The Big Three

Accounting Standard
22 October 2019
Polling
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PwC 2
PSAK 71: Financial
Instruments
Why is PSAK 71 issued?

The incurred loss model delayed recognition

of credit losses.
“Too little, too late.”

Many users urged the IASB to develop the new

Standard to be principle-based and less
complex.

Several amendments made to clarify

requirements, add guidance and eliminate
internal consistencies

PSAK 71 replaces PSAK 50, 55, and 60 in its entirety by 1 January 2020

PwC 4
What has changed?

PSAK 71

Extensive New hedging Replace incurred Amend

disclosure guidance to align loss model with classification &
requirements closely with risk expected credit measurement
management loss impairment requirements of
model financial assets

PwC 5
Classification and
measurement
Classification & measurement of financial assets

PSAK 55 PSAK 71

Held to Maturity
Amortised
Amortised cost
Cost
Loans and Receivables

Available for Sale OCI

Fair Fair
Value Value
Held for Trading P&L

PwC 7
Classification & measurement of debt instruments

Hold to collect
Cash flows
which consist
solely payments Hold to collect
of principal and and sell
interest Business
SPPI model
Fair value assessment
through P&L

If fail SPPI test → must be FVTPL

PwC 8
Classification and Measurement Financial Assets Recap

Debt or equity? (PSAK 50)

Debt Equity
FVOCI option?
Are cash flows solely payments of principal and
(irrevocable choice by
interest?
instrument)
Derivatives
are FVPL Yes N0

Assess the business model N0 Yes

Hold to collect
Hold to collect Hold to sell
and sell

Amortised cost FVOCI FVOCI

FVPL
(AC) (debt) (equity)
PwC 9
Impairment model
Impairment of financial assets

PSAK 55 - Incurred loss PSAK 71 - Expected loss

Delay recognition of credit No longer require trigger event

losses until there is evidence to have occurred before credit
of a trigger event losses are recognised

Past events and current Forward looking & more

conditions & too late timely

PwC 11
3-stage general approach for PSAK 71 impairment
Change in credit quality since initial recognition

Significant increase in Is the asset

credit risk (SICR)? impaired?
Forward looking
Stage 1 Stage 2 Stage 3
Credit risk
Performing Underperforming Non-performing
assessment (Initial recognition*; (Assets with significant increase
(Credit-impaired assets)
low credit risk) in credit risk since initial recognition*)

Recognition of
expected credit 12-month ECL Lifetime ECL Lifetime ECL
losses (‘ECL’)

Effective interest on amortised

Effective interest on gross Effective interest on gross
cost carrying amount
Interest Revenue carrying amount carrying amount
(i.e. net of credit allowance)

*except for purchased or originated credit-impaired assets

PwC 12
What is expected credit loss (ECL)?
(PSAK 71)

ECL represent a probability-weighted estimate of the difference over

the remaining life of the financial instrument, between:
Present value of
Present value of
cash flows
cash flows the entity
according to
expects to receive
contract

ECL = EAD x PD x LGD

Exposure at default Probability of Loss given
(principal outstanding) default (%) default (%)

Loss rate
PwC 13
Impairment model for each type of financial asset

General Model Simplified Approach

Three-stage Approach Full Lifetime ECL Model
Monitoring of significant increase in credit Monitoring of significant increase in credit
risk (“SICR”) is required. risk (“SICR”) is NOT required.

Financial assets at amortised cost

Financial assets at FV-OCI Trade accounts receivable without

significant financing component
Irrevocable loan commitments and
financial guarantees (unless FVTPL)

Lease receivables (Discretionary) Lease receivables (Discretionary)

Trade accounts receivable with Trade accounts receivable with

significant financing component significant financing component
(Discretionary) (Discretionary)

PwC 14
Forward looking model

Step 2:
Step 1: Step 3:
Identify relevant macroeconomic
Source MEVs from public domain Develop forward looking model
factors

Example of MEV’s considered in the model: Identify and eliminate macroeconomic

variables that are not correlated with PD/ LGD, Shortlist Macroeconomic
Macroeconomic Variables (MEVs) not intuitive, or are highly correlated with Variables
another MEV
Gross Domestic Product
Unemployment Rate
Consumer Price Index
Perform Statistical Algorithms
Oil Brent Crude
KLIBOR 1-month
Property Price Index
Statistical significant test
Foreign Exchange Rate (USD/ IDR) Correlation test
R-square
Bursa Equity Index Step-wise linear regression
Consumer Confidence Index
Inflation Rate

This process will help to reduce the number of

Final Forward Looking Model
MEVs to be considered in the model

PwC 15
Provision matrix
H9: Do you agree with the provision matrix calculation performed by WiTel
management on non-corporate trade receivables?
Total book: Current 30 – 60 days 60 – 90 days After 90 days

Trade CU 140 CU 50 CU 40 CU 30 CU 20
receivable
balances at
year end: [1]
Default rate: 3% 3% 3% 3%
[2]
Expected CU 4.2 CU 1.5 CU 1.2 CU 0.9 CU 0.6
credit loss:
[1] x [2]

