It is becoming increasingly difficult to assess transactions and their reporting consequences.
The accounting effects of transactions such as acquisitions, divestitures, formation of joint ventures and special purpose vehicles (for instance for leases or factoring) and other forms of collaboration (joint R&D) are challenging. These influence reporting and future results, and have an effect on significant indices such as control quantities such as EBITDA, return on sales, or return on capital employed.
However, any assessment of upcoming issues needs to be carried out before the transaction, as these issues may have impact on the transaction as a whole. A transaction’s impact on accounting should be clear before contracts are signed.
Our Accounting Advisory team advises companies throughout the transaction process. We bring a unique blend of transaction and accounting expertise that helps clients manage the deals process smoothly, compliantly and within the timelines.
Treasury accounting combines detailed technical accounting rules with complex financial instruments.
Having knowledge and experience in both requires a specific type of professional. In addition, the external environment is constantly changing. Accounting rules change (eg. IFRS 13/ IFRS 9) and markets develop (implementation of EMIR and Dodd-Frank, MIFID 2 for commodity traders). The funding instruments companies use are also becoming more and more sophisticated (consider hybrid loans and convertible bonds). And of course there are transactions that may require purchase price allocations, IFRS conversions and policy alignments, tax driven restructurings, and compliance reviews.
Our Corporate Treasury Solutions group consists of specialists with technical and industry knowledge. They are focused on treasury accounting full time, and bring a lot of experience to the table, combined with best practices, tools and templates in compliance with new requirements. They are also able to help advise on the accounting during the process of structuring contracts and financial instruments.
In addition, we are able to provide training sessions tailored to your needs.
This enables you to focus on your core business while your treasury accounting is compliant and in line with your economic position.
After the closing of a transaction to acquire a business the acquirer faces several challenges related to the accounting for the acquisition and the integration of the new subsidiary.
The business combination has to be accounted for at the acquisition date considering the results of the purchase price allocation as well as the gathering of data for the related disclosures. It might also be necessary to perform a GAAP conversion if the acquiree uses a different GAAP than the acquirer. Furthermore, the alignment of both the accounting policies and the chart of accounts (mapping) is required.
There are also several other “Day 2” issues that need to be taken care of, such as potential changes to the segment reporting and the impairment testing of goodwill.
Accounting Advisory's post-deal accounting service offering addresses all these issues. External support in navigating the complexities of the post-deal accounting issues and “Day 2” readiness will benefit clients in their daily operations. We bring a unique blend of transaction and accounting expertise that helps clients manage the post-deal process smoothly, compliantly and within the timelines.
Capital markets advisory
Bringing the global resources of PwC to provide joined-up solutions
Ensuring best outcome
- Objective assessment of investor targeting
- Independent view on investor feedback
- Checks and balances on advice from banks
- Reviewing optimal offer structure
- Running more than one option in parallel, if applicable
- Managing the transaction, including timetable and deadlines
- Assistance with documentation and presentations
- Ensuring various parties work effectively and stay focused on your needs
- Helping you manage multiple information requests
- Strategic and practical analysis, testing and preparation of business plan and equity story
- Working with you at an early stage to build a roadmap for a transaction and identify and resolve key issues
- Tailoring the equity story for a new and larger audience
- Coordination of a range of PwC experts to manage potential issues at an early stage
- Advice on strategic options, including IPO vs trade sale
- Unbiased view on valuation, market trends and sentiment
- Advice on timing
- Advice on market positioning
- Objective review of governance
- Thorough, accountable process to appoint banks and other advisors and obtain best value
- Assisting in transaction and syndicate structuring
- Optimising investor coverage, research provision and placing power
Our approach identifies key issues and risks early in the process, providing timely guidance to implement necessary plans to remediation
Assess - Identify key issues and gaps
- Assess compliance with best practice and/or the requirements of the chosen market
- Identify deal breakers
- Identify any deficiencies
Remediate - Execute the plan
- Reporting progress to the board
- Ongoing monitoring/Deficiencies filled
- Third party support
- Necessary systems and processes in place
Plan - Develop a road map
- Plan the remediation
- Assign responsibility
- Prioritise work streams
- Timetable the remediation
Companies and their shareholders need to develop their exit strategy in good time, having considered various strategic alternatives against their corporate strategy and market positioning.
They will then need to prepare rigorously for an exit to help maximise the value which can be obtained and to minimise the execution risks of completing the deal.
