Other areas of IFRS risks to mitigate
A quality IFRS conversion must enable an accounting process involving change
management and complexity to be as risk-free as possible. It is essential that an
organisation does not miss deadlines, or issue reports including errors. As such,
the stakes are high when it comes to IFRS conversions. There are a number of
areas to consider but two main ones are around the use of the external auditor
and the internal control certification requirements.
The close co-operation and use of the organisation auditors should be an integral
part of the IFRS governance process of the project. There needs to be explicit
acknowledgement on the part of the entity for frequent auditor involvement.
Clear expectations should be set around all key deliverables, including timely
IFRS technical partner involvement. The audit committee also needs to ensure
the external audit teams have reviewed changes to accounting policies alongside
the approval by audit committee.
Proper planning for new and enhanced internal controls and certification process as
part of your IFRS conversion should be considered. Assessment of internal control
design for accounting policy management as well as financial close processes
are integral and companies need to be cognisant of the impact of any manual
work-around used. Documentation of new policies, procedures and the
underlying internal controls will all need to be reflected as part of the
IFRS process.
Benefits of IFRSs
While the majority of this publication has focused on
the micro-based risks and issues associated with IFRSs
and IFRS conversions, senior management should not
lose sight of the macro-based benefits of IFRS conversion. IFRSs may offer more global transparency and
ease access to foreign capital markets and investments, and that may help facilitate cross-border
acquisitions, ventures and spin-offs. For example, and as a final thought, by converting to
IFRSs, organisations should be able to present their financial reports to a wider capital
community. If this lowers the lending rate to
that entity by, say, a quarter of a percentage
point for the annuity of the organisation, then
the benefits are clearly measurable despite
the short-term pain of the finance group
through the IFRS conversion process.
© 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
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APPENDIX 1 – FUTURE DEVELOPMENTS
Appendix 1 – Future
developments
There are a significant number of new and updated standards scheduled for
release by the IASB4 over the next two years in the areas discussed in this
document that will have an impact on the media industry. These include:
Consolidation
The IASB has a consolidation project on its agenda, the objective of which is
to develop a basis for consolidation that will apply to all entities, including
“structured entities”. In December 2008 the IASB published Exposure Draft
(ED) 10 Consolidated Financial Statements, which proposed a single de facto
control model for all entities, including structured entities. A final standard is
scheduled for the fourth quarter of 2010.
As a result of its redeliberations following comments received on the ED, the
IASB has decided to publish a separate comprehensive standard that is expected
to require extensive disclosures in respect of an entity’s involvement with
consolidated and unconsolidated entities, including structured entities. A final
standard is scheduled for the fourth quarter of 2010.
4
International Accounting Standards Board.
© 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
IMPACT OF IFRS: MEDIA
APPENDIX 1 – FUTURE DEVELOPMENTS
Financial statement presentation
The overall objective of the comprehensive financial statement presentation
project is to establish a global standard that prescribes the basis for presentation
of financial statements of an entity that are consistent over time, and that
promote comparability between entities. The financial statement presentation
project is conducted in three phases:
• Phase A was completed in September 2007 with the release of a revised IAS 1
Financial Statement Presentation;
• Phase B is in progress and addresses the more fundamental issues relating to
financial statement presentation; and
• Phase C has not been initiated, but is expected to address issues relating to
interim financial statements.
In July 2010 the IASB posted a staff draft of a proposed ED reflecting tentative
decisions made to date in respect of phase B to obtain further stakeholder
feedback. An ED is scheduled for the first quarter of 2011.
In May 2010 the IASB issued ED/2010/5 Presentation of Items of Other
Comprehensive Income – Proposed Amendments to IAS 1, which proposes to:
• change the title of the statement of comprehensive income to statement
of profit or loss and other comprehensive income; however, an entity is
still allowed to use other titles;
• present comprehensive income and its components in a single statement
of profit or loss and other comprehensive income, with items of other comprehensive income presented in a separate section from profit or loss within that
statement, thereby eliminating the alternative permitted by current IAS 1 to
present a separate income statement; and
• present separately the items of other comprehensive income that would be
reclassified to profit or loss in the future from those that would never be
reclassified to profit or loss.
The final amendments are scheduled for the fourth quarter of 2010.
Joint ventures
The IASB is working on a short-term convergence project, partly to reduce the
main differences between IAS 31 Interests in Joint Ventures and US GAAP in
the investor’s accounting for an interest in a joint arrangement. In September
2007 the IASB published ED 9 Joint Arrangements, which proposed accounting
for joint arrangements based on the contractual rights and obligations agreed to
by the parties to joint arrangements; the legal form of the arrangement would
no longer be the most significant consideration in determining the accounting
for joint arrangements. The ED proposed that an entity recognise an interest in
a joint venture, previously a “jointly controlled entity”, using the equity method.
Unlike IAS 31, proportionate consolidation would not be permitted. A final standard
is scheduled for the fourth quarter of 2010.
© 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
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APPENDIX 1 – FUTURE DEVELOPMENTS
Leases
In August 2010 the IASB and the FASB5 published Exposure Draft ED/2010/9
Leases. The ED proposes new models for lessee and lessor accounting, which
would change current lease accounting requirements significantly. In respect of
lessee accounting, the ED proposes a model for lessee under which a lessee
would recognise a “right-of use” asset representing its right to use the underlying asset and a liability representing its obligation to pay lease rentals over the
lease term. Accordingly, all operating leases under current IAS 17 Leases would
be brought onto the statement of financial position.