Yes No
No
• The same default rates cannot be applied to the various trade receivable buckets
• Forward looking information was not considered

PwC 16
Example of provision matrix calculations

Step 1: Define the period of sales and bad debts related to those sales

• Calculate the total amount of the sales on credit made during the CU 10 000
period (i.e. debtors recognised)
• Calculate the total amount of bad debts incurred related to the sales
(i.e. written off with respect to the sales above) CU 300

Step 2: Calculate payment profile of the debtors

Total sales (CU): 10 000 Total paid: Ageing profile of sales

(step 3):
Paid in 30 days: (2 000) (2 000) 8 000

Paid between 30 and 60 days: (3 500) (5 500) 4 500

Paid between 60 and 90 days: (3 000) (8 500) 1 500

Paid after 90 days: (1 200) (9 700) 300

[written off]
PwC 17
Example of provision matrix calculations

Step 3: Calculate the historical default loss percentage

[Use ageing of payments determined in step 2 / credit loss on all sales]

Current sales Sales Sales Sales

payments payments payments
outstanding outstanding outstanding
after 30 days after 60 days after 90 days
Ageing profile
10 000 8 000 4,500 1,500
of sales [1]
Loss: [2] 300 300 300 300
Default rate: 3% 3.75% 6.67% 20%
[2]/[1]

PwC 18
Example of provision matrix calculations

Step 4: Adjust the loss percentage for forward looking information

Assumptions: Consider changes in:

• Economic, regulatory,
•Economic down turn/higher unemployment rates forecast technological environment
•Assume the same payment profile and sales as initially e.g. industry outlook, GDP,
employment, politics
•Loss adjusted from 300 to 400 as a result • External market indicators
• Customer base
Current sales Sales Sales Sales
payments payments payments
outstanding outstanding outstanding
after 30 days after 60 days after 90 days
Ageing profile
10 000 8 000 4,500 1,500
of sales [1]
Loss: [2] 400 400 400 400
Default rate: 4% 5% 8.9% 27%
[2]/[1]
PwC 19
Example of provision matrix calculations

Step 5: Calculate the expected credit loss using the default rates determined
above

Total Current 30 -60 days 60 -90 days After 90

[0 – 30 days
days]

Trade
receivable 140 50 40 30 20
balances at
year end: [1]
Default rate: 5%
4% 8.9% 27%
[2]
Expected
credit loss: CU 12 CU 2 CU 2 CU 2,7 CU 5,3
[1] x [2]

Total ECL: CU 12 [8.6% of total book] vs. CU 4.2 WiTel

calculation
PwC 20
Impairment – Key messages

• Operational simplifications available.

• Provision matrix must incorporate forward looking information.
• If 12 month vs lifetime ECL policy choice available, consider choice carefully.
• Financial guarantees affect ECL, not original credit risk.
‘Need to know’ list

1. New ECL model results in impairment recognition on initial asset

recognition
2. Lifetime ECL for trade receivables and contract assets with no significant
financing component mandatory.
3. Intercompany receivables in scope of PSAK 71 have 3 stage model
applied.
4. Provision matrices can be applied to trade receivables but can be complex
to develop.
5. Change in accounting for financial guarantees.
6. Still need to assess significant increase in credit risk even if guarantee
held.
PwC 21
Hedge accounting
PSAK 71 Hedge accounting – Key changes

• Hedge accounting more in line with entity’s

risk management strategy and objective
• Retrospective effectiveness test is eliminated
• No imposition of quantitative effectiveness
limits (80-125%)
• Better accounting treatment available for
hedging with options, forward contracts and
instruments with currency basis spread →
Reducing volatility in profit and loss

PwC 23
Global impacts of PSAK 71
An average of USD 217 million in adjustment towards equity
217 mn was reported by Global companies

Royal Dutch Shell

Equity: 83 million
Impairment model and hedge
Brookfields Asset Management
ArcelorMittal accounting changes
Equity: 62 million
Changes in measurement and Equity: 1.4 billion
classification Changes in measurement and
classification

Enel
Equity: 175 million
Impairment model and hedge
accounting changes

Sempra Energy
Equity: 1 million Saint Gobain
Changes in measurement and Equity: 26 million Airbus
classification Impairment model Equity: 9 million
Impairment model and changes in
measurement and classification

Vinci
Equity: 11 million
Eni Impairment model and hedge
Naturgy Equity: 335 million accounting changes
Equity: 70 million Impairment model and changes
Impairment model and changes in in measurement and
measurement and classification classification

* Our benchmark is done based on publicly available information as of 24 April 2019

PwC 24
PwC 25
PSAK 72: Revenue
from Contracts with
Customers
Introduction
Distinctions between existing practice vs PSAK 72

PSAK 23 “Revenue”
PSAK 72 “Revenue from contract with customer”
PSAK 34 “Construction contracts”

Separate models for: Single model for performance obligations:

• Construction contracts • Focus on criteria of Overtime recognition
• Goods • Point in Time recognition only when Overtime criteria are
• Services not met

Focus on risk and rewards Focus on control

Limited guidance on: More guidance:

• Multiple element arrangements
• Variable consideration
• Licences
• Separating elements (Performance Obligations),
• Methods to allocate the transaction price,
• Variable consideration,
• Licences,
• Options,
• Repurchase arrangements,
and so on….