The approach to exit and advice that we give is tailored to the specific circumstances of each deal, taking into account the goals and objectives of different types of shareholders, e.g. Private owners, Private Equity houses, Sovereign Wealth Funds or Governments.
We can assess how prepared the company is for exit, whether this be an IPO, a trade sale or a secondary sale to another PE investor.
Working alongside the company and its shareholders we develop a set of recommendations for delivering a successful exit including:
- Gaining an understanding of the objectives and principal exit preparedness considerations;
- Developing the exit readiness agenda focused on minimising deal risk and maximising exit value;
- Designing a detailed roadmap and action plan, including timetable; and
- Prioritising actions and allocating responsibilities.
Carve-out financial statements
Spin-off transactions, as well as many M&A transactions, involve the divestiture of a subsidiary or business unit of a company rather than the whole company itself.
A seller may need to prepare separate, stand-alone financial statements of the operations being spun-off or sold, commonly referred to as ‘carve-out financial statements’. But preparing carve-out financial statements for the first time can be a significant challenge, and there are many considerations a seller will need to bear in mind to meet buyer or investor expectations and to comply with M&A accounting standards.
Accounting standards are addressed individually for a particular transaction. Many local accounting standards set the regulatory environment explicitly for the preparation of carve-out statements. IFRS has no specific requirements, so locally accepted market standards and views have to be respected.
Why use specialists?
The preparation of carve-out financial statements is hardly a routine matter. Companies need to ensure that all the assets and liabilities of the separate business have been identified and that all relevant costs of doing business have been reflected in the carve-out financial statements.
What do we do?
We provide services for the preparation of a carve-out statement or for the assurance of this statement. In addition to preparing the financial statements, we provide the following services:
- Requirements analysis with respect to relevant capital markets and stakeholders
- Determination of historical financial information required by regulation
- Analysis of the complex history of the financial industry, especially the quality of existing financial information
- Preparation of carve-out statements according to IFRS, US GAAP or other standards
- Preparation of assured documentation regarding carve-out topics for the auditing process
Why get PwC involved?
Our specialists bring in 10+ years of experience in cross-border transactions. Our clients are benefit from:
- Cost efficient approach
- Definition of realistic goals and timelines
- Enabling dual track strategies
- Availability of experienced resources
- Minimisation of transaction risks
In many different types of transactions there is entity level complexity.
This complexity is often new to clients and therefore in many instances the entity level analysis is not tackled or is not tackled early enough. Whether this is getting the right entity structure for a disposal, planning how cash will flow on a refinancing, selecting the appropriate listing entity or mapping out the detailed mechanics of a group reorganisation, other advisors often do not provide the support needed.
From an accounting perspective, organisations have different focuses which need to be thought through on a transaction. In many cases the entity level accounting implications need to be thought through early on to ensure the steps are implemented in a tax, accounting, regulatory and legally efficient manner.
Transactions can have unexpected impacts on group earnings and the consolidated balance sheet which may be a focus for listed or regulated clients. For private clients entity level accounting is often crucial, particularly in its impact on future cash extraction (whether on distributable profits or recognition of capital) and in many jurisdictions, tax.
We are dedicated technical specialists with relationship skills, broad networks and extensive transaction experience.
We use our extensive experience to help clients navigate complexity.
We pull together the work of different advisors and provide options / solutions that incorporate the commercial, legal, tax, regulatory and accounting considerations needed for the deal and often fill the gap left by other advisors.
Our deep specialism in capital maintenance rules and accounting for transactions enables us to provide clarity on the accounting implications of a deal early on, allowing the optimal transaction structure –, both for the transaction and for ongoing purposes –, to be developed before it is too late to do so.
Providing the client with tools such as options papers, step plans and balance sheet modelling, we help them and their other advisors focus on the mechanics of actually implementing the transaction.
As a company faces challenges from macro and/or micro economic issues, they face a host of issues that – if not met with urgency and diligence –, may lead to its demise.
A number of tools may be used by management to affect a turn around plan. To the uninitiated, picking the right tool may be daunting. At certain times a simple turn around may be required, at other times a well-scripted bankruptcy that filing consider all aspects of the enterprise, including financial, tax, operational and overall focus.
Depending on the tool selected, it may be a difficult, time intensive commitment for all parties. Complex filing requirements as well as potentially a new basis of accounting will require significant management time and attention.
Accounting advisory advises through the entire Distressed continuum and can support our Clients in the accounting treatment of a restructuring.
