D365 Fin Ifrs

Support for IFRS in
Dynamics 365 Finance

Leveraging Dynamics 365 Finance
to reduce risk and improve
control efficiency
Publish date: 22nd July

https://dynamics.microsoft.com/
Table of contents
1 Executive summary 04
2 IFRS overview 06
3 IFRS requirements applicable to Microsoft Dynamics 365 Finance 07
4 Financial reporting 08
IAS 1, “Presentation of Financial Statements”
IAS 7, “Statement of Cash Flows”
IAS 8, “Accounting Policies, Changes in Accounting Estimates
and Errors”
IAS 10, “Events after the Reporting Period”
IAS 34, “Interim Financial Reporting”
IFRS 1, “First time Adoption of International Financial Standards”
IFRS 8, “Operating Segments”
IFRS 10, “Consolidated Financial Statements”
IFRS 3, “Business Combinations”
IFRS 11, “Joint Arrangements”
5 Assets and inventory 24
IAS 2, “Inventories”
IAS 16, “Property, Plant and Equipment”
IFRS 16 “Leases”
IAS 36, “Impairment of Assets”
IAS 37, “Provisions, Contingent Liabilities and Contingent Assets”
IAS 38, “Intangible Assets”
IAS 40, “Investment Property”
IFRS 5, “Non-current Assets Held for Sale and Discontinued
Operations”
2 PwC | Support for IFRS in Dynamics 365 Finance

Table of contents
6 Foreign currency 40
IAS 21, “The Effects of Changes in Foreign Exchange Rates”
7 Revenue recognition 43
IFRS 15 “Revenue from Contracts with Customers”
IAS 20, “Accounting for Government Grants and Disclosure of
Government Assistance”
IAS 23, “Borrowing Costs”
8 General ledger concepts in Microsoft Dynamics 365 Finance 51
9 U.S. GAAP vs. IFRS 52
Overview of U.S. GAAP, and identification of ERP differences
between U.S. GAAP and IFRS
10 How Microsoft Dynamics 365 Finance supports the compliance 53
initiative
11 Appendix A – Relevant Standard updates issued; not yet effective 58

1 Executive
summary
The globalization of business and finance Technology is a key enabler to address

has led to the mass adoption of the change and complexity in an
International Financial Reporting organization’s compliance environment. It
Standards (IFRS). Similar to the financial is crucial to understand how your
reporting framework of US generally underlying technology environment can
accepted accounting practices (GAAP), support your business process,
IFRS has been designed and compliance, and regulatory requirements
implemented across the world as a such as IFRS and Sarbanes-Oxley.
standard format for companies to report Microsoft Dynamics 365 Finance is an
their financial results in an easily enterprise resource planning (ERP)
understandable and comparable nature. solution for midsize and large
Applicable to SEC registrants, clauses in organizations that empowers people to
the Sarbanes-Oxley Act of 2002 were work effectively, manage change, and
designed to restore/enhance public compete globally. It makes it easy to
confidence in the financial reporting and operate across locations and
disclosure process and improve executive countries/regions by standardizing
responsibility and accountability. processes, providing visibility across your
Companies continue to find themselves in organization, and helping simplify
an environment of economic uncertainty compliance.
and under pressure to become more While the dimensions of IFRS and
efficient while reacting to a volume of Sarbanes-Oxley are far reaching and can
complex regulatory requirements. be complicated, Microsoft Dynamics 365
Performance expectations, increasing Finance has been designed with the
stakeholder demands, and changing capabilities to help organizations meet
market conditions are forcing business their compliance obligations in a flexible,
leaders to search for cost-effective ways adaptable, and scalable fashion.
to enforce compliance adoption without
jeopardizing organizational agility and
business growth.