PwC 31
Introduction
Distinctions between existing practice vs PSAK 72

Common practice
under existing Track progress of
Works Invoices are Often times,
standard (PSAK Orders are created works based on
performed based billed as revenue = % of
in the system costs spent to date
23) on orders scheduled completion to date
or milestones

1 2 3 4 5
Identify Determine the Allocate
5-step model Identify the contract Recognise
performance transaction transaction
PSAK 72 with customer revenue
obligations price price
• The unit of account is at • One order does not Variable Allocate the total • Recognise revenue
the contract level, not necessarily mean one considerations need to transaction price when (or as) a
orders. performance be estimated upfront. based on the relative performance
obligation. stand-alone selling obligation
• Contract management price (“SSP”) of the is satisfied
is essential. • Free product / service identified performance
may be identified as a obligation.
• Not all identified
• A few contracts may distinct performance
performance
need to be combined. obligation.
obligations in a
contract may have
the same pattern of
revenue recognition.

PwC 28
 Identify
the
contract
with the customer

01 Agreement between
two or more parties
that creates
enforceable rights &
obligations
(not necessarily
written)

PwC 29
Identify the contract with the customer

Collectability
• Probable

Contract Contract
combination modification
• Price interdependence • New contract
• Negotiated as • Modification prospectively
package with single • Cumulative catch up
commercial objective
• Single performance
obligation
PwC 30
Case study – contract combination & modification

PT Pupuk agrees to sell PT Pupuk agrees to provide

fertilizers to customer X with fertilizers delivery service to
FOB shipping point. Sumatra Barat for customer X
with 30% discount.

1st contract 2nd contract

Existing practice PSAK 72 approach

C1 C2
C1 C2

1st and 2nd contracts are often accounted for 1st and 2nd contracts are likely to be combined
separately. together.

PwC 31
 Identify
the
performance
obligations

02 A promise in a contract
with a customer to
transfer a good or
service to the
customer

PwC 32
Step 2 – Identify the performance obligations
Is a good or service distinct?

Capable of being distinct?

i.e. Benefit from good or
service on its own or
with other readily
available goods or services
Distinct

Think about
Distinct in the context |Transportation service|
of the contract? |Car maintenance service|
i.e. Good/service |Office management service|
not being used as an input
to create an output

PwC 33
Case study – identify performance obligation

PT Karya provides a number of incentives to boost the sale of residential properties. The
first 100 customer will get:
1. A residential unit.
Club
membership
2. Free overseas trips.
3. 2 year free membership to the local clubhouse.
Free
Overseas
trips Free products can maintenance 4. 2 year free maintenance services.
be identified as
distinct PoB
Existing – everything is allocated to unit price

All for the price

PSAK 72
of the unit
Residential
unit
Existing.

PSAK 72 - Some portion is allocated to free trip.

Existing.

PSAK 72 - Some portion is allocated to free membership.

Existing.
PSAK 72 - Some portion is allocated to maintenance.

PwC 34
Identify performance obligation – Other examples

Unit of automotive Sales of fertilizers Bundling of

and free service and and shipping service telecommunication
maintenance services

Sales of a furnished
residential unit

PwC 35
 Determine
the transaction
price
03

PwC 36
Factors that may affect the transaction price

Variable
consideration Transaction
price =
Significant Amount of
financing consideration to
component which the entity
expects to be
Non-cash entitled to in
consideration exchange for
transferring
Consideration goods or
payable to services
customers

PwC 37
Case study – determine the transaction price
Sales of automobiles Sales of automobiles

Quantity Price
Main 1-1000 units Rp 200 Sub-
Customer
Dealer 1001-… Rp 180 Dealer
units
Historical Transaction
Conclusion
Step 1 Step 3

40%
60%

Purchase (1200 unit) Purchase (1500 unit)

Step 2 Estimated total considerations – in Rp Estimated units of automobiles sold

((1,000 x Rp 200) + (200 x Rp 180)) * 60% : Rp 141,600 (1,000 + 200) * 60% : 720 units
((1,000 x Rp 200) + (500 x Rp 180)) * 40% : Rp 116,000 (1,000 + 500) * 40% : 600 units
Total probability expected considerations: Rp 257,600 Total probability estimated units sold 1,320 units

PwC 38
 Case study – determine the transaction price

Analysis
PT Karya agrees to construct an office building
complex which will be finalised after five years. Present value $ 5,000

Annual interest rate 5%

Case A: PT Karya gets $1,132.2 per year
Period of payment 60 months
Year 1 Year 2 Year 3 Year 4 Year 5
Interest expense $661

