He currently serves as an Accounting Policy Advisor with HP, Inc. in Budapest, Hungary and previously served as a Senior Accounting Policy Manager for the company in Houston, TX (relocated in 2018 due to spousal expat assignment). The five-step model of revenue recognition as per Ind AS 115 is discussed below. Staff Contact: kim.kushmerick@aicpa-cima.com, IDENTIFIED REVENUE RECOGNITION IMPLEMENTATION ISSUES. Applying the new revenue recognition standard. or. The same has been discussed in more details later in this article. Close Start adding items to your reading lists: Sign in. Mergers & Inquisitions . Contact us Margot Le Bars Partner - Capital Markets and Accounting Advisory Services, PwC Australia Tel: +61 3 8603 5371 . If you have: – transfers of assets from customers At generation: expense match revenue. 16-6: Management Fee Agreements This major overhaul of revenue recognition (effective for fiscal years starting after December 15, 2017 for public companies) affects almost every sector of the economy, and the power and utility (P&U) industry is no exception. AICPA Revenue Recognition Task Forces are charged with developing revenue recognition implementation issues that will provide helpful hints and illustrative examples for how to apply the new Revenue Recognition Standard. revenue is changing. Our history of serving the public interest stretches back to 1887. 13-1: Accounting for Tariff Sales to Regulated Customers; The following working draft was issued by the Timeshare Entities Revenue Recognition Task Force: Implementation Issue No. Highlights of the New Standard. The paper includes excerpts from large accelerated filers that were required to adopt the standard in the first quarter of 2018. Revenue for power and utilities companies, Companies in the power and utilities industry, Identifying the customer and the contract under the new standard may require significant judgment and impact the timing of revenue recognition and the accounting for certain contract costs, Accounting for variable consideration requires a different contract analysis and may require the estimation of fees, Power and utilities companies will need to determine whether promised goods or services should be accounted for as a single performance obligation (i.e. Expense recognition 25 Mandatory effective dates and early adoption provisions: Annual periods – The power and utilities sector faces radical transformation. (1) 5% 76% 19% Have you identified any differences in applying the new revenue model to non-regulated revenue? In association with the KPMG Global Energy Institute. The current emphasis on more testing on controls over revenue recognition now is largely a derivative of PCAOB interest in the topic in the past year or two. Revenue recognition. Power and Utility (P &U) entities enter into long- term contracts for the delivery of electricity and other commodities to a customer. Read our privacy policy to learn more. The paper includes excerpts from large accelerated filers that were required to adopt the standard in the first quarter of 2018. utilities, and that a decline in revenues affects business liquidity and profitability. US business impact of COVID-19; Deloitte Review; Economic weekly update; Future of mobility ; Future of work; Industry 4.0; Internet of Things; US business impact of COVID-19; Careers. Revenue is the inflow of cash, receivables, other consideration arising in the course of ordinary activities of an enterprise, normally from the sale of goods, rendering of services, interest, royalties, and dividends. Utilities The new revenue recognition standard power and utilities What you need to know Application of the requirements of the new revenue recognition standard will require P&U entities to use a greater degree of judgement. In association with the KPMG Global Energy Institute The new revenue standard – effective from 1 January 2018 – is likely to affect the way you account for revenue. Many utilities track asset data, but what happens when there is so much data that it cannot be properly managed or utilized to its fullest potential? August 2017 Figure 2 shows the main differences between the three modeled scenarios. Power & Utilities Investment Banking: Interviews, Industry Overview, Key Operating and Valuation Metrics, Deal Types, Exit Opportunities, and More. Applying IFRS in Power & Utilities The revised revenue recognition proposal — power and utilities March 2012 IASB — proposed standard. Power & Utility Revenue Recognition Task Force . KPMG does not provide legal advice. Revenue recognition policies are scrutinized by investors, potential acquirers and regulators alike. If your company hasn’t yet begun implementing the changes to revenue recognition, now is the time to start. Current power price scenarios from Energy Brainpool model the expected average revenues of offshore wind plants in Germany until 2050 in three scenarios characterized by different sensitivities: Standard, Conservative and Low-Price. Our advocacy partners are state CPA societies and other professional organizations, as we inform and educate federal, state and local policymakers regarding key issues. Join 307,012+ Monthly Readers. Full revenue recognition implementation issues will be posted below for informal comments after review by the AICPA Financial Reporting Executive Committee (FinREC). The complex arrangements between power and utility