Revenue
The IASB and the FASB are working on a joint project to develop a comprehensive
set of principles for revenue recognition. In June 2010 the IASB published ED/2010/6
Revenue from Contracts with Customers, which would replace IAS 11, IAS 18 and
a number of interpretations, including IFRIC 18 Transfer of Assets from Customers
and SIC-31 Revenue – Barter Transactions Involving Advertising Services. The ED
proposes a single revenue recognition model in which an entity recognises revenue
as it satisfies a performance obligation by transferring control of promised goods
or services to a customer. The ED does not propose to retain current requirements
that revenue is not recognised if the goods or services exchanged are of a similar
nature and value. The model would be applied to all contracts with customers except
leases, financial instruments, insurance contracts and non-monetary exchanges
between entities in the same line of business to facilitate sales to customers other
than the parties to the exchange. A final standard is scheduled for the second
quarter of 2011. See KPMG’s publication New on the Horizon: Revenues recognition
for media companies.
5
US Financial Accounting Standards Board.
© 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
IMPACT OF IFRS: MEDIA
KPMG: An Experienced Team,
a Global Network
KPMG’s Media practice
Media and entertainment industries are currently experiencing rapid paradigm
shifts. Gone are the days when film studios and broadcasters could depend
on opening box office receipts and ratings alone. Most media companies now
depend on a wide variety of channels to market – from mobile devices to virtual
worlds. And as content distribution options have expanded, so has the volume of
content available for those channels. In short, we are now experiencing nothing
less than a complete revolution of the media industry with the advent of Web 2.0
and the explosion of user-created content.
KPMG’s Media practice serves a broad variety of companies – from major content producers, publishers and traditional broadcasters to newly emerging online
companies. Our member firms’ experienced media professionals seek to
anticipate changing business demands and assist with developing frameworks
to enhance our clients’ success in the market. Our Audit, Tax, and broad array
of Advisory services are utilised by clients to help their businesses thrive.
Through our global network of professionals in Africa, the Americas, Asia Pacific,
Europe and the Middle East, KPMG’s Media practice can help you reduce costs,
mitigate risk, improve controls of a complex value chain, protect intellectual property, and meet the myriad challenges of the digital economy.
For more information, visit www.kpmg.com/cm.
Your conversion to IFRS
As a global network of member firms with experience in
more than 1,500 IFRS conversion projects around the
world, we can help ensure that the issues are identified early, and can share leading practices to help
avoid the many pitfalls of such projects. KPMG
member firms have extensive experience
and the capabilities needed to support
you through your IFRS assessment and
conversion process. Our global network
of specialists can advise you on your IFRS
conversion process, including training company personnel and transitioning financial
reporting processes. We are committed to providing a uniform approach to deliver consistent,
high quality services for our clients across geographies.
© 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
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Contact us
Global Media Practice
Global Media contacts
Global Chair
Brazil
Germany
Sean Collins
KPMG in Singapore
Tel: +65 6213 7302
email: seanacollins@kpmg.com
Eduardo Paulino
KPMG in Brazil
Anne Schurbohm
KPMG in Germany
Tel: +55 11 2183 3122
Tel: +49 521 9631 1680
email: cepaulino@kpmg.com.br
email: aschurbohm@kpmg.com
Canada
India
Kathy Cunningham
KPMG in Canada
Rajesh Mehra
KPMG in India
Tel: +1 416 228 7180
Tel: +91 (22) 3983 5123
email: kacunningham@kpmg.ca
email: rajeshmehra@in.kpmg.com
China
Netherlands
Li Fern Woo
KPMG in China
Remco van der Brugge
KPMG in Netherlands
Tel: +86 21 2212 2603 (ext. 6202603)
Tel: +31 20 656 7254
email: lifern.woo@kpmg.com.cn
email: vanderbrugge.remco@kpmg.nl
France
United States
Bertrand Vialatte
KPMG in France
Jan Nagel
KPMG in the US
Tel: +33 1 5568 6633
Tel: + 1 212 872 5549
email: bvialatte@kpmg.com
email: jnagel@kpmg.com
© 2010 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
Acknowledgements
We would like to acknowledge the authors of this publication, including the
following:
Aditya Maheshwari
KPMG International Standards Group
(part of KPMG IFRG Limited)
Anne Schurbohm
KPMG in Germany
We would also like to thank the contributions made by the project review team,
which included the following media sector partners from KPMG member firms:
Remco van der Brugge
Markus Kreher
Kenneth J Krick
Li Fern Woo
KPMG
KPMG
KPMG
KPMG
in
in
in
in
Netherlands
Germany
the US
China
Other KPMG publications
We have a range of IFRS publications that can assist you further, including the
following:
• New on the Horizon publications, which discuss consultation papers, such as
New on the Horizon: Revenue recognition for media companies
• Insights into IFRS
• IFRS compared to US GAAP
• IFRS Handbook: First-time adoption of IFRS
• IFRS Handbook: Business combinations and non-controlling interests
• Illustrative financial statements: First-time adopters
• First Impressions publications that discuss new pronouncements
• Illustrative financial statements for annual and interim periods
• Disclosure checklist.
The information contained herein is of a general nature and is not intended to address the
circumstances of any particular individual or entity. Although we endeavor to provide accurate
and timely information, there can be no guarantee that such information is accurate as of the
date it is received or that it will continue to be accurate in the future. No one should act on
such information without appropriate professional advice after a thorough examination of the
particular situation.
© 2010 KPMG International Cooperative (“KPMG International”),
a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG
International provides no client services. No member firm has
any authority to obligate or bind KPMG International or any other
member firm vis-à-vis third parties, nor does KPMG International
have any such authority to obligate or bind any member firm.
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Publication name: Impact of IFRS: Media
Publication date: September 2010
kpmg.com/ifrs