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• XBRL US Conference Highlights

  - by john.orourke(at)oracle.com

  Back in early November I had an opportunity to attend the XBRL US National Conference in Philadelphia.  At the event, XBRL US announced that Oracle had joined the initiative, so I had a chance to participate in a press conference and attend a number of sessions.  Oracle joined XBRL US so we can stay ahead of the standard and leverage it in our products, and to help drive awareness with customers and improve adoption of XBRL. There were roughly 250 attendees at the event, about half of which were vendors and consultants and the rest financial reporting staff from corporate filers.  Event sponsors included Ernst & Young, SWIFT and Fujitsu.  There were also a number of XBRL technology and service providers exhibiting at the conference.  On Monday Nov. 8th, the XBRL US Steering Committee meetings and Annual Members meeting and reception were held.  At the Annual Members meeting the big news was that current XBRL US President, Mark Bolgiano, is moving to a new position at Howard Hughes Medical Center.  Campbell Pryde, who had led the Taxonomy Development for XBRL US, is taking over as XBRL US President. Other items that were highlighted at the members meeting included: The US GAAP XBRL taxonomy is being used by over 1500 SEC filers and has now been handed over to the FASB to maintain and enhance 16 filer training events were held in 2010 XBRL Global Magazine was launched Corporate Actions proposal was submitted to the SEC with SWIFT in May XBRL Labs for iPhone, XBRL US Consistency Suite launched ISO 2022 Corporate Actions Alignment with XBRL achieved The XBRL Credit Rating taxonomy was accepted Tuesday Nov. 9th included Keynotes, General Sessions, Innovation Workshop for Governments and Securities Professionals, and an Opening Reception.  General sessions included: Lessons Learned from the SEC's rollout of XBRL.  More than 18,000 errors were identified in reviews of filings between June 2009 and September 2010.  Most of these related to negative values being used where they shouldn't have.  Also, the SEC feels there are too many taxonomy extensions being created - mostly in the Cash Flow Statements.  They emphasize using existing elements in the US GAAP taxonomy and advise filers not to  create extensions to improve the visual formatting of XBRL filings. Investors and XBRL - Setting the Standard for Data Quality.  In this panel discussion, the key learning was that CFA's, academics and the financial community are not using XBRL as expected.  The issues raised include the  accuracy and completeness of filings, number of taxonomy extensions, and limited number of tools available to help analyze XBRL data.  Another big issue that was raised is the lack of historic results in XBRL - most analysts need 10 quarters of historic data.  On the positive side, XBRL has the potential to eliminate re-keying of data and errors here and can improve analytic capabilities for financial analysts once more historic data is available and more companies are providing detailed tagging of their filings. A US Roadmap for XBRL Financial Reporting.  This was a panel discussion featuring Jeff Neumann(SEC), Campbell Pryde(XBRL US), and Louis Matherne(FASB).  Key points included the fact that XBRL is currently used by 1500 companies, with 8000 more companies coming in 2011.  XBRL for Mutual Fund Reporting will start in 2011 for 8000 funds, and a Credit Rating Taxonomy has now been submitted for review.  The XBRL tagging/filing process is improving each quarter - more education is helping here.  The FASB is looking at extensions to date, and potential additions to US GAAP taxonomy, while the SEC is evaluating filings for accuracy, consistency in tagging, and tools for analyzing data.  The big news is that the FASB 2011 US GAAP Taxonomy has been completed and reviewed by SEC.  The 2011 US GAAP Taxonomy supports new FASB accounting standards issued since 2009, has new taxonomy elements for certain industries (i.e airlines) and the elimination of 500 concepts.  (meaning they can't be used going forward but are still supported for historical comparison)  The 2011 US GAAP Taxonomy will be available for usage with Q2 2011 SEC filings.  More information about this can be found on the FASB web site.  http://www.fasb.org/home Accounting Firms and XBRL.  This session covered the Role of Audit Firms, which includes awareness and education, validation of XBRL filings, and in-house transition planning.  The main advice provided was that organizations should document XBRL mapping process, perform peer comparisons, and risk assessments on a regular basis. Wednesday Nov. 10th included more Keynotes, General Sessions on Corporate Actions, and XBRL Essentials Workshop Training for corporate filers.  The XBRL Essentials Training included: Getting Started Once you Have the Basics Detailed Footnote Tagging and Handling Tables Quality Control and Trust in the XBRL Process Bringing XBRL In-House:  What are the Options, What should you consider? The US GAAP Financial Reporting Taxonomy - Overview of the 2011 release The XBRL Essentials Training was well-attended with about 80 people.  This included a good overview of the SEC's XBRL mandate, limited liability issue, tagging levels, recommended planning process, internal vs. outsourced approach, and how to manage service providers.  I learned a lot from the session on detailed tagging.  This is the requirement that kicks in during a company's second year of XBRL filing with the SEC and applies to financial statements, footnotes and disclosures (it does not apply to MD&A, executive communications and other information).  The review of the Linkbase model, or dimensional table structure, was very interesting and can be complex to understand.  The key takeaway here is that using dimensional tables in XBRL filings can help limit the number of taxonomy extensions that are required.  The slides from this session are posted on the XBRL US web site. (http://xbrl.us/events/Pages/archive.aspx) For me, the main summary points and takeaways from the XBRL US conference are: XBRL for financial reporting has turned the corner and gone mainstream - with 1500 companies currently using it and 8000 more coming in 2011 The expected value is not being achieved by filers or consumers of XBRL data - this will improve when more companies are filing in XBRL, more history is available, and more software tools are available for analysis (hmm, sounds like an opportunity for Oracle) XBRL is becoming the global standard for all business communications beyond just the financials - i.e. adoption for mutual funds, corporate actions and others planned for the future If you would like to learn more about XBRL and the various training programs, services and software tools that are available check out the XBRL US web site and even better - become a member.  Here's a link:  http://xbrl.us/Pages/default.aspx

