Implementation of IFRS Standards in Oracle EBS Fixed Assets at NAV CANADA # 10487

Angela Pegg Louise Guigue

Please complete evaluation forms at the end of the session # 10487

Louise Guigue guiguel@navcanada.ca Manager Accounts Payable and Capital Asset Accounting Certified General Accountant with 25+ years in Accounting and Finance Worked with SAP and Oracle Financials Angela Pegg pegga@navcanada.ca Manager Finance and Corporate Services Solutions, IM Certified Management Accountant Over 18 years experience with Oracle EBS Suite, 10 yrs Finance

Agenda
Introductions, NAV CANADA IFRS Background High Level Requirements Options for Asset Book Setup Asset migration methodology Transition Process Lessons Learned, Tips Conclusion Q&A

NAV CANADA is the second largest Air Navigation Service Provider (ANSP) in the world

NAV CANADA
4800 employees 12 million aircraft movements per year 40,000 customers , $1 Billion + Annual Revenue 18 million sq. km of airspace over Canada and the Oceans Private sector, non-share capital, funded by publicly traded debt One of the best safety systems in the world received the IATA Eagle Award 3 times

Our Mission is to prevent

NAV CANADA Oracle Footprint

Substantial but not complex, consisting of 6 entities but only 1 operating unit: Oracle EBS v 11.5.10.2 Financials: GL, AP, AR, CM, OM, FA, PO, iExpense, INV, ADI HRMS: iRecruitment, Oracle Learning Management, Compensation Workbench, Oracle Standard Benefits, Employee and Manager Self-Service UPK

NAV CANADA Fixed Assets Profile

One Corporate Book based on Canadian GAAP Over 37,000 individual assets NBV $1.4 Billion at August 31, 2011 Majority of assets are constructed instead of bought (radar towers, weather observation systems, towers, monitoring systems)

IFRS Background
Set of accounting standards developed by the International Accounting Standards Board (IASB) Becoming the global standard for the preparation of public company financial statements All listed EU companies have been required to use IFRS since 2005 Considerable debate around its adoption in the US

IFRS Background (cont)

In Canada: effective for fiscal years beginning on or after January 1, 2011 NAV Canadas first official year of reporting under IFRS is fiscal 2013 which closes on August 31st and includes comparatives for fiscal 2012 Fiscal year 2012 is to be externally reported under Canadian GAAP - requires one year of dual reporting: September 2011August 2012

Key changes required in FA at NAV CANADA

Deemed Cost Elements of Cost Identification of Components Reconciliation of the Carrying Amounts (NBV) Capture of Borrowing Costs

IFRS Specific Oracle features

Specific Oracle functionality developed to support IFRS requirements for FA: Impairment of Assets: Accelerated method of depreciation for physical assets or asset write-off for non-tangible assets and impairment worksheet. Asset Componentization: Parent/Child assets with migration process (Web ADI Worksheet).

High Level Requirements

The fixed asset transactions must be recorded in the Oracle Ledger using the deemed cost basis starting September 1, 2011 Assets must also be tracked on Canadian GAAP basis for the duration of the dual reporting period (September 1, 2011August 31, 2012) The original cost, date placed in service and units must be available under both IFRS and GAAP

High Level Requirements (cont)

Need to update both the GAAP and IFRS books regularly with new additions, disposals, adjustments, etc. The ongoing update and management of both books should be automated to the greatest extent possible to minimize the additional workload of maintaining assets under two accounting methods Need the ability to easily and quickly report under both methods and facilitate ongoing reconciliation

Analyzing the Options for setup of the Asset Books

Major factors in our decision were the amount of time it would take to set up and migrate data Amount of work to maintain dual ledgers Minimal work at the end of the dual reporting period Six Options were identified * For illustration purposes , assume
*see white paper for detailed pros and cons
DEP = Original GAAP Book IFRS = IFRS Book Tax = Tax Book

Options for setup of the Asset Books Option 1

Continue with existing GAAP Corporate book New Corporate Book for IFRS, manage each separately

DEP DEP Corporate Corporate

Too much manual maintenance

IFRS IFRS Corporate Corporate GL

Options for setup of the Asset Books Option 2

Continue with existing GAAP Corporate book Adjust in GL via journal entries for IFRS values

DEP DEP Corporate Corporate

GL

IFRS

Too much manual maintenance , requires eventual IFRS setup

Options for setup of the Asset Books Option 3

Adjust existing GAAP Corporate book to reflect IFRS Track GAAP assets outside the system

DEP X -> DEP -> IFRS IFRS Corporate Corporate

Complex adjustments for IFRS Too much manual maintenance

GL

GAAP

Options for setup of the Asset Books Option 4

Continue with existing GAAP Corporate book Create an associated IFRS Tax book

DEP DEP Corporate Corporate

IFRS IFRS Tax Tax

GL

Depn adjustments complicated significant effort to adjust to IFRS values Does not allow mass adds to Tax Book post-dual reporting period

Options for setup of the Asset Books Option 5

Process changes in the existing Corporate book to reflect IFRS requirements Create new, associated GAAP tax book

DEP X -> DEP -> IFRS IFRS Corporate Corporate GL

GAAP GAAP Tax Tax

Depn adjustments complicated significant effort to adjust to IFRS values

Options for setup of the Asset Books Option 6

Create a new Corporate IFRS book Track GAAP assets in a related Tax book

IFRS IFRS Corporate Corporate

DEP DEP Corporate Corporate

GAAP GAAP Tax Tax Book Book

Selected Option

GL

Options for Setup of the Asset Books Option 6

We chose to set up a new Corporate Book for IFRS and a related Tax Book for Canadian GAAP : Met all current requirements for asset processing and reporting for IFRS and GAAP Allowed for smooth transition to full IFRS after dual reporting period

Short term pain for long term gain!