companies, governments, and customers pose some of the most difficult issues. Revenue recognition in the energy industry might appear to be simple. By using the site, you consent to the placement of these cookies. This approach is explained in the following example calculation for a wind power plant. For additional information about the new standard, see Deloitte’s May 28, 2014, Heads Up. The ASU states that the core principle for revenue recog­ni­tion is that an “entity shall recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the con­sid­er­a­tion to which the entity expects to be entitled in exchange for those goods or services.” Kelen Camehl, CPA, MBA. Power and Utility (P &U) entities enter into long- term contracts for the delivery of electricity and other commodities to a customer. However, all power and utilities entities have needed to carefully consider the standard’s new and modified quantitative and qualitative disclosure guidance, which has significantly increased the amount of information that companies must disclose about revenue activitie… And it’s coming faster than you think. Project development. When we see legislative developments affecting the accounting profession, we speak up with a collective voice and advocate on your behalf. Revenue Recognition Revenue Recognition Task Force Status of Implementation Issues On May 28, 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers. industry-specific revenue recognition guidance under current U.S. GAAP and replace it with a principle based approach for determining revenue recognition. Revenue does not include income from investments accounted for under the equity method, revenues arising from lease agreements, and income from government grants. See more. Not all CPE credits are equal. Revenue estimation based on installation specific full load hours. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. For private companies in the Technology & Life Sciences sector, revenue recognition is an accounting risk area made more difficult by the rapid growth that characterizes the industry. And it’s coming faster than you think. P&U Revenue Recognition Survey ... new revenue model to regulated utility revenue? Today, you'll find our 431,000+ members in 130 countries and territories, representing many areas of practice, including business and industry, public practice, government, education and consulting. Wording to be Included in the Revenue Recognition Guide: Background . We generate revenue from selling power to our customers (utilities and private enterprises), EPC contract management, and O&M services. Receive timely updates on accounting and financial reporting topics from KPMG. Typically revenue should be recognised based on the transfer of control of the good or service to the customer. Increasingly, as electric utilities modernize and add capabilities to the grid, new program options are doing double or triple duty—providing benefits to customers, serving as a grid resource, and potentially growing earnings … Life at Deloitte Podcast. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. Reporting entities in the power and utilities industry, including regulated and non-regulated power companies, will be affected by the new revenue recognition standard (the “new standard”), which replaces substantially all of the current U.S. GAAP and IFRS revenue recognition guidance. The five-step model of revenue recognition as per Ind AS 115 is discussed below. Advanced Pattern Recognition Transforms Electric Utility Operations. Utility and power plant projects. What’s the impact on power and utility companies? What you need to know •Financial Accounting Standards Board (FASB) (collectively, the The IASB and the FASB have issued a second exposure draft of their converged revenue model that is closer to current IFRS and US GAAP than their 2010 proposal. Below is a list of potential revenue recognition implementation issues identified by the Power and Utilities Revenue Recognition Task Force. KPMG insights into revenue recognition in financial reporting. Search. exposed guidance from two American Institute of CPAs revenue task forces—oil and gas (O&G) and power and utilities (P&U)—and SEC views gathered from official speeches. 2. Revenue is generated through the sale of commodities or the performance of services in exchange for consideration. Trying to log in to another AICPA website? What's New. KPMG’s insights on ASC 606 implementation. Actions to consider – Review the contractual terms of arrangements involving transfers of assets from customers to assess if the timing of revenue recognition will be affected under the new standard. Revenue Recognition Industry supplement - Power and Utilities The list will be updated as the task force continues it discussions. Power and utilities companies will need to determine whether promised goods or services should be accounted for as a single performance obligation (i.e. Wording to be Included in the Revenue Recognition Guide: Background . This site uses cookies to store information on your computer. What’s the impact on power and utility companies? Project development. Some are essential to make our site work; others help us improve the user experience. Kelen is a CPA with over 15 years of progressive finance and accounting experience. To get your license, keep 3 E's in mind: education, examination and experience. revenue