Revenue $1,132.2 $1,132.2 $1,132.2 $1,132.2 $1,132.2 Total rev = $5,661 Transaction Price $5,661
Int. exp $132.2 $132.2 $132.2 $132.2 $132.2 Total int.exp=$661
Journal process:
Case B: PT Karya gets $5,000 upfront payment A.Contract inception
Year 1 Year 2 Year 3 Year 4 Year 5 Dr. Cash $5,000
Cr. Contract liability $5,000
Revenue $1,132.2
$1,000 $1,132.2
$1,000 $1,132.2
$1,000 $1,132.2
$1,000 $1,132.2 Total rev = $5,661
$1,000 $5,000
Int. exp $132.2
$0 $132.2
$0 $132.2
$0 $132.2
$0 $132.2 Total int=$661
$0 int.exp=$0
B. Yearly revenue recognition

Consideration that PT Karya receives from Case B: Dr. Contract liability $1,000
1. Fixed cash consideration of $5,000; and Dr. Interest expense $132.2
2. Financing from customer
Both
PwCconsideration should be accounted for when recognising revenue Cr. Revenue $1,132.2 39
Determine the transaction price – other examples

Rebates Revenue Sharing Pricing based on

index

PwC 40
 Allocate
the transaction
price
04

PwC 41
How to allocate the transaction price

1 2 3
Allocate to each performance obligation based
Transaction price (and any on relative stand-alone selling price unless clear
subsequent changes) that discount or variable consideration relates to
only one good/service

Should be estimated if the actual

Stand-alone selling price selling price is not directly
observable

• Cost plus reasonable margin

Possible estimation • Market prices similar good/service
methods include • Residual approach when selling
price is highly variable

PwC 42
 Recognise
revenue when /
(as) a performance
05 obligation is
satisfied

PwC 43
Step 5 – When does control transfer over time?

Yes Customer consumes benefits as entity

performs
e.g. management services

No

Point in time
Over time

Yes
Customer controls asset as it is created
e.g. building on customer’s land

No

Asset has no alternative use No

Yes
and right to payment for work to date
e.g. apartment sales?

PwC 44
 Other
consideration
06 for PSAK 72

PwC 45
Contract costs
• Incremental costs of obtaining a contract capitalised if expected
to be recovered (e.g. sales commissions)
- May be expensed if expected contract period less than 1 year
Impact: Sales commissions

• Contract fulfilment costs – do not include contract assets

- Look to other guidance first (inventory, PPE)
- If out of scope, required to be capitalised if:
◦ Relate directly to a contract and
◦ Relate to future performance and
◦ Expected to be recovered

Impact: ‘Contract’ accounting, cost recognised when

incurred, revenue ‘cost plus’ if input method used
PwC 46
 Contract costs – Example

Costs of obtaining a contract should be capitalised if the entity expects to recover those costs and amortised
on a systematic basis consistent with the pattern of the transfer of the goods or services

Sales commission for sales of automobiles Bonus calculated from construction contracts
entered during the year

Transaction Transaction Price Recognition

Recognition
Price
Sales $5,000 Point in Time Sales $5,000 Overtime

Commision 10% of Sales Point in Time Bonus 10% of contract value Overtime

Year 1 Year 2 Year 3 Year 4 Year 5

Year 1 Year 2 Year 3 Year 4 Year 5

% completion 10% 30% 50% 80% 100%

Revenue $5,000 $1,000
Revenue $500 $1,000 $1500 $1000
Commission $ 500 $100
Commission $50 $100 $150 $100

PwC 47
Will you be significantly affected?

Customised/non- Price reductions (volume

standardised services discounts, rebates, etc)

Bundled of goods and Examples of business Upfront payment for

services schemes affected by long-term services
PSAK 72

Various marketing Compensation based on

schemes $ sales/contract value

PwC 54
Global impacts of PSAK 72
An average of USD 761 million in adjustment towards beginning
761 mn Retained Earnings was reported by Global companies

Brookfields Asset Management

Beginning RE: 280 Million Atlantia Group
Timing of revenue recognition and Beginning RE: 7 million
variable consideration Variable consideration and
contract cost

Enel
Beginning RE: 4.1 Billion
Performance obligation and contract
cost

Phillips 66
Beginning RE: 35 million
Variable considerations Airbus
Saint Gobain Beginning RE: 2.8 Billion
Beginning RE: 1 Million Timing of revenue recognition and
Timing of revenue variable consideration
recognition and variable
consideration

Lockheed Martin
Beginning RE: 168 million Vinci
Timing of revenue recognition Beginning RE: 125 Million
Eni Variable consideration
Beginning RE: 52 million
Naturgy Timing of revenue recognition
Beginning RE: 50 million
Timing of revenue recognition

* Our benchmark is done based on publicly available information as of 24 April 2019

PwC 49
PwC 50
PSAK 73: Leases
PSAK 73 Overview
Scope of PSAK 73

Lease = A contract, or part of a contract, that conveys the right to use an

asset (the underlying asset) for a period of time in exchange for consideration.