Choosing the Asset Loading Methodology

ADI/webADI Dataload FA Mass Additions and FA Tax Interface APIs FA Mass Additions and FA Tax Interface tables via SQL load

Choosing the Asset Loading Methodology

We chose to use SQL to load the FA Mass Additions and FA Tax Interface tables as well a Dataload The FA Mass Additions table was used to load the IFRS Corporate Book from the existing Corporate book The FA Tax Interface tables were used to process adjustments to the IFRS and Tax books Dataload to re-create the link between parent and child assets

IFRS Transition Process

Finalize the ending balances as of August close and freeze the asset environment Completed a full extract of the existing assets & the details required for loading into the new books The Fixed Asset Business Process Owner (BPO) validated the completeness and accuracy of the extract

IFRS Transition Process

Assets loaded into the IFRS book in 4 sections using FA_MASS_ADDITIONS tables, reconciling after each load Assets with 0 cost 0 NBV; Assets with cost, but 0 NBV (fully depreciated assets); Assets with cost & NBV; and Assets that had to be loaded manually (assets with negative value or multiple locations)

IFRS Transition Process

After completion of the IFRS book load, we used the Initial Mass Copy to load the assets to the Tax book Adjustments to the Tax book using FA_TAX_INTERFACE tables for the useful life (the mass copy defaults asset life based on the category depreciation method). We fully reconciled the 3 books (DEP, IFRS, TAX) which were all the same at this point for capitalized assets

IFRS Transition Process

Using the FA_TAX_INTERFACE tables, we made the following adjustments to the IFRS assets: Adjusted to deemed cost value Changed the Date Placed in Service for each asset Changed the Useful Life, such that depreciation would be the same in both books after conversion The project team validated the NBV in both books as well as depreciation calculations to ensure they were equal

IFRS Transition Process

Recreated the link between parent and child assets using Dataload Created GL journal entries to reverse the existing balances from the original Corporate book (the balances from the asset additions of the new IFRS books had doubled the asset value in the GL) After successfully transitioning to the IFRS/TAX books, we end dated the original Corporate book. Note: once you end date the book this cannot be undone!

Lessons Learned, Tips

Solution Design / Testing
Plan to go through multiple test runs until all parties are comfortable with the expected results Use an iterative approach for solution design and testing the functional analyst, developer and business worked very closely together Use multiple test environments if possible. Testing is faster and prevents having to make changes to data loading scripts

Lessons Learned, Tips

Asset Conversion
Analyze the FA_MASS_ADDITIONS and FA_TAX_INTERFACE tables to look for how to populate mandatory and optional columns Create a full extract of your assets for review and analysis by both the business and technology team Load your asset data from the original Corporate book into interim tables with data selected from your closed month-end balances

Lessons Learned, Tips

Asset Conversion The Asset Number and the Tag Number for each asset had to be changed no duplicate values allowed across Corporate books We used the FA_TAX_INTERFACE table to adjust the IFRS and Tax books rather than the FA_MASS_ADDITIONS table (simpler to use and supported by Oracle)

Lessons Learned, Tips

Transition Process
Setup new books in advance of the close to save time at transition Lock down the Fixed Assets ledger for the opening period under IFRS for IFRS conversion activity only Delay the processing of the first months transactions to the next month - allows reconciliation of the data without risk of daily transactions being populated into the asset base & facilitates reporting

Lessons Learned, Tips

Reporting
Review existing custom reports to ensure that they will work with the newly created asset books The following reports were very useful for verification: Reserve Summary Report, Reserve Detail Report, Cost Summary Report, preliminary depreciation and rollback FA Extract Report (this is a custom report we had to export data into Excel)

Lessons Learned, Tips

Post-implementation
When making ongoing cost adjustments - ensure the amortize adjustment box is checked on the cost adjustments tab to prevent different values being created in the IFRS book versus the Tax book Differences in the cost & accumulated depreciation in both books requires manual adjustments each month for retirements and transfers of converted assets

Conclusion a smooth landing

5 business days to transition No surprises

Additional Resources
IFRS Info: http://www.ifrs.com/index.html US: http://www.sec.gov/spotlight/globalaccountingstandards.shtml Canada: http://www.cica.ca/IFRS/ Canada: http://www.ifrsincanada.com/ Canada: http://www.cra-arc.gc.ca/tx/bsnss/tpcs/frs/menu-eng.html Oracle and IFRS: http://www.oracle.com/us/solutions/corporate-governance/ifrs/061917.html http://www.oracleappshub.com/jumpstart/basic-accounting/a-bit-on-ifrs/

Q & ehs