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• What Will Happen to Real Estate Leases when Operating Leases are Gone?

  - by Theresa Hickman

  Many people are concerned about what will happen to real estate leases when FASB and IASB abolish operating leases. They plan to unveil the proposed standards on treating leases this summer as part of the convergence project but no "finalized ruling" is expected for at least a year because it will need to get formal consensus from many players, such as the SEC, American Association of Investors, Congress, the Big Four, American Associate of Realtors, the international equivalents of these, etc. If your accounting is a bit rusty, an Operating Lease is where you lease equipment or some asset for a shorter period than the actual (expected) life of the asset and then give the asset back while it still has some useful life in it. (Think leasing a car). Because an Operating Lease does not contain any of the provisions that would qualify it as a Capital Lease, the lease is not treated as a sale or purchase and hits the lessee's rental expense and the lessor's revenue. So it all stays on the P&L (assuming no prepayments are made). Capital Leases, on the other hand, hit lessee's and lessor's balance sheets because the asset is treated as a sale. (I'm ignoring interest and depreciation here to emphasize my point). Question: What will happen to real estate leases when Operating Leases go away and how will Oracle Financials address these changes? Before I attempt to address these questions, here's a real-life example to expound on some of the issues: Let's say a U.S. retailer leases a store in a mall for 15 years. Under U.S. GAAP, the lease is considered an operating or expense lease. Will that same lease be considered a capital lease under IFRS? Real estate leases are supposedly going to be capitalized under IFRS. If so, will everyone need to change all leases from operating to capital? Or, could we make some adjustments so we report the lease as an expense for operations reporting but capitalize it for SEC reporting? Would all aspects of the lease be capitalized, or would some line items still be expensed? For example, many retail store leases are defined to include (1) the agreed-to rent amount; (2) a negotiated increase in base rent, e.g., maybe a 5% increase in Year 5; (3) a sales rent component whereby the retailer pays a variable additional amount based on the sales generated in the prior month; (4) parking lot maintenance fees. Would the entire lease be capitalized, or would some portions still be expensed? To help answer these questions, I met up with our resident accounting expert and walking encyclopedia, Seamus Moran. Here's what he had to say: Oracle is aware of the potential changes specific to reporting/capitalization of real estate leases; i.e., we are aware that FASB and IASB have identified real estate leases as one of the areas for standards convergence. Oracle stays apprised of the on-going convergence through our domain expertise staff, our relationship with customers, our market awareness, and, of course, our relationships with the Big 4. This is part of our normal process with respect to regulatory compliance worldwide. At this time, Oracle expects that the standards convergence committee will make a recommendation about reporting standards for real estate leases in about a year. Following typical procedures, we also expect that the recommendation will be up for review for a year, and customers will then need to start reporting to the new standard about a year after that. So that means we would expect the first customer to report under the new standard in maybe 3 years. Typically, after the new standard is finalized and distributed, we find that our customers then begin to evaluate how they plan to meet the new standard. And through groups like the Customer Advisory Boards (CABs), our customers tell us what kind of product changes are needed in order to satisfy their new reporting requirements. Of course, Oracle is also working with the Big 4 and Accenture and other implementers in order to ascertain that these recommended changes will indeed meet new reporting standards. So the best advice we can offer right now is, stay apprised of the standards convergence committee; know that Oracle is also staying abreast of developments; get involved with your CAB so your voice is heard; know that Oracle products continue to be GAAP compliant, and we will continue to maintain that as our standard. But exactly what is that "standard"--we need to wait on the standards convergence committee. In a nut shell, operating leases will become either capital leases or month to month rentals, but it is still too early, too political and too uncertain to call out at this point.