recognition. Association of International Certified Professional Accountants. This power and utilities industry supplement discusses the As a result of the recognition and measurement guidance in ASC 606, some power and utilities companies have made changes to their financial statements. But it is more than just an accounting change. Expected Overall Level of Impact to Industry Accounting: Significant . Delivering insights to financial reporting professionals. Public water utility companies lose money for three reasons: (a) low rates of revenue collection, (b) high levels of nonrevenue water, and (c) low tariff rates (World Bank, 2013). Issue status update. Power and utilities (P&U) entities may need to change certain revenue recognition practices as a result of IFRS 15 Revenue from Contracts with Customers, the new revenue recognition standard that was jointly issued by the International Accounting Standards Board (the IASB) and the Financial Accounting Standards Board (the FASB) (collectively, the Boards). We are the American Institute of CPAs, the world’s largest member association representing the accounting profession. See our transport & logistics industry guide. Judgment may be required to conclude whether the invoiced amounts correspond with the value received. Draft Revenue Recognition Implementation Issues included for informal comment, when available, will be listed below. 1. For utilities, transformations can yield productivity improvements, revenue gains, better network reliability and safety, enhanced customer acquisition and retention, and entry into new business areas. We are a global We are a global Project development. revenue recognition. Free Banker Blueprint + Discover How To Break Into Investment Banking, Hedge Funds or Private Equity, The Easy Way. This Power & Utilities Spotlight discusses the new revenue model and highlights key accounting issues and potential challenges for P&U entities that recognize revenue under U.S. GAAP or IFRSs. specific industry matters that remain outstanding with the AICPA’s Power and Utility Entities Revenue Recognition Task Force. Access to additional resources and insights on the new standard. The revenue recognition principle is a cornerstone of accrual accounting together with the matching principle.They both determine the accounting period in which revenues and expenses are recognized. Issue status update. Expected Overall Level of Impact to Industry Accounting: Significant . Due to bundled sales … In association with the KPMG Global Energy Institute The new revenue standard – effective from 1 January 2018 – is likely to affect the way you account for revenue. 1. Preparation and planning are key. But it is more than just . Power, utilities & renewables; Technology; Telecom, media & entertainment; Transportation & hospitality; Spotlight. But it's one that will reap big rewards if you choose to pursue it. We don’t have any exposure to government utilities that alloc ate cost of a REC to inventory (out of power supply costs). Power & Utilities deals insights: 2021 Outlook. Revenue recognition for other projects sold to 8point3 is deferred until these projects reach commercial operations. © 2021 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. Data Overload . What’s the impact on power and utility companies? Fiscal years beginning after, Interim periods – For many, the effect of the new requirements has not been significant. 1. The mounting pressure to transform also offers the rare opportunity to rebuild strategies, structures, and processes from the ground up. Reporting revenue under IFRS 15 Revenue from Contracts with Customers is now one of your ordinary activities. Distributed renewable generation, new digital technologies and changing consumer expectations are creating a new energy world that is more complex, competitive and challenging. Revenue Recognition for Fixed Price Contracts – Consideration of Different Pricing Conventions . As the Power & Utility industry continues its rapid transformation to the utility industries of the future, it is important to stay abreast of the tax issues that the industry faces. Financial reporting impacts of coronavirus. Distributed renewable generation, new digital technologies and changing consumer expectations are creating a new energy world that is more complex, competitive and challenging. This may mean that the recognition of some revenue is delayed until there is more certainty around whether a discount will be given or a performance payment received. SEC Rules and Regulations . However, as your business grows and evolves – whether by developing new products and services, embedding technological innovations or buying new businesses – you may be facing challenges in applying IFRS … Equity in earnings of unconsolidated investees also includes the impact of the company's share of 8point3's earnings related to sales of projects receiving sales recognition under IFRS but not GAAP. SEC reporting . Join 307,012+ Monthly Readers. an accounting change. Fortis continues to power ahead as we seek additional opportunities to diversify our asset base and grow our company both within our existing franchise territories and beyond. August 2017 a ‘series’), as well as the effect of the new standard on alternative revenue programs, requirements contracts, renewable engery credits and capacity sales. 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