This whitepaper discusses IFRS This document was prepared by
standards and the relevant Microsoft PricewaterhouseCoopers LLP (“PwC”) and
Microsoft. It provides information for current and
Dynamics 365 Finance capabilities to
prospective customers to evaluate the reporting
address IFRS compliance. By deploying and compliance capabilities of Microsoft
Microsoft Dynamics 365 Finance, you can Dynamics 365 Finance (version 10.0.19
be confident that your business [June 2021]).
management solution is relevant to the Microsoft Dynamics 365 Finance was used as
needs of your people, the needs of the basis for evaluating how the software
regulation and compliance, and to the supports IFRS compliance objectives out-of-the-
demands of your industry and business. box. The statements made in this document are
generally applicable to other versions of
Microsoft Dynamics 365 Finance. Each
implementation of Microsoft Dynamics 365
Finance is unique, and the way that the software
is deployed might affect an organization’s ability
to meet its IFRS, U.S. generally accepted
accounting practices (GAAP), or Sarbanes-Oxley
(SOx) compliance requirements. Customers
should evaluate these implications and consult a
professional advisor based on their business
processes and needs.
5
2 IFRS overview
International Financial Reporting Influences the transaction structuring by

Standards (IFRS) have been designed foreign counterparties (customers,
and implemented across the world as a vendors, and capital providers) who report
standard format for companies to report under IFRS.
their financial results in an easily Technology is a key enabler to address
understandable and comparable nature, IFRS compliance. Microsoft Dynamics
and have slowly replaced many different 365 Finance is an enterprise resource
national accounting standards to maintain planning (ERP) solution for midsize and
consistency and comparability for large organizations that empowers people
global investors. to work effectively, manage change, and
In fact, more than 100 countries require, compete globally. Microsoft Dynamics
permit, or are converging or converting to 365 Finance makes it easy to operate
IFRS for public company reporting. across locations and countries/regions by
Companies are and will be affected by standardizing processes, providing
IFRS at varying times and to varying visibility across your organization, and
degrees of magnitude, driven by factors helping simplify compliance.
such as size, industry, geography, merger The compliance and internal controls
and acquisition activity, and global capabilities in Microsoft Dynamics 365
expansion. IFRS is in use in most capital Finance provide a means for companies
markets around the world and have to enforce compliance in a consistent,
already significantly affected U.S. cost-effective way, while streamlining
companies, because it: business processes and improving
Is used by foreign subsidiaries of efficiency across the organization.
U.S. companies.
Is used by Foreign Private Issuers for
filings with the Securities Exchange
Commission (SEC)
Stimulates questions from investors who
compare U.S. companies to
foreign competitors.

3 IFRS requirements applicable to Microsoft
This section discusses selected IFRS requirements that are applicable to software
systems, such as Microsoft Dynamics 365 Finance, for the management of enterprise
financial resources; however, this is not intended to represent the complete list of IFRS
standards. For each standard, the section provides an overview of the requirement
followed by information about how Microsoft Dynamics 365 Finance can support
the standard.
7
4 Financial reporting
IAS 1, “Presentation of Financial There is no prescribed format for the

Statements” financial statements. However, there are
Overview minimum disclosures to be made in the
primary statements and the notes. The
The objective of financial statements is to implementation guidance to IAS 1
provide information that is useful in contains illustrative examples of
making economic decisions. To help acceptable formats.
ensure the information is useful in making
economic decisions, financial statements Financial statements disclose
should include material information. corresponding information for the
Information is material if omitting, preceding period (comparatives) unless a
misstating or obscuring it could standard or interpretation permits or
reasonably be expected to influence requires otherwise.
decisions that the primary user makes
based on the financial statements. IAS 1’s
objective is to provide comparability of
presentation of that information with the
entity’s financial statements of previous
periods and with the financial statements
of other entities.
Financial statements are prepared on a
going concern basis unless management
intends either to liquidate the entity or to
cease trading, or has no realistic
alternative but to do so. Management
prepares its financial statements, except
for cash flow information, under the
accrual basis of accounting.