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• Lease Accounting Closed for Comment

  - by Theresa Hickman

  December 15, 2010 marked the last day to send public comments to FASB and IASB on lease accounting. June 2011 is the deadline for the final consideration of the Leases Exposure Draft that will be given to standard setters in order to create a new lease accounting standard. Landlords, lessees, retailers, airlines industry, etc. are all worried right now about the changes to lease accounting. They feel the changes will be too costly and complex without adding significant improvement to the quality and relevance of financial statements. In a nutshell, IASB and FASB want to abolish operating leases where the lessee records the periodic payments as an expense over time. The proposed changes will mean that the accounting for leases will move from the P&L and hit both the lessee's and lessor's balance sheets. For companies that occupy a lot of property, this could significantly increase their liabilities not to mention front-load much of the costs that they were able to spread out over time before. Why are IASB and FASB doing this? Their goal is to have consistent accounting for both the lessees and lessors with higher quality financial statements. Leasing is one of four major projects being undertaken by the IASB and FASB in order to complete convergence between US GAAP and IFRS. I spoke to our resident accounting expert Seamus Moran about this to better understand how this might impact accounting software. He reminded me that the proposed changes to both US GAAP and IFRS in respect to leases are "proposed." It is still inappropriate to account for leases the way they are being proposed and we still need to account for them in accordance to the current regulations, which is what current accounting software programs, such as E-Business Suite Release 12.1 and prior and PeopleSoft Enterprise support. The FASB (US GAAP) and IASB (IFRS) exposure drafts (EDs) that outline the proposal were published. The FASB edition was published on August 17th, with comments due by December 15th. The IASB edition was published on the same date, and comments were due in London on the same date. Exposure drafts are the method both the FASB and the IASB use to solicit General Acceptance, the "GA" in GAAP. Both Boards will consider the input they have received, and perhaps revise the proposal. The proposal has come in for some criticism, both from the finance houses and the uses of the leased assets. There is, given the opposition to it, an excellent chance that the Leasing proposal will be modified or rewritten. We will know this in about six months, the usual time it takes for the FASB and IASB to digest the comments they receive. If they feel the proposal has General Acceptance, they will issue the final Standard at that time; if not, they will issue a revised proposal with another year of comment of drafting. Oracle participates in the standard setting process and is fully aware of the leasing proposal. We have designs that would reflect the proposal in hand. These designs will be finalized when the proposal is finalized. It is likely that customers will develop new financial arrangements if the proposal is finalized, and we are working with customers and partners to stay in touch with people's business responses to the proposal. The IASB and FASB are aware that ERP companies will have to revise their software, and that the companies filing results under IFRS or under US GAAP will have to implement such software. The form and timing of the release of the updated software will depend on the schedule of the take up of the new standard, the complexity of the standard, and the releases supported at the time the standard becomes effective.

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• Financial Statement Presentation Changes

  - by Theresa Hickman

  On March 10, 2010, FASB and IASB came to an agreement on financial statement presentation. They have been discussing changes for some time, such as displaying more lines items and moving certain line items from equity to the P&L, and now it seems they have finally come to a joint decision and put it in writing. I recently learned that there will be a trend to book nothing to equity and to convey everything in the P&L to take away any facility for companies to hide losses from its shareholders, investors, etc. (I'm exaggerating when I say book nothing to equity. Obviously, those items that already live there, such as stocks and dividends, would stay there.) But accounts like your CTA (Cumulative Translation Adjustment account) used to plug the gain or loss from equity translation would move from the equity section to your expense section. The rationale is that when you run translation, you're doing so for a subsidiary that you own, or simply put, it's a foriegn investment. Thus, the gains/losses of that foriegn investment should be itemized on your P&L and not buried in equity. The FASB will include changes in financial statement presentation in its Exposure Draft that is planned for issuance at the end of April 2010. Companies will be required to adopt the financial statement presentation provisions retroactively. Yes, that means companies will need to apply these changes to previously issued financial statements. The FASB Summary of Board Decisions can be found at "fasb.org".