Complex projects advisory
Power stations, airports, highways, or a new plant: a successful handling of capital projects is complex and challenging for both suppliers and customers in many ways.
Changes in requirements, influences, or priorities are the reasons for unexpected results in each project phase. Prerequisite for successful projects is an organization that leads to effective project handling, not only at the process and system level but also in the employee’s skills.
Professional project management of all organisational structures is crucial for the success of the project as a whole.
To manage and lead the projects in a successful manner, transparency – from a commercial perspective – is essential. Many of our clients struggle with implementing a meaningful controlling system that operates on the same level as the technical project functions. The projects are solely driven by the technical requirements, lacking any commercial guidance. Cost to complete and, consequently, the profit or loss of a project are not reliably predictable. Also, the transparency to challenge technical countermeasures and to mitigate project risks is not readily available and lead to avoidable losses in the projects.
These complex issues also need to be reflected in the financial statements and in the communication to management and supervisory boards. Both accounting and communication are sensitive factors as the impact of complex projects is significant to the reporting entity.
Accounting Advisory's Complex Projects Team supports clients in a variety of challenges and helps to remediate projects in trouble, to raise commercial project organization to good business practise and to implement early warning mechanism.
A GAAP conversion will pose a significant challenge to most companies‘ infrastructure.
- It will not only impact the top company’s accounting, but also the reporting of subsidiaries, joint arrangements and associated companies.
- A GAAP conversion can be considered a complex project that needs full attention next to the ongoing daily business.
- Naturally most companies‘ accounting, controlling and tax resources are limited.
- Along the conversion guidelines, processes and the IT environment need to be adjusted and staff needs to be trained up.
- Early assessment of complexity and costs
- Efficient project management
- Transparent communication
- Monitoring of execution
|Create a consistent understanding of scope and required conversion measures||Detailed design of conversion concept and required process adjustments||Sustainable and timely execution of conversion plan|
Accounting Standards Change
Our clients face challenges due to regulatory changes by the standard setters (IASB and FASB)
A change process is triggered that could have a broader impact on the organization than just a change in accounting. The most recent example is the new global accounting standard for Revenue Recognition which will apply a single revenue recognition model to all contracts with customers in order to improve comparability within industries, across industries, and across capital markets. This new standard was issued May 28, 2014 and takes a principles-based approach to determining the measurement of revenue and the timing of when it is recognized.
As the challenge is applicable to revenue recognition, clients will face the same challenge for Leasing. Management will also need to perform a comprehensive review of existing contracts, business models, company practices, accounting policies, information technology systems, and internal processes and controls to assess the extent of changes needed as a result of the new standard depending on the industry and applied business models.
Challanges of accounting standards change:
• Establish a governance, project and change management approach
• Inventory revenue arrangements and review contracts
•Review current accounting policies and practices
• Identify relevant differences under the new standard
• Determine adoption method
(retrospective or practical expedient)
• Map accounting policy differences to process and
• Consider dual-GAAP-approach, including interim solutions
• Establish roadmap and communication plan
• Educate and communication within the organization
• Effect process and systems changes
• Collect and convert data, perform calculations
• Draft disclosures (both transition and ongoing)
Accounting Advisory's service offering isn’t simply about changing the client’s accounting manual; our approach is about making connections and integration. We combine the accounting, IT, process and industry expertise of Accounting Advisory, and Risk Assurance to offer tailor-made solutions, which enable the client to integrate the new standard requirements across the whole organisation.
For certain industries we have developed industry specific approaches to make the implementation manageable. We have also developed project-enabling tools and templates to help clients facilitate implementation projects.
European Single Electronic Format (ESEF)
The European Securities and Markets Authority (ESMA) has issued rules for the European Single Electronic Format (ESEF). The new regulation was published in the Official Journal of the European Union 29 May 2019. EU-regulated listed companies must produce their annual reports in the eXtensible HyperText Markup Language (XHTML) for reporting periods beginning on or after 1 January 2020 and International Financial Reporting Standards (IFRS) reporters must use Inline XBRL (iXBRL) to make the consolidated data in the primary financial statements machine-readable.
Companies will need to create tags if they have entity-specific disclosures, for which tags are not available in the ESEF taxonomy. New technical functionality called ‘anchoring’ has been devised to make it easier to understand such XBRL extensions. You can learn more by watching our anchoring webcast. ESEF is already a hot topic for preparers of annual reports and may disrupt the supplier landscape and your current processes.