All leases are in the scope of PSAK 73, except for:

Lease to explore for or use non-regenerative resources Out of scope

Biological assets within the scope of PSAK 69 Out of scope
Service concession arrangements within the scope of Out of scope
ISAK 16
Licences of intellectual property granted by lessor within Out of scope
the scope of PSAK 72
Rights held by lessees under certain licensing agreements Out of scope
(motion picture films, patents, copyrights etc.)
Other intangible assets Policy choice for lessees
PwC 53
Key considerations for the new lease model
In summary, the changes are as follows:

Some critical matters that have to be

considered:
PSAK 30 PSAK 73
Finance lease model Single lease model Identification of
leases
Asset
BS Asset
Lease liability
BS Lease term
Lease liability
Depreciation expense
IS Variable lease
Interest expense
Depreciation expense payments
IS
Operating lease model Interest expense

Non-lease components
BS Not applicable

IS Lease expense Determination of

discount rate

Remarks:
BS : Balance sheet
Lease modification
IS : Income statement

Transition approach
& practical expedients

PwC 54
Lessee accounting

Right-of-use asset Lease liability

Lease liability Lease payments

Discount rate

Lease payments made

before or at commencement
date

Restoration costs Provision

Initial direct costs

PwC 55
Lessee accounting

In-substance fixed
Variable lease payments
payments
dependent on ….

rate/index other variable

e.g. inflation/ e.g. sales in a retail e.g. payments made only if

interest rate or store asset is proven capable of
market rental rates operating

Part of lease Not part of lease Part of lease liability

liability liability

PwC 56
Lease definition – process
no
Is there an identified asset?
yes
Does the customer have the right to obtain substantially all of the economic no
benefits from the use of the asset throughout the period of use ?
yes
Who has the right to direct how and for what purpose the asset is used
throughout the period of use ?

Customer Predetermined Supplier

yes no
Customer
⮚ operates the asset or
⮚ has designed the
asset?

Contract contains a lease Contract does not contain a lease

PwC 57
Lease definition –examples (1/2)
Truck rental (1/2)

• Customer enters into contract with Supplier for one week for exclusive use
of a specified truck to transport cargo from New York to San Francisco.
Contract prohibits Supplier from substituting alternative truck.
• Cargo to be transported, timing and location of pick-up in New York and
delivery in San Francisco are specified in contract.
• Customer is responsible for driving truck from New York to San Francisco.

Does the contract contain a lease?

Identified asset?
✔
Substantially all of the economic benefits?
✔
Right to direct the use? See next slide

PwC 58
Lease definition – examples (2/2)
Truck rental (2/2)

• Customer enters into a contract with Supplier for one week.

• Cargo to be transported, timing and location of pick-up in New York and
delivery in San Francisco are specified in contract.
• Customer is responsible for driving truck from New York to San Francisco.

Right to direct the use?

How and for what purpose? predetermined

Customer operates the asset?

✔
Customer has designed the asset? n/a

The contract contains a lease.

However: short-term lease!

PwC 59
PSAK 73 Lease term – an overview
PSAK 30 & PSAK 73 PSAK 30
diversity
Non-cancellable no indicator in
period practice

PSAK 73
“reasonably Commercial

certain”
Period covered by T&Cs
option to extend
Restrictions on
the option

Non-monetary
Past practice
factors
Complementary
assets (e.g.
Period covered by leasehold
option to terminate improvements) Importance of the
asset (and
availability of
alternatives)
enforceable right
PwC 60
PSAK 73 Lease term – an example

• TellCo enters into a perpetual office space lease.

• Contract can be terminated by TellCo at any time - 1 month notice.
• Penalty of 20 months rent – if lease is terminated within first 18 months.

What is the lease term?

1 month 19 months 20 months

Assess if TellCo is reasonably certain to exercise option.

Termination penalties – 20 months rent – Significant penalty

PwC 61
Possible extent of impacts of PSAK 73 on some typical leases (1 of 2)

High Medium Low

Description of Lease component(s) Non Lease component(s) Complexity Short-term Low value Intangible
transaction level lease assets assets

Office building, space

and related generator
set
Land and building Genset Services charge Utilities

Machineries and
equipment
Heavy equipments Maintenance level 1 Maintenance level 2

Connection rural
area

Satellite V-SAT Additional Tower Connectivity

Data centre, call

centre and related
networks
Physical infrastructure and equipment Managed service Connectivity Maintenance

Vehicles

Vehicle(s) Driver Routine maintenance

PwC 62
Possible extent of impacts of PSAK 73 on some typical leases (2 of 2)

High Medium Low

Description of Lease component(s) Non Lease component(s) Complexity Short-term Low value Intangible
transaction level lease assets assets

Asset dedicated for

outsourcing service

Equipment’s specifically used by

outsource employee/company Outsourced employee

Billboard and
signage
Billboard and signage

Computer and office

equipment Consumables

Printer and photocopy machines

PwC 63
 PSAK 73 Transition – an overview

IDENTIFY POPULATION OF CONTRACTS FOR TRANSITION (1)