Statement of financial position Current and non-current assets and
(balance sheet) current and non-current liabilities are
The statement of financial position presented as separate classifications in
presents an entity’s financial position at a the statement unless presentation based
specific point in time. Subject to meeting on liquidity provides information that is
certain minimum presentation and reliable and more relevant. See Appendix
disclosure requirements, management A for reference to IAS 1 amendments
may use its judgment regarding the form issued but which are not yet effective
of presentation, such as whether to use a until periods beginning on or after
vertical or a horizontal format, which sub- January 1, 2023.
classifications to present and which Statement of profit or loss and other
information to disclose in the primary comprehensive income
statement or in the notes. The statement of profit or loss and other
The following items, as a minimum, are comprehensive income presents an
presented on the balance sheet: entity’s performance over a specific
• Assets – property, plant and period. Entities have a choice of
equipment; investment property; presenting this in a single statement or as
intangible assets; financial assets; two statements. The statement of profit or
investments accounted for using the loss and other comprehensive income
equity method; biological assets; under the single-statement approach
deferred tax assets; current tax assets; includes all items of income and expense,
inventories; trade and other and also includes each component of
receivables; and cash and other comprehensive income. Under the
cash equivalents two-statement approach, all components
of profit or loss are presented in an
• Equity – issued capital and reserves income statement, followed immediately
attributable to the parent’s owners; and by a statement of profit or loss and other
non-controlling interest comprehensive income. This begins with
• Liabilities – deferred tax liabilities; the total profit or loss for the period,
current tax liabilities; financial liabilities; displays all components of other
provisions; and trade and comprehensive income, and ends with
other payables total comprehensive income for
the period.
• Assets and liabilities held for sale – the
total of assets classified as held for sale
and assets included in disposal groups
classified as held for sale; and liabilities
included in disposal groups classified
as held for sale in accordance with
IFRS 5, ‘Non-current assets held for
sale and discontinued operations’
Choice in presentation and basic Profit or loss section of statement
requirements The nature and amount of items of
The following items, as a minimum, are income and expense are disclosed
presented in the statement of profit or loss separately, where they are material.
and other comprehensive income: Disclosure may be in the statement or in
• Revenue the notes. Such income/expenses might
include restructuring costs; write-downs
• Finance costs of inventories or property, plant and
• Share of the profit or loss of associates equipment; litigation settlements;
and joint ventures and gains or losses on disposals of
non-current assets.
• Tax expense
Other comprehensive income section
• Post-tax profit or loss of discontinued
operations An entity presents each component of
other comprehensive income in the
• Profit or loss for the period
statement either (a) net of its related tax
• Each component of other effects, or (b) before its related tax
comprehensive income classified effects, with the aggregate tax effect of
by nature these components shown separately.
• Share of the other comprehensive Items of other comprehensive income are
income of associates and joint ventures grouped into those that will be reclassified
• Total comprehensive income subsequently to profit or loss and those
that will not be reclassified.
Profit or loss for the period and total
comprehensive income are allocated in
the statement of profit or loss and other
comprehensive income to the amounts
attributable to non-controlling interest and
to the parent’s owners.
Additional line items and sub-headings
are presented in this statement when
such presentation is relevant to an
understanding of the entity’s
financial performance.

Statement of changes in equity Notes to the financial statements
The following items are presented in the The notes are an integral part of the
statement of changes in equity: financial statements. Notes provide
• Total comprehensive income for the information additional to the amounts
period, showing separately the total disclosed in the ‘primary’ statements.
amounts attributable to the parent’s They include accounting policies and
owners and to non-controlling interest critical accounting estimates
and judgments.
• For each component of equity, the
effects of retrospective application or Support for IAS 1 in Microsoft
retrospective restatement recognized in Dynamics 365 Finance
accordance with IAS 8, ‘Accounting Financial Reports, included with Microsoft
policies, changes in accounting Dynamics 365 Finance, provide
estimates, and errors’ predefined Balance sheet, Income
• For each component of equity, a statement, and Cash flow report
reconciliation between the carrying templates based on main account
amount at the beginning and the end of category. The statement of owner’s equity
the period, separately disclosing is not predefined but can be created using
changes resulting from: the Financial reporting client for ‘design’.
The predefined financial statements can
– Profit or loss be modified to meet additional formatting
– Other comprehensive income requirements described in IAS 1.
– Transactions with owners in their In Microsoft Dynamics 365 Finance, the
capacity as owners, showing fiscal calendar supports any definition of
separately contributions by and the periods. When financial statements
distributions to owners and changes are generated using Financial reports, the
in ownership interests in subsidiaries definitions of fiscal periods and years from
that do not result in a loss of control. the fiscal calendar are used.
Statement of cash flows The year-end closing transactions must
be generated, and then the period can be
Cash flow statements are addressed in
closed for all modules..
Section 30 dealing with the requirements
of IAS 7.