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• US GAAP and IFRS Convergence May Be Delayed Even More

  - by Theresa Hickman

  Yesterday, on March 10, the Financial Accounting Standards Board (FASB) met to discuss the changes in financial statement presentation. Over the last six months, the FASB and IASB have been working feverishly to converge US GAAP and IFRS standards to meet the 2011 deadline. In March alone, the standards-setters met eight times. Many people fear that this accelerated pace is compromising the quality of the end product and that maybe they should slow down and do their due diligence. According to WG&L Accounting & Compliance Alert Checkpoint 3/10/2010, (which requires a subscription to view the full article) "Some statement preparers and investors who advise the FASB believe that the process would be better served if it was slowed down so that more attention could be paid to quality." "Should 2011 be looked at as a line in the sand?" asked Joan Amble, executive vice president and corporate comptroller for American Express Co. "We don't think that due process should be compromised for the due date," concurred Lewis Dulitz, vice president of accounting policies and research for medical products supplier Covidien plc. I personally have mixed emotions about this. On one hand, I have been growing impatient with how slow the US has jumped on the IFRS band wagon. On the other hand, being the conservative that I am and knowing this convergence will be costly and disruptive to businesses, I would prefer to be safe than sorry and get it right the first time.

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• Revenue Recognition: Performance Obligation Pass a Hurdle

  - by Theresa Hickman

  I met up with Seamus Moran, our resident accounting expert, to get his thoughts about the latest happenings with IFRS. Last week, on March 13,  the comment period on the FASB and IASB exposure draft “Revenue From Contracts with Customers” closed.  FASB and IASB have just over 20 comment letters – a very small number.  The implication is that that the exposure draft does reflect general acceptance, and therefore will be published as both a US and Internationally Generally Accepted Accounting Standard. At a recent conference call, FASB and IASB expected to complete their report to both Boards on the comments by early summer, complete their deliberation of the comments by the fall and draft the final standard text by late this year. It is assumed the concept of Performance Obligations would become US GAAP and IFRS in place of the existing standards.  They confirmed that all existing US GAAP and IFRS guidelines would be withdrawn, and that they were in dialogue with the SEC on withdrawing the SEC guidelines on the revenue issue as well.The open question is when will Performance Obligations become effective?  The Boards have said that they would like this Revenue Recognition standard and the the Lease Accounting standard to be effective at the same time because what isn’t either insurance, interest, or a lease is a revenue arrangement.  However, ascertaining what is generally acceptable in respect of Leases is proving a little elusive, and the Boards have recently diverged a little on the P&L side of the accounting (although both are in agreement that there will be no off-balance sheet leases).  It is therefore likely that the Lease standard might be delayed. One wonders if the Boards will  define effectivity of the Revenue standard independently of the Lease standard or if they will stick with their resolve to make them co-effective.  The Boards have also said that neither standard will be effective before June 2015.Here is the gist of the new Revenue Recognition principle and the steps to apply it:Recognize revenue to depict the transfer of goods or services in an amount that reflects the consideration expected to be entitled in exchange for those goods and services.Steps to apply the core principles: Identify the contract with the customer Identify the separate performance obligations Determine the transaction price Allocate the the transaction price Recognize Revenue when a performance obligation is satisfied  

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• Different Flavors of Leases Back On