• Decide whether to reassess the definition of a lease 01
• Decide whether to apply recognition exemptions

DECIDE TRANSITION METHOD Text

Modified retrospective
OR
Full Retrospective
02

IDENTIFY POPULATION OF CONTRACTS FOR TRANSITION Text (2)

• Decide whether to apply transition relief to leases ending within 12 months 03

Text
MEASURE LEASE LIABILITY Decide whether to apply transition relief for:
• Portfolio discount rate 04
• Use of hindsight

MEASURE ROU ASSET

Decide whether to apply transition relief for: 05
1) ROU asset = lease liability 2) Onerous leases 3) Initial direct costs

PwC 64
Impact on net profit
Operating Applicable
leases leases *
PSAK 30 PSAK 73
$
Revenue X X

Operating Single
expenses expense

EBITDA

Depreciation
and Depreciation
amortisation

Operating
profit

Year Finance cost Interest

Operating lease Interest expense

PBT
Depreciation Net profit impact
* Excluding low value / short term / variable

PwC 65
What does this mean for your business?

Ratio Calculation Impact Explanation

Gearing • Liabilities/ Equity • Reported debt increases

EBITDA • Profit before interest, • There will be no operating lease expense included
tax, depreciation and
amortisation

Equity • Carrying amount of leased assets reduces faster than the

reduction of the lease liability in early years of lease

Profit before tax • Lease expense (depreciation and interest expense) is greater
than previous operating lease expense in early years of lease

EPS • Profit/Number of • Lease expense (depreciation and interest expense) is greater

shares on issue than previous operating lease expense in early years of lease

PwC 66
Global impacts of PSAK 73
4
An average capitalisation of USD 4 billion additional lease Expected median increase in debt by 22% based on a
survey by PwC of 3,199 listed IFRS reporters worldwide (all
bn obligations reported by Global companies
industries)

Royal Dutch Shell

Brookfields Asset Management
Asset: USD 3 Billion
Liabilities USD 3 Billion
Asset: USD 15.6 Billion
Liabilities USD 16 Billion
ArcelorMittal
Asset: USD 1.1 Billion
Liabilities USD 1.1 Billion

Enel
Asset: USD 1.5 Billion
Liabilities USD 1.5 Billion

Exxon Mobil Corp

Asset: USD 4.3 Billion
Liabilities: USD 3.3 Billion Airbus
Saint Gobain Asset: USD 1.7 Billion
Assets: USD 3 Billion Liabilities USD 1.7 Billion
Liabilities: USD 3.3 Billion

Chevron Corp Vinci

Asset: USD 4 Billion Asset: USD 1.5 Billion
Liabilities: USD 4 Billion Total SA Liabilities USD 1.5 Billion
Asset: USD 6 Billion
Liabilities USD 6 Billion

* Our benchmark is done based on publicly available information as of 24 April 2019

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What you should do
Implementation journey
What you need to
do
Scoping and Accounting policies & Data collection and review System implementation
comprehensive gap position papers data input
analysis

1 2 3 4
Completeness of lease Accounting position papers Observation result Final PSAK 73 system
population and lease regarding review over
diagnostic questionnaire contract data input

What you will get 18 decisions you have to make

PSAK 73 Transition PSAK 73 Hot Topic
Determining Lease Term
Requirements
Determining Discount Rate: Incremental Borrowing Rate between IFRS and US GAAP
Operating lease“The
9
differences
rate of interest that a lessee would have to pay to borrow over a similar term,
commitments
Cash Flow of Government Bond and with a similar security, theCash
Land
fundsFlow of operating
necessary to obtainlease payments
an asset of a Assessment
similar

30%
Stated in Contract After
value to the right-of-use asset in a similar economic environment.”
Rights
Next Option 1 Option 2
Based on our experience, Socialisation Analysis and General
clients have found 30%-100% 2018 and Training improvement assistance
additional operating lease
2017 Steps 5 Years 10
of business
Years
process
commitments. ROU
ROU Lease Lease
Year 1 Year 2 Year 3 Maturity Year 1
Asset Year 2
Liability Year 3 AssetMaturity
Liability

PwC 69
 Accounting is not the sole key factor
PSAK 71, 72 and 73 is called “the big three” because the implementation goes beyond accounting. Significant number of Entity’s functions
need to commit and work together towards the successful implementation.

Initial assessment Design Implementation

Support from non- Revision of existing process

✔
Understand the standard
accounting functions? vs
new process?
IT dept Asset
mgt Cost mgt

Marketing
Adjust the design of process and controls Billing
Finance

✔
Identify business cases Interaction with
existing
Development
timeline?
systems? Data cleansing & System
Number of scenarios? implementation
contract review
✔
Know your processes and
controls
Buy or build?
testing

Cost?
Entity level
AR control

✔
Get familiar with the
information flow in the
management
Parallel process
vs
existing IT system Develop complimentary IT solution immediate replacement?
Billing Collection
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PwC 71
PSAK 72:
Revenue from Contracts
with Customers
PSAK 72 impact on process and technology architecture
From our experience, a vast majorities of customer contract information are not usually maintained in the system. Typically we will need
to go back to the manual contract document to extract relevant information for PSAK 72 revenue calculation.