Microsoft Dynamics 365 Finance provides Operating activities are the entity’s
the capability to control whether the revenue-producing activities. Investing
period is in “Open”, “On-hold”, or activities are the acquisition and disposal
“Permanently Closed” state. A period in of long-term assets (including business
the On-hold state can be reopened. combinations) and investments that are
Microsoft Dynamics 365 Finance enables not cash equivalents. Financing activities
transactions to be recorded in any period are changes in equity and borrowings.
in the Open state. Management may present operating cash
Microsoft Dynamics 365 Finance also flows by using either the direct method
provides the capability to restrict posting (gross cash receipts/payments) or the
for a period to a specific user or group of indirect method (adjusting net profit or
users. These parameters can be used to loss for non-operating and non-cash
control adjusting entries posted to the transactions, and for changes in
general ledger. working capital).
Microsoft Dynamics 365 Finance enables Cash flows from investing and financing
dimensions to be used to cross over all activities are reported separately gross
general ledger accounts. Therefore, (that is, gross cash receipts and gross
aggregation or disaggregation can be cash payments) unless they meet certain
used to separate or detail out required specified criteria.
data for nature or function, as needed. The cash flows arising from dividends and
Financial reports can filter on any interest receipts and payments are
combination of dimensions at the row, classified on a consistent basis and are
column, and tree level, and also its separately disclosed under the activity
support of total accounts. appropriate to their nature. Cash flows
IAS 7, “Statement of Cash Flows” relating to taxation on income are
classified and separately disclosed under
Overview operating activities unless they can be
The cash flow statement is one of the specifically attributed to investing or
primary statements in financial reporting. financing activities.
It presents the generation and use of The total that summarizes the effect of the
‘cash and cash equivalents’ by category operating, investing and financing cash
(operating, investing and finance) over a flows is the movement in the balance of
specific period of time. It provides users cash and cash equivalents for the period.
with a basis to assess the entity’s ability
to generate and utilize its cash.

Separate disclosure is made of significant Management uses its judgment in
non-cash transactions, for example, the developing and applying an accounting
issue of equity for the acquisition of a policy that results in information that is
subsidiary or the acquisition of an asset relevant and reliable. Reliable information
through a finance lease. Non-cash demonstrates the following qualities:
transactions include impairment faithful representation, substance over
losses/reversals, depreciation, form, neutrality, prudence and
amortization, fair value gains/losses, and completeness. If there is no IFRS
income statement charges for provisions. standard or interpretation that is
Support for IAS 7 in Dynamics 365 specifically applicable, management
Finance should consider the applicability of the
requirements in IFRS on similar and
In Microsoft Dynamics 365 Finance, related issues, and then the definitions,
Financial reports provide predefined Cash recognition criteria and measurement
flow report templates based on main concepts for assets, liabilities, income and
account category. The predefined cash expenses in the Framework.
flow statement contains each of the
sections described for IAS 7. If necessary, Management may also consider the most
the predefined cash flow statement can recent pronouncements of other standard-
be updated. The cash flows of a foreign setting bodies, other accounting literature
subsidiary can be translated by using and accepted industry practices, where
exchange rates and can be viewed in any these do not conflict with IFRS.
of the currencies based on the rates Accounting policies should be applied
defined for the cash flow accounts in consistently to similar transactions
Microsoft Dynamics 365 Finance. and events.
IAS 8, “Accounting Policies, Changes Changes in accounting policies
in Accounting Estimates and Errors” Changes in accounting policies made on
Overview adoption of a new standard are accounted
An entity follows the accounting policies for in accordance with the transition
required by IFRS that are relevant to the provisions (if any) within that standard. If
particular circumstances of the entity. specific transition provisions do not exist,
However, for some situations, standards a change in policy (whether required or
offer a choice; there are other situations voluntary) is accounted for retrospectively
where no guidance is given by IFRS. In (that is, by restating all comparative
these situations, management should figures presented) unless this
select appropriate accounting policies. is impracticable.