  - by Theresa Hickman

  Given the continued interest regarding the proposed changes to Lease Accounting, I decided to write another entry on this controversial topic with colorful commentary from our resident accounting expert, Seamus Moran. Background (A History Lesson) Back in 1976, the FASB issued FAS 13, “Accounting for Leases” that permitted leases to be either an operating lease or capital (finance) lease. In substance, operating leases are a form of off-balance sheet financing. According to Seamus, operating leases date back to the launch of the Boeing 707 in the 1950s.  Because the aircraft was so much more expensive than previous aircrafts, the industry came up with the operating lease concept to accommodate these jet liners that dominated air transport.  How it worked was the bank would buy the plane and lease it to the airline.  Because the bank never controlled or flew the plane, they never placed the asset on their balance sheet, and because the airline never owned the plane, they didn’t place it on their balance sheet either. They simply treated the monthly lease payments as rental expenses on the P&L.   August 2010 Original Lease Accounting Changes In August 2010, FASB and IASB decided to overhaul lease accounting as part of their joint commitment “to insure that investors and other users of financial statements are provided useful, transparent, and complete information about leasing transactions in the financial statements.”  Some say that the current lease accounting standards are broken because it keeps assets off the balance sheet, hidden from investors’ view. The original proposal abolished operating leases and only permitted capital leases where all leases would be recorded on the balance sheet as assets and liabilities. The asset side would reflect the right to use the asset for the leased term, and the liability side would reflect the obligation to make lease payments.   Why Companies Were Freaking Out According to the SEC, the financial impact of the aforementioned lease changes was estimated to add more than $1.3 trillion of operating lease obligations to corporate balance sheets. Many companies in various industries, especially retail, are concerned because the changes are significant and will impact existing leases with no grandfather clause for existing operating leases. Of course, the banks and airlines I mentioned earlier really hate this because neither wants to report the airplane (now costing around $60 M) as an asset. Regular companies were concerned that they would have to report routine short term leases of real estate or equipment as fixed assets, even though they were really just longer term rentals.  One company we spoke to leased roadside billboards, and really did not consider them to be fixed assets in any way. Obviously, these changes would have had a profound and lasting effect on a company’s financial and real estate strategies and significantly impact its financial statements.  Financial statements would show higher depreciation and interest expense with significantly higher total assets and debt. In terms of financial metrics, they’re negatively impacted. It would raise a company’s debt-to-capital ratio to reflect the higher debt compared to equity, it would negatively impact their return-on-assets because now companies will appear more asset intensive, and it will decrease EPS, lowering shareholder ROI. Feb. 2011 Recent Update The comment period on leases closed in December 2010. The FASB and the IASB have met several times since then and published their initial responses to the input they received from the various interested parties.  They are “redeliberating” the principles involved in Lease Accounting.  Some of the issues they are looking at include: The core definition of a lease.  This will articulate principles on what is a lease and what is “not-a-lease.” One theory or supposition is that they might define a lease as the transfer of certain but not all major ownership attributes for a certain period of time.  So a year’s lease of an aircraft might be a “lease,” but a year’s lease of half a floor in an office building would be “not-a-lease.”  The ownership attributes transferred from the core owner to the user are different; the airline must maintain, paint, and do whatever it needs to do on the aircraft. However, the office renter will have strictly limited rights in respect to the rented space. The differences between a lease contract and service contract.  Even if they call them “leases” for the purpose of commercial law, a service contract might not be accounted for as a lease. The accounting to be done by the lessee.  They would define when the bank or landlord would retain the asset on their balance sheet, and perhaps by implication, when the lessor would not need to include the asset on theirs.  So if the finance house keeps the airplane or office on their balance sheet, the tenant doesn’t need to.  I’m not sure that I can draw the opposite conclusion where the finance house doesn’t report but the tenant must. The difference, if any, between a financing lease and other leases, and the implications to the accounting. The present value calculation when renewable terms exist. They have reduced the circumstances in which one must look at the renewable terms of a lease in calculating the present value.  In most circumstances, you will use the lease term rather than the potential renewable term. Their latest discussion this past week with the contents of the discussion was not available at the time of me writing this entry.  For more details, the results of the discussions are posted on both the FASB and the IASB websites. Implied Software Changes Whatever the final rules turn out to be, all ERP systems, such as Oracle E-Business Suite, PeopleSoft Enterprise, JD Edwards, and Oracle Hyperion will need to change their software to accommodate the new rules. The following lists some changes that might have to be made to accounting software depending on what the final standards will be in June 2011: Lease tracking may require modifications with tracking of additional lease details that might require a centralized repository to maintain Accounting may need to be modified as there are many changes to how capital leases and the new “other than finance” leases are accounted for both on the lessee and lessor side.  For example, valuation, amortization, and disclosure will be considerably different requiring different types of data to be captured. Companies may need to modify their chart of accounts depending on how they want to track leases, which could then impact financial reporting and consolidation Business processes may require changes which could then impact internal controls Software applications may need to perform more advanced computations on leases Reports and KPIs may need to reflect new operating metrics Hold Onto Your Seats           Before you redo all your lease agreements and call your software vendors asking when the changes to the software will be made, remember that the rules are not finalized yet, and from appearances, will not reflect the proposals in the exposure draft.  Not only are there objections to putting the operating lease assets on anyone’s balance sheet, there are lots of objections to subjectivity and the data required for the valuation.  According to Seamus, there is huge opposition from New York bankers, the airlines, the EU, the Communist Party of China (since it impacts their exporting business), and Republicans (hearing complaints from small and large businesses). Even if everyone can agree on the proposed changes, 2013 might be the earliest that companies would need to change how they report leases. The Boards will finish their deliberations in April, May or June 2011.  As we’ve seen with other Exposure Drafts, if the changes are minor and the principles met the General Acceptance consensus criteria, the Standard could be finalized at that time.  However, if substantial changes are made, a fresh exposure draft, comment period, and review period might be involved, too. Seamus added an interesting perspective. Even if the proposed changes do pass, don’t you think our customers, such as Boeing, GE Capital, United Airlines, etc. will be clever enough to come up with a new kind of financing arrangement that complies with the new accounting? How about the large retail customers, such as Best Buy and Macerich? Don’t you think they might simply cut deals around retail locations with new contracts that prevent their leases from being capital leases? Instead of blindly adapting the software to meet the principles outlined in the final standard, our software needs to accommodate how businesses will respond to the new rules. We cannot know our customers’ responses until the rules are finalized. Oracle is aware of the potential changes and is staying abreast of the developments through our domain expertise staff, our relationship with customers, our market awareness, and, of course, our relationships with the Big 4. This is part of our normal process with respect to worldwide regulatory compliance. Oracle products have been IFRS and GAAP compliant for years and we will continue to maintain those standards going forward.