Other source system or manual data to support revenue

This data gathering
scoping, POB identification, SSP identification,
distinctive test, timing of revenue recognition process will not only
require tool to help
document the data, but
also a properly designed
process and controls to
ensure that the data
collection is complete,
Contract Data Contract Calculation
Reporting accurate, and achieved
inventory extraction management engine
reasonable quality.

Data quality and completeness through conception of processes, validation and controls Once designed, the
process will need to be
• Number of • Automated or • Electronic • Calculation • Consolidation adopted into the regular
contracts manual transfer of cataloguing of • Classification • Controlling business as usual process.
• Different types of information into contracts
digital form • Posting • Planning
contracts • Data collections
• External reporting
• Testing validity of • Data validations
contracts • Internal reporting

Interface Interface Interface

PwC 73
PSAK 72 solutions available
There has been a number of solutions developed for the purpose of PSAK 72 compliance with each bolstering certain advantage over
integration and automation with existing application system. From out experience, most system solution will need some customisation,
tailoring it to fit the client’s specific requirement upon adopting the standard.
Other source system or manual data to support revenue ERP grown systems:
scoping, POB identification, SSP identification,
distinctive test, timing of revenue recognition

Built on top of ERP:

Contract Data Contract Calculation
Reporting
inventory extraction management engine

Data quality and completeness through conception of processes, validation and controls

• Number of • Automated or • Electronic • Calculation • Consolidation Standalone systems:

contracts manual transfer of cataloguing of • Classification • Controlling
• Different types of information into contracts
digital form • Posting • Planning
contracts • Data collections
• External reporting
• Testing validity of • Data validations
contracts • Internal reporting

Interface Interface Interface

PwC 74
Example of PSAK 72 contract assessment tool

PwC 75
Example of PSAK 72 calculator

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PSAK 73:
Leases
PSAK 73 impact on process and technology architecture
From our experience, a vast majorities of lease information are not usually maintained in the system. Typically we will need to go back to
the manual contract document to extract relevant information for PSAK 73 lease calculation.

This data gathering

process will not only
require tool to help
document the data, but
also a properly designed
process and controls to
Contract Data Contract Lease Lease ensure that the data
inventory extraction management engine Reporting
collection is complete,
accurate, and achieved
Data quality and completeness through conception of processes, validation and controls reasonable quality.

• Geographical • Automated or • Electronic • Lease accounting • FI Once designed, the

location manual transfer of cataloguing of • Calculation • Consolidation process will need to be
• Number of lease information into contracts • Classification • Controlling adopted into the regular
contracts digital form • Data collection • Postings • Planning
business as usual process.
• Different type of • Data validations • External reporting
lease contracts • Data quality • Internal reporting
• Scanning
Interface Interface Interface

PwC 78
PSAK 73 solutions available
There are a number of solutions developed for the purpose of PSAK 73 compliance. Each solution offers advantages over functionalities
of the lease engines, contract management, and the integration to asset accounting.

ERP grown system:

Built on top of ERP:

Contract Data Contract Lease Lease
inventory extraction management engine Reporting

Data quality and completeness through conception of processes, validation and controls

• Geographical • Automated or • Electronic • Lease accounting • FI Standalone system:

location manual transfer of cataloguing of • Calculation • Consolidation
• Number of lease information into contracts • Classification • Controlling
contracts digital form • Data collection • Postings • Planning
• Different type of • Data validations • External reporting
lease contracts • Data quality • Internal reporting
• Scanning
Interface Interface Interface

PwC 79
Demo on PwC PSAK 73 lease assessment and calculator

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Features of PSAK 73 Calculator
What you will get:
The PSAK 73 Calculator will provide accurate provision calculation that complies with PSAK 73 and can be customised to different
data-set.

Application highlights Key benefits for clients:

A. Ensure compliance with financial reporting standard PSAK 73;

B. Assisted by PwC who has extensive experience in implementation of PSAK 73;
1 PSAK 73 Lease
C. Embedded data validation checks;
assessment and
tabulator
A. Easy to deploy;
Possible integration B. Input/output functions can be connected with web-based solutions;
C. Intuitive, integrated workflow, and easy to use web-based interface
A. Ensure compliance with financial reporting standard PSAK 73;
2 PSAK 73 Lease data
B. Assisted by PwC who has extensive experience in implementation of PSAK 73;
and calculator
C. Embedded data validation checks;
D. Identification of business unit/branch;
E. Data visualisation to support analysis;
F. Easy to deploy;
G. Integrated navigation
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PSAK 71:
Financial
Instruments
PSAK 71 impact on process and technology architecture
Different with other standards, most data required for PSAK 71 is readily available in the system and/or other third party sources. It is the
data volume, quality, and automation effort that will play significant role in processing for PSAK 71 expected credit loss.