Issue of new/revised standards not Support for IAS 8 in Microsoft
yet effective Dynamics 365 Finance
Standards are normally published in Consistency of accounting policies
advance of the required implementation Microsoft Dynamics 365 Finance uses
date. In the intervening period, where a accounting rules and application setup
new/revised standard that is relevant to that together make up the accounting
an entity has been issued but is not yet policy for a legal entity. The accounting
effective, management discloses this fact. rules are applied consistently for similar
It also provides the known or reasonably events, transactions, and conditions.
estimable information relevant to
assessing the impact that the application Most accounting rules and setup can be
of the standard might have on the entity’s applied consistently per user-defined
financial statements in the period of categories when required, or when
initial recognition. permitted by a standard or interpretation.
Changes in accounting estimates Item groups and item model groups are
two examples where accounting rules can
An entity recognizes prospectively be applied consistently per category.
changes in accounting estimates by Categories of items with similar
including the effects in profit or loss in the characteristics are assigned to user-
period that is affected (the period of the defined item groups that, for example,
change and future periods), except if the are used to control main account
change in estimate gives rise to changes determination for purchase accrual and
in assets, liabilities or equity. In this case, inventory at receipt for a group of items.
it is recognized by adjusting the carrying Items are also assigned to user-defined
amount of the related asset, liability or item model groups that, for example, are
equity in the period of the change. used to control whether purchase accrual
Errors should be recognized in the general
Errors may arise from mistakes and ledger and what cost formula should be
oversights or misinterpretation of applied. Proper consideration should be
information. Errors that are discovered in taken when defining categories to validate
a subsequent period are prior-period that the applied accounting rules provide
errors. Material prior-period errors are compliant financial reporting.
adjusted retrospectively (that is, by
restating comparative figures) unless this
is impracticable.

Retrospective application of changes in IAS 10, “Events after the
accounting policies or errors Reporting Period”
The following capabilities are applicable Overview
when it is deemed practical to determine It is not generally practicable for preparers
the period-specific effects or the to finalize financial statements without a
cumulative effect of the change for one or period of time elapsing between the
more prior periods that are presented. balance sheet date and the date on which
This is a management decision and is the financial statements are authorized for
performed outside Microsoft Dynamics issue. The question therefore arises as to
365 Finance. the extent to which events occurring
Before the final year-end close process in between the balance sheet date and the
Microsoft Dynamics 365 Finance is date of approval, that is, events after the
performed and while the accounting reporting period, should be reflected in
periods are still on hold, it is possible to the financial statements.
reopen the periods and create adjusting Events after the reporting period are
entries in the general ledger. These either adjusting events or non-adjusting
adjustments are included based on the events. Adjusting events provide further
report date when financial statements are evidence of conditions that existed at the
generated using Financial reports. After balance sheet date, for example, the
the final year-end close is performed, a settlement of a court case post year-end
user can define a specific legal entity to might indicate that an obligation existed at
use for adjustments. Financial reports can the reporting date. Non-adjusting events
then be used to consolidate the entries relate to conditions that arose after the
from the legal entities. balance sheet date, for example,
Changes in accounting estimates announcing a plan to discontinue an
Current period adjustments or, if operation after the year end.
applicable, re-execution of automated The carrying amounts of assets and
adjustments for carrying amounts are liabilities at the balance sheet date are
supported by Microsoft Dynamics adjusted only for adjusting events or
365 Finance. events that indicate that the going-
concern assumption in relation to the
whole entity is not appropriate. Significant
non-adjusting post-balance-sheet events,
such as the issue of shares or major
business combinations, are disclosed.