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• 2013 U.S. GAAP Financial Reporting Taxonomy Available for Public Review and Comment

  - by Theresa Hickman

  FASB recently released the proposed 2013 U.S. GAAP Reporting Taxonomy. Comments are due October 29, 2012 to be finalized and published early 2013.  The proposed 2013 U.S. GAAP taxonomy and instructions on how to submit comments are available at the FASB’s XBRL page. In previous blog entries, I talked about how Oracle Hyperion Disclosure Management supports the latest taxonomy, enabling financial managers to easily comply with the latest filing requirements. The taxonomy is a list of computer-readable tags in XBRL that allows companies to annotate the voluminous financial data that is included in typical long-form financial statements and related footnote disclosures. The tags allow computers to automatically search for, assemble, and process data so it can be readily accessed and analyzed by investors, analysts, journalists, and regulators. You do not have to have Oracle Hyperion Financial Management, used for consolidating financial results, to generate XBRL. You just need Oracle Hyperion Disclosure Management to generate XBRL instance documents from financial applications, such as Oracle E-Business Suite, Oracle PeopleSoft, Oracle JD Edwards EnterpriseOne, and Oracle Fusion General Ledger. To generate XBRL tags and complete SEC filings using your existing financial applications with Oracle Hyperion Disclosure Management, here are the steps: Download the XBRL taxonomy from the SEC or XBRL Website into Hyperion Disclosure Management to create a company taxonomy. Publish financial statements from the general ledger to Microsoft Excel or Microsoft Word. Create the SEC filing in the Microsoft programs and perform the XBRL tag mapping in Oracle Hyperion Disclosure Management. Ensure that the SEC filing meets XBRL and SEC EDGAR Filer Manual validation requirements. Validate and submit the company taxonomy and XBRL instance document to the SEC. Get more details about Oracle Hyperion Disclosure Management.

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• The Lease Standard Train is Back on Track

  - by Theresa Hickman

  As I was walking to the elevator, I ran into Seamus Moran, our resident accounting expert. Me: “Hi Seamus, where have you been? You don’t write, you don’t call, and you don’t send me flowers. I’ve been hearing more and more about the Lease Accounting topic. It looks like Congress is weighing in on it too and putting heat on FASB. According to a recent article in Reuters  “representatives Brad Sherman, a Democrat, and Republican John Campbell, have written to the U.S. Financial Accounting Standards Board warning of dire economic fallout from a plan to have companies put leases on their balance sheets." Here’s what Seamus had to say: Yes, but there have been some recent developments. The FASB and IASB cleared a logjam, resolved a final “content of the standard” issue, and articulated a way to move forward on Leases last Wednesday.  It looks like the Lease Standard Train is back on track.   We’ve just had a briefing from PwC. The Lease timeline now looks like this: Now to June 2012: The staff will write up the decisions June 2012: Boards will meet on “logistical” issues (glossed over) Oct, Nov, most likely December 2012: A New Lease Exposure Draft will be crafted January – April 2013: Public Comment period begins April to September 2013: Everyone to digest the comments and draft the final standard End of 2013 (Probably more like Early 2014): Publish the new Lease Accounting Standards 2015: Retroactive reporting 2017: New standard is effective It seems that leases under one year will be treated as “rent expense”. If it doesn’t cross two (annual) balance sheets, it doesn’t really matter. This is good news in terms of clarity, resolution, and moving forward on one of the last remaining items to converge the IFRS and U.S. GAAP standards. There are ambiguities, issues, concerns, et cetera, of course, and there are bright lines (“rules”) that bother the “no rules, please” people and ambiguities (“judgments”) that bother the “clarity, please” people, but at least the train isn’t falling off the tracks.  

