April-June | 2017
New standard brings changes in accounting recognition of companies' revenues; the telecommunications industry is among the most impacted
The International Financial Reporting Standard (IFRS) 15 – Revenue from Contracts with Customers, published by the International Accounting Standards Board (IASB), will enter into force on January 1, 2018. IFRS 15 establishes a single accounting model for revenues from contracts with customers and will supersede the current accounting standards for revenue recognition, including the International Accounting Standard (IAS) 18 – Revenue, IAS 11 – Construction Contracts and related interpretations.
For many companies, this new model will not comprise only changes in amounts and in the timing of revenue recognition, but will also require a review of their current contracts, systems and processes.
Revenues from sales and services are considered one of the most important items of the financial statements and are used as a reference for several market indicators analyses. For this reason, IFRS 15 may be considered one of the most relevant updates since the adoption of the international accounting standards.
The new accounting standard will affect, in particular, companies in the telecommunications industry. These companies offer to customers combined products and services packages, such as mobile phones and telecommunications services, particularly related to cellular telephony services. In this industry, the impact will be on identifying the performance obligations. It will be necessary to assign the transaction price to each product or service included in the contract and recognize revenue at the time or over time.
It is possible that the impacts caused by the rule on revenue recognition will influence the companies’ profit and the dividends distribution. It is recommended that companies begin their studies on the IFRS 15 impacts and prepare for the changes, even if they only come into force on January 1, 2018.
"Anticipating the regulatory demands is essential in a global market in which companies that guarantee reliability and adequacy in their financial statements have greater access to resources at lower costs."
Rogério Mota, Deloitte Audit partner
Governance and stress tests are among the minimum requirements to be followed by banks
Approved at the beginning of this year by the National Monetary Council (CMN), the Resolution 4,557/17, known in the market as GIR (Integrated Risk Management), extends and consolidates regulatory requirements already existing in old standards and presents new demands in managing financial institutions’ risks.
The standard’s operation is based on the new financial sector segmentation, established in January this year, which divided the financial institutions into five groups. To the large companies, which comprise the first segment (S1), are attributed more obligations, while to the smaller (S5) ones, there are less requirements. The new rules take effect in 180 days for the large institutions (S1) and 360 days for the other segments.
One of the aspects covered by the standard is the obligation to have an executive function responsible for risk management, the Chief Risk Officer (CRO), who must have direct access to the Chief Executive Officer (CEO) and the board of directors. Also in relation to governance, it will also be required a formal declaration of risk appetite, aligned with the business strategies, and the dissemination of risk culture and awareness of the institution’s professionals.
Among the technical aspects, the stress tests for the simulation of crisis scenarios and their impact on the capital and liquidity management gain strength. More specific rules take effect for the risks traditionally already regulated, such as credit, market and operational risks, including information security.
Deloitte recently launched the 10th edition of the “Global Risk Management Survey”, prepared with the participation of 77 international organizations, mainly banks and insurers. The moment depicted by the study is particularly interesting for the financial institutions operating in Brazil, especially those authorized by the Central Bank to operate, considering the recent publication of Resolution 4,557/17.
"Regardless of the size of the institution, a detailed analysis is recommended, which should reveal the gaps that exist in relation to the Resolution. After that, it is fundamental to define action plans, with established deadlines, resources and responsible agents."
Marcello De Francesco, Deloitte's partner in Deloitte’s Risk Advisory area for the Financial Services industry
Experts work to submit to Congress proposals to make the process more balanced and efficient
The Business Recovery and Bankruptcy Law came into force 12 years ago aimed to give greater efficiency to insolvency proceedings, bringing more security to the economic and legal environment and, consequently, increasing the credit supply to Brazilian companies. During this period, the legislation has successfully promoted both the recovery of small and medium-sized enterprises and large transnational conglomerates.
After that period, the Ministry of Finance aims to reform the Law 11,101/05, also known as the Business Recovery and Bankruptcy Law, as one of the microeconomic measures to encourage the resumption of economic growth and increased productivity. Proposals like that have been prepared and collected by experts – including Deloitte professionals – to be sent to the National Congress.
Among the many points that deserve review, we can highlight the necessary subjecting of all credits to the recovery process; a greater balance between creditors and debtors during the process, greater efficiency in the bankruptcy processes, and stimulus for granting credit to companies in judicial recovery – the so-called “new money”.
The time for debate and reflection on the aspects that can be improved in this regulation is now.
"The expectation is that critical points in relation to the Business Recovery and Bankruptcy Law are improved to ensure the necessary and expected efficiency in the recovery of a company in difficulty."
Luis Vasco, Deloitte Financial Advisory partner who leads the Restructuring Services practice in Brazil
More accurate and dynamic reports promote new insights and contribute to the risk mitigation
To the extent that the incorporation of technology into today’s business environment is vital to the development of any company, the internal audit area has the challenge of occupying an even more relevant space from a strategic point of view. In this context, the application of analytics techniques and visualization and monitoring tools are among the main internal audit trends for 2017 and contribute to a more precision of analyses and the improvement of information reporting.
The use of technologies such as dynamic and interactive dashboards for reporting profits and information, while it consolidates the results, allows to focus and obtain details of the causes that expose the company to risks.
In a world of constant management changes, greater rigor in regulatory compliance and accountability, the review of corporate governance programs should contain more assertive estimates about the risk materialization. The analytics, through capture techniques and collation of information, improves the detection and monitoring of emerging threats and assists in monitoring competitors, social media, consumer perception and action of regulatory bodies.
In addition to this more structured approach, the use of analytics also enables internal audit to have access to data that affect and compose the working capital – payments, receipts, delivery time, advances, extensions, inventory volumes, etc. – and simulate efficiency scenarios, as well as the financial return to be obtained for each one of these factors.
"In the very near future, senior management, boards and committees will require the quantification of futures residual risks, and this will only be possible if internal audit prepares for the use of advanced analytics tools, combined with other technologies."
Alex Borges, Deloitte Risk Advisory partner who leads the Internal Audit practice in Brazil