An entity discloses the date on which the IAS 34, “Interim Financial Reporting”
financial statements are authorized for Overview
issue and the persons authorizing the
issue and, where necessary, the fact At a minimum, current period and
that the owners or other persons have the comparative figures, condensed or
ability to amend the financial statements complete, are disclosed as follows:
after issue. • Balance sheet – as of the current
Support for IAS 10 in Microsoft interim period end with comparatives
Dynamics 365 Finance for the immediately preceding year end
Before the final year-end close process in • Statement of profit or loss and other
Microsoft Dynamics 365 Finance is comprehensive income (and, if
performed and while the accounting presented separately, income
periods are still on hold, it is possible to statement) – current interim period,
reopen the periods and create adjusting financial year to date and comparatives
entries in the general ledger. This allows for the same preceding periods (interim
for adjustment based on the adjusting and year to date)
events up to the point where financial • Statement of changes in equity and
statements are authorized for issue, at statement of cash flow – financial year
which time the reporting period is closed. to date with comparatives for the same
year to date period of the
preceding year
• Explanatory notes
An entity generally uses the same
accounting policies for recognizing and
measuring assets, liabilities, revenues,
expenses, and gains and losses at interim
dates as those to be used in the current-
year annual financial statements.
There are special measurement
requirements for certain costs that can
only be determined on an annual basis,
for example, items such as tax that is
calculated based on an estimated
full-year effective rate, and the use of
estimates in the interim financial
statements.
16
IAS 34 sets out some criteria to determine IFRS 1, “First time Adoption of
what information should be disclosed in International Financial Standards”
the interim financial statements. Overview
These include:
An entity moving from national GAAP to
• Materiality to the overall interim IFRS should apply the requirements of
financial statements IFRS 1. It applies to an entity’s first IFRS
• Unusual or irregular items financial statements and the interim
• Changes since previous reporting reports presented under IAS 34, ‘Interim
periods that have a significant effect on financial reporting’, that are part of that
the interim financial statements of the period. It also applies to entities under
current or previous reporting ‘repeated first-time application’. The
financial year basic requirement is for full retrospective
application of all IFRS requirements
• Relevance to the understanding of effective at the reporting date.
estimates used in the interim However, there are a number of optional
financial statements exemptions and mandatory exceptions
The overriding objective is to validate to the requirement for retrospective
that an interim financial report includes application.
all information that is relevant to The mandatory exceptions cover areas in
understanding an entity’s financial which retrospective application of the
position and performance during the IFRS requirements is considered
interim period. inappropriate. The following exceptions
Support for IAS 34 in Microsoft are mandatory, not optional:
Dynamics 365 Finance • Hedge accounting
See IAS 1 for more information. • Derecognition of financial assets
and liabilities
• Non-controlling interests
• Classification and measurement of
financial assets
• Embedded derivatives

The optional exemptions cover standards Certain reconciliations from previous
for which the IASB considers that GAAP to IFRS are also required.
retrospective application could prove too See Appendix A for reference to IFRS 1
difficult or could result in a cost likely to amendments issued but which are not yet
exceed any benefits to users. Any, all or effective until the periods beginning on or
none of the exemptions may be applied. after January 1, 2022.
The optional exemptions relate to:
Support for IFRS 1 in Microsoft
• Business combinations Dynamics 365 Finance
• Share-based payments When IFRS is adopted for the first time,
• Insurance contracts the following areas typically require
• Deemed cost careful consideration:
• Leases • PPE
• Employee benefits • Asset impairments
• Cumulative translation differences • Inventories
• Investments in subsidiaries, joint • Revenue recognition

ventures, and associates • Business combination
• Compound financial instruments To recognize all assets and liabilities
• Designation of previously recognized whose recognition is required by IFRS,
financial instruments Microsoft Dynamics 365 Finance supports
the capability to create new fixed assets
• Fair value measurement of financial resulting from the adoption of IFRS.
assets or financial liabilities at initial
recognition To derecognize items as assets or
liabilities if IFRS do not permit recognition,
• Service concession arrangements Microsoft Dynamics 365 Finance supports
• Borrowing costs the capability to dispose of or scrap
existing fixed assets resulting from the
• Transfers of assets from customers
adoption of IFRS.
• Extinguishing financial liabilities with
To reclassify items that are recognized in
equity instruments
accordance with previous GAAP as a
• Severe hyperinflation different type of asset, liability, or
Comparative information is prepared and component of equity, Microsoft Dynamics
presented on the basis of IFRS. Almost all 365 Finance enables reclassification and
adjustments arising from the first-time transfer into new assets.
application of IFRS are against opening
retained earnings of the first period that is
presented on an IFRS basis.