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• Oracle ERP Cloud Solution Defines Revenue Recognition Software Market

  - by Steve Dalton

  Normal 0 false false false EN-US X-NONE X-NONE Revenue is a fundamental yardstick of a company's performance, and one of the most important metrics for investors in the capital markets. So it’s no surprise that the accounting standard boards have devoted significant resources to this topic, with a key goal of ensuring that companies use a consistent method of recognizing revenue. Due to the myriad of revenue-generating transactions, and the divergent ways organizations recognize revenue today, the IFRS and FASB have been working for 12 years on a common set of accounting standards that apply to all industries in virtually all countries. Through their joint efforts on May 28, 2014 the FASB and IFRS released the IFRS 15 / ASU 2014-9 (Revenue from Contracts with Customers) converged accounting standard. This standard applies to revenue in all public companies, but heavily impacts organizations in any industry that might have complex sales contracts with multiple distinct deliverables (obligations). For example, an auto dealer who bundles free service with the sale of a car can only recognize the service revenue once the owner of the car brings it in for work. Similarly, high-tech companies that bundle software licenses, consulting, and support services on a sales contract will recognize bundled service revenue once the services are delivered. Now all companies need to review their revenue for hidden bundling and implicit obligations. Numerous time-consuming and judgmental activities must be performed to properly recognize revenue for complex sales contracts. To illustrate, after the contract is identified, organizations must identify and examine the distinct deliverables, determine the estimated selling price (ESP) for each deliverable, then allocate the total contract price to each deliverable based on the ESPs. In terms of accounting, organizations must determine whether the goods or services have been delivered or performed to the customer’s satisfaction, then either book revenue in the current period or record a liability for the obligation if revenue will be recognized in a future accounting period. Oracle Revenue Management Cloud was architected and developed so organizations can simplify and streamline revenue recognition. Among other capabilities, the solution uses business rules to efficiently identify and examine contracts, intelligently calculate and allocate deliverable prices based on prescribed inputs, and accurately recognize revenue for each deliverable based on customer satisfaction. "Oracle works very closely with our customers, the Big 4 accounting firms, and the accounting standard boards to deliver an adaptive, comprehensive, new generation revenue recognition solution,” said Rondy Ng, Senior Vice President, Applications Development. “With the recently announced IFRS 15 / ASU 2014-9, Oracle is ready to support customer adoption of the new standard with our Revenue Management Cloud,” said Rondy. Oracle Revenue Management Cloud, an integral part of Oracle Financials Cloud, helps organizations comply with accounting standards, provides them with confidence that reported revenue is materially accurate, and simplifies the accounting process for revenue recognition. Stay tuned to this blog for regular updates on Oracle Revenue Management Cloud. We also invite you to review our new oracle.com ERP pages @ oracle.com/erp. We will be updating these pages very soon with more information about Oracle Revenue Management Cloud.

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• Slower Rate of Convergence for U.S. GAAP and IFRS

  - by Theresa Hickman

  The original date of June 30, 2011 where FASB and IASB would align/converge major areas of accounting has been extended to the end of 2011. They will still meet the June 2011 date for many "urgently required" projects but some projects will not come until the second half of 2011. The reason for this is to allow more time for due diligence, review and consensus. Will this delay the U.S. adoption to IFRS? According to Ms. Schapiro, no, it will not; she is confident that the decision to adopt IFRS in the U.S. will be decided by 2011. I personally hope so because I fear that if the decision is delayed further, it might seep into the 2012 presidential election which could delay the adoption further. For more information, see reuters.com.

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• Venezuela's Highly Inflationary Economy Means Changes to Financial Statements

  - by Theresa Hickman

  This is a bit of an esoteric topic, but given the number of U.S. Companies (particularly oil companies) that operate and have subsidiaries in Venezuela, I think it is worthy of an honorable mention. As you may or may not know, Venezuela's currency has had some changes over the years. In 2008, the Venezuelan Bolivar became the Bolivar Fuerte which dropped three zeros. So Bs.10,000 became Bs.F.10 and all their bills and coins were changed to reflect this. Then on Jan. 8, 2010, the government devalued the currency by 100%. The conversion from VEF to USD dropped from 2.15 to 4.30. (I always wanted to visit Venezuela; I guess it's time to book my vacation). The SEC recently labeled Venezuela a highly inflationary economy. This means that US companies with investments/subsidiaries in Venezuela will need to apply highly inflationary accounting rules starting on Jan. 1, 2010. In addition, companies need to make more detailed disclosures when the Venezuelan reported balances differ from the actual US dollar denominated balances. In a nut shell, if you formerly used translation, then starting Jan 1 of this year, you must now use remeasurement (or temporal method) to restate your Venezuelan entity's financial statements. See ASC topic 830, Foreign Currency Matters, which states that "[t]he financial statements of a foreign entity in a highly inflationary economy shall be remeasured as if the functional currency were the reporting currency." For you non-accountants that I haven't bored and are still reading at this point, the reason why the SEC is doing this is to ensure financial statements are presented as accurately as possible. Hyperinflationary economies have volatile currencies, such as Venezuela (it's not every day a currency devalues 100% overnight) which can distort financial statements if the local currency (Venezuelan Bolivar Fuerte) is used as the functional currency. To make financial statements more accurate, the reporting currency of the U.S. parent (US dollars) should be used as the functional currency. FASB.orgactually has a nice write-up on this.