For instance, a typical PD modelling with

migration approach will require up to four years
of historical data. LGD in the other hand, may
use recovery data if there is any recovery was
Modelling and
performed.
Data extraction Explore Reporting
calculate
Forward looking scenarios should reflect the
entity's best estimate of the future economic
PSAK 71 End to End Process conditions. Hence, extrapolation or mean
reversion may be used for periods far into the
Data and other Models and overlays to What-if scenarios Monthly reports and future.
modeling inputs estimate loss exposure through simulation output data
• Use diverse • Embed forward • Adjust forward-looking • Disclosure reports
information looking scenarios and overlays to see impact • Decision strategy Once set and tested, these modelling processes
(account data, modelling of economic stress optimization should be standardised and automated to the
customer data, • Combine component sensitivities, portfolio • Increase visibility into
accounting data, model outputs (PD, acquisition, etc. forecasting process
extent possible to ensure that it continue to
etc.) LGD, FL, EAD, & • Compare results, produce stable outcome from time to time.
• Input forward ECL) facilitate dialogue.
looking • Choose from range of
macroeconomic forecast
variables

PwC 83
PSAK 71 solutions available
There are a number of solutions in the market to support PSAK 71 compliance. Based on our experience, most tool or solution will need
to undergo some customisation, tailoring it to fit the client’s specific requirement upon adopting the standard.

Modelling and
Data extraction Explore Reporting
calculate

PSAK 71 End to End Process

Data and other Models and overlays to What-if scenarios Monthly reports and
modeling inputs estimate loss exposure through simulation output data
• Use diverse • Embed forward • Adjust forward-looking • Disclosure reports
information looking scenarios and overlays to see impact • Decision strategy
(account data, modelling of economic stress optimization
customer data, • Combine component sensitivities, portfolio • Increase visibility into
accounting data, model outputs (PD, acquisition, etc. forecasting process
etc.) LGD, FL, EAD, & • Compare results,
• Input forward ECL) facilitate dialogue.
looking • Choose from range of
macroeconomic forecast
variables

PwC 84
 PSAK 71 in a nutshell

Classification & Impairment Hedging

Measurement

Based on the business model and supported by
the cash flow characteristics, financial
instruments are classified and measured via
amortized cost or fair value.
❑Classification
▪ Amortised cost
▪ FVOCI (Fair Value through Other
Comprehensive Income)
▪ FVTPL (Fair Value through Profit/
Loss)
❑ Criteria/ basis for classification
▪ Solely payment of principal and
interest (SPPI) test
▪ Business Model test
Changes from an incurred loss basis to forward looking provisioning Alignment between accounting and risk
based on expected credit losses, with introduction to 12-month and department. Risk strategy has to be adjusted to
lifetime ECL. the hedge accounting standard.
❑Probability of Default ❑Segmentation ❑Hedging effectivesness testing
▪ Migration analysis ▪ ANOVA analysis* ▪ Qualitative measures (80-125% is no
▪ Vintage analysis ▪ ODR/ default trend longer required)
▪ Roll rate analysis ▪ Business judgment ▪ Economic relationship
▪ Vasicek ▪ Credit risk does not dominate
❑Staging Criteria ▪ Hedge ratio is maintained
❑ Loss Given Default ▪ SICR
▪ Workout period ▪ Default definition ❑ Hedging documentation
▪ EIR discounted recoveries ▪ Mandatory with more qualitative in
▪ Workout/ recovery period ❑Forward Looking nature
▪ Probability weighted
❑ Exposure at Default scenarios
❑ P/L volatility
▪ Outstanding/amortisation ▪ Regression analysis and
▪ Changes in fair value is recorded in
schedule statistical testing
OCI then recycled to P/L
▪ Credit Conversion Factor (CCF) ▪ Backtesting
% of unused limit ▪ MEV forecasts (e.g. ARIMA
▪ Behavioural lifetime (e.g. analysis)*
prepayment)

PwC
Disclosures 85
Demo on PwC ECL calculator

PwC 86
Features of PwC ECL calculator version 2.0.1

What you will get:

The ECL Calculator will provide accurate provision calculation that complies with PSAK 71 and can be customised to different data-set.

Key benefits for clients: Application Roadmap:

A. Compliance with PSAK 71 Modelled for non-financial

B. Assisted by PwC (extensive experience in PSAK 71) v.1 services clients
C. Transparent, secure, and auditable - Migration method
D. Intuitive end-to-end processes - Loss rate method
E. Robust out-of-the-box Modelled for financial
F. Built-in application controls v.2 services clients
G. High performance
H. Unlimited user ID in application
Future features:
v.3 - Disclosure
- Simulation runs

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Our Thought Leadership - PSAK 73

Examples of our PSAK 73 publications

PwC 88
Thank you

pwc.com

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