Find attached
Business Challenge
Thinking about the market you operate in, what do you see as the key challenges and opportunities?
How would you help clients respond to them?
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AGENDA
Industry
Challenges
Opportunities
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SNAPSHOT
Industry
Energy
Challenges
Unprecedented market conditions
Accounting changes
Energy transition and decarbonization
Large volumes of data
Lack of finance processes
Opportunities
On-call accounting
Deals accounting
Treasury accounting
Finance transformation
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AREAS OF FOCUS
Energy transition and decarbonization
Divestments – shift from polluting to green assets
Companies investing in renewable energy sources (wind, solar, hydro)
Companies using carbon offset programs
Companies investing in other renewable energy companies
Opportunities
Accounting for voluntary credits
Accounting for carve-outs
IPOs/SPACs in renewable sector
Accounting for power purchase agreements
GAAP Conversions
Purchase Price Allocation
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Companies worldwide are pledging to achieve net zero emissions of greenhouse gases and focusing on sustainability. Companies are selling off their dirty assets with a view to become net zero by 2050. We can support the clients in preparation of carve-out financial statements for the divested assets as well as accounting papers outlining the basis of preparation of the carve-out financial statements and accounting of key technical areas.
Companies purchase carbon credits to comply with government emission mandates. We can support in accounting for the voluntary credits on whether they need to be accounted as intangible asset or inventory.
With scarcity of hydro-electricity, this has lead to an increasing the demand for renewable sources like solar, wind. It includes physical PPA & virtual PPAs. We can perform the assessment of whether the contract contains a lease. If not, whether it is an executory contract, a derivative or has feature that contain an embedded derivative that needs to be separated from the host contract.
Companies are also investing in other renewable energy companies. We can support with the accounting policy alignment exercise between the acquirer and the acquiree and also support with purchase price allocation.
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AREAS OF FOCUS
Unprecedented market conditions
Increase in inflation
Rising interest rates
Fluctuation in energy prices
Opportunities
Accounting for loan modifications
Accounting for lease modifications
Impairment assessment
Derivatives/hedge accounting
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Rising inflation, rising interest rates has lead to an economic uncertainty. Due to higher costs of operating the businesses, the entities have experienced cash flow challenges.
Such entities may need to revisit the terms of existing debt agreements, we can support the clients in IFRS 9 assessment as to whether the modification of a financial liability is substantial or not.
Further, expectations around lease renewal, termination or purchase option may have changed. We can support the clients in accounting for lease modifications.
Further, lease assets may have impaired, we can support clients in testing the impairment indicators and performing the impairment calculations.
Further, the entity may have been exposed to various market risks like interest rate risk, inflation risk, commodity price risk, foreign currency risk. The approach to manage these risks may change. Further since derivatives are measured at FVTPL, it leads to a high volatility in P&L. If certain qualifying criteria are met, the derivatives can be designated in a hedging relationship that results in lower P&L volatility
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AREAS OF FOCUS
Accounting changes
FRED 82
Rate regulated activities
Primary financial statements
Opportunities
Workshops and training sessions
Impact assessments
Quantification of changes/implementation of standards
Blog to communicate key changes
Webinars
Preparing targeting list
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FRED 82: FRED 82 provide on balance sheet accounting for leases, introduces practical expedients for short term lease and low value assets. It also introduced a five step model for revenue recognition. It has a significant impact on the energy sector since it contains a lot of service contracts that involve the use of an asset and there can be a possibility of an embedded lease. Eg- Power purchase agreements in renewable sector, Use of capacity portion of a pipeline in oil and gas sector.
Rate regulated activities: This has a significant impact on power and utility company wherein the government regulates the rate the entity can charge to its customers. The exposure draft contains guidelines on the recognition of regulatory assets and liabilities, regulatory interest rates, different components of allowable compensation.
Primary financial statements: This will have an impact on presentation and disclosure requirements for energy companies. The exposure draft contains guidelines on classification of profit and loss account into operating, investing and financing activities, inclusion of management performance measures and talks about disaggregation.
We can impart training to clients on the possible implications, perform impact assessment of the current state and the proposed state, assist in quantification of changes, publish blogs, do regular webinars on a quarterly basis and prepare a targeting list to outreach clients.
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AREAS OF FOCUS
Finance Transformation
De-centralized sources of financial and non-financial data
Inefficiencies and lack of controls
Requirement of temporary finance personnel
Large volumes of data, frequent errors
Manual reconcilliation
Opportunities
Workviva: Cloud based platform for financial reporting, compliance automation etc.
Finance Process Improvement and support
Client secondments
Classic Lease: Tool for lease accounting (IFRS 16, ASC 842)
K Helios & K Trinity: Tool for consolidating trial balances, preparing financial statements, supporting schedules, reconciliation and workings
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Companies have decentralised sources of financial and non-financial data and are looking for a platform for collaboration. We introduced them to Workviva which is an effective collaborative tool that contain audit trails, access controls. It can link data from various sources. A simple refresh of trial balance will flow to front-half, back-half, notes to accounts, press releases. It can take inputs from all softwares.
Companies are in need of a temporary personnel for transition from Oracle to Fusion. We can support in seconding our staff to client locations.
A company required computation of lease liability and right of use asset for 200 odd leases. Doing the process manually will require a lot of time. We can sell the KPMG Lease tool to them or share the results of the tool.
A company required consolidation of 100 plus entities. We can provide support in consolidating these entities using K Helios and K Trinity. We can share the results of the tool.
A company reached out stating their finance processes are not working properly. We can support by devising control mechanisms for each process, devising the operational policies and also issued a finance competency report.
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THANK YOU
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