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• XBRL - Moving from Production to Consumption

  - by jmorourke

  Here's an update on what’s new with XBRL and how it can actually benefit your organization versus adding extra time and costs to financial reporting.  On February 29th (leap day) of 2012 I attended the XBRL and Financial Analysis Technology Conference at Baruch College in NYC.  The event, which attracted over 300 XBRL gurus and fans was presented by XBRL US, The New York Society of Security Analysts’ Improved Corporate Reporting Committee, and Baruch College’s Robert Zicklin Center for Corporate Integrity.  The event featured keynotes from the U.S. Securities and Exchange Commission (SEC), and the CFA Institute as well as panels covering alternative research tools and data, corporate reporting to stakeholders and a demonstration of XBRL analysis tools.  The program culminated in a presentation of the finalists and the winner of the $20,000 XBRL Challenge.    Some of the key points made in the sessions included: The focus of XBRL tools is moving from production to consumption. As of February 2012, over 9000 companies are reporting in XBRL, with over 10 million facts filed to date XBRL taxonomy extensions have dropped from 27% to 11% making comparisons easier The SEC reports that XBRL makes it easier to analyze disclosures, focus on accounting issues XBRL is helping standards-setters like the FASB speed their analysis of impacts of proposed accounting rule changes Companies like Thomson Reuters report that XBRL is helping speed the delivery of data to clients The most interesting part of the program though, was the session highlighting the 5 finalists in the XBRL Challenge competition and the winning solution.  The XBRL Challenge was launched in 2011 as a means of spurring the development of more end-user tools to help with the consumption of XBRL-based financial information.       Over an 8-month process handled by 5 judges, there were 84 registrants, 15 completed submissions, 5 finalists and one winner of the challenge.  All of the solutions are open-sourced tools and most of them focus on consuming XBRL-based data.  The 5 finalists included: Advanced XBRL Processing from Oxide solutions – XBRL viewer for taxonomies, filings and company data with peer comparison capabilities. Arrelle – API for XBRL processes, supports SEC Validations, RSS Feeds to access filings etc. Calcbench – XBRL data analysis tool that can be embedded in other web applications.  This tool can combine XBRL filings with real-time market data. XBRL to XL – allows the importing of XBRL data into Microsoft Excel for analysis, comparisons.  Users start on the web and populate Excel with XBRL data. XBurble – allows users to search and view XBRL filings, export to Excel, merge for comparison, and includes a workflow interface. The winner of the $20,000 XBRL Challenge prize was CalcBench.  More information about the XBRL Challenge and the finalists can be found at www.XBRLUS.org/challenge XBRL for Sustainability Reporting – other recent news on the XBRL front was the announcement by the Global Reporting Initiative (GRI) of an XBRL taxonomy for Sustainability Reporting.  This taxonomy was co-developed by the GRI and Deloitte and is designed to make the consumption of data found in Sustainability Reports much easier.  Although there is no government mandate to file Sustainability Reports in XBRL format, organizations that do use the GRI guidelines for Sustainability Reporting are encouraged to tag and submit their data voluntarily to the GRI – who will populate a database with Sustainability Reporting data and make this available to the public.  For more information about this initiative, you can go to the GRI web site:  www.globalreporting.org. So how does all of this benefit corporate filers and investors?  Since its introduction, the consensus in the market is that XBRL has mainly benefited the regulators and investment analysts who need to consume and analyze large volumes of financial data.  But with the emergence of more end-user tools for consuming and analyzing XBRL-based data, and the ability to perform quick comparisons of one company versus its peers and competitors in an industry group, will soon accelerate the benefits to corporate finance staff, as well as individual investors.  This could apply to financial results tagged in XBRL, as well as non-financial information such as Sustainability Reporting – which over the long-term will likely be integrated with financial reporting.   And as multiple regulators and agencies in a country adopt the XBRL standard for corporate filings, more benefits will accrue as companies will be able to leverage one set of XBRL-based financial data for multiple regulatory filings.     For more information about the latest developments in XBRL, check out the XBRL US or XBRL International web sites:  www.xbrl.org, www.xbrlus.org. For more information about what Oracle is doing to support XBRL, here are some links: http://www.oracle.com/us/solutions/ent-performance-bi/disclosure-management-065892.html http://www.oracle.com/technetwork/database/features/xmldb/index-087631.html Feel free to contact me if you have any questions or need more information:  [email protected]

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