To apply IFRS in the measurement of all With respect to retrospective application,
recognized assets and liabilities, Microsoft see IAS 8. If the first-time adoption is
Dynamics 365 Finance supports the known when the year end is completed
standard cost accounting method for the reporting period prior to the
conversion through an automated adoption, it is possible to use a posting
process. For any other accounting layer for IFRS adjustments of that period
method conversion, tailored procedures as part of the year-end process.
that restate inventory can be applied. IFRS 8, “Operating Segments”
If there is a requirement for parallel Overview
reporting, Microsoft Dynamics 365
Finance provides the capability to utilize Only certain entities are required to
posting layers to reflect changes between disclose segment information. These are
IFRS and US GAAP. Microsoft Dynamics entities with listed or quoted equity or debt
365 Finance fixed asset accounting instruments or entities that are in the
supports an automated process for process of obtaining a listing or quotation
posting to IFRS and GAAP layers. Other of debt or equity instruments in a
automated transactions will be posted into public market.
a single layer, whereas the differences Operating segments are components of
between one GAAP and IFRS can be an entity, identified based on internal
posted to another posting layer by using reports on each segment that are
a manual journal, resulting in a delta regularly used by the entity’s chief
approach. operating decision-maker (CODM) to
An additional alternative to consider when allocate resources to the segment and to
parallel reporting is required is to assess its performance.
calculate and post IFRS adjustments into Operating segments are separately
a specific legal entity, and use Financial reported if they do not satisfy the
reports for reporting with or without aggregation criteria, and also do not fall
adjustments. into the 25% that the company is not
Microsoft Dynamics 365 Finance also required to disclose. A reportable
supports parallel general ledger accounts segment is an operating segment or
for local and IFRS purposes. In this group of operating segments that exceed
approach, different accounts will be used the quantitative thresholds set out in the
instead of different posting layers. standard. However, an entity may
disclose any additional operating segment
if it chooses to do so.

For all reportable segments, the entity is The segments defined for operating
required to provide a measure of profit or segment reporting is leveraged in the
loss in the format viewed by the CODM, consolidated reporting provided by
as well as disclosure of a measure of Microsoft Dynamics 365 Finance. This will
assets and liabilities if such amounts are help confirm that consolidated financial
regularly provided to the CODM. Other statements properly reflect the
segment disclosures include the revenue operating segments.
from customers for each group of similar Microsoft Dynamics 365 Finance also
products and services, revenue by provides the option to select one segment
geography and dependence on major used for segmented reporting as a
customers. Other detailed disclosures of balancing segment. This will reduce the
performance and resources are required need for manual adjustments to validate
if the CODM reviews these amounts. that assets and, if applicable, liabilities
A reconciliation of the totals of revenue, properly reflect the operating
profit and loss, assets and liabilities and segments structure.
other material items reviewed by the
CODM to the primary financial statements Financial reports can be leveraged when
is required. measurements and operating segments
are identified. The actual determination of
Support for IFRS 8 in Microsoft measurements and operating segments is
Dynamics 365 Finance a management decision and is performed
Measurements and operating segments outside Microsoft Dynamics 365 Finance.
Microsoft Dynamics 365 Finance supports Reconciliation
IFRS 8 by providing the capability to Microsoft Dynamics 365 Finance provides
define an unlimited number of segments, audit trail functionality that can be used
called financial dimensions, which can be when the segment amounts are based on
used for reporting purposes for all general the entity’s IFRS accounting policy.
ledger accounting entries. Account Reconciliation of consolidated statements
structures can be used to confirm that a can be performed by using built-in drill-
value is always provided for the segments down capabilities of Financial reports.
used for operating segments. The allowed Additionally, the Trial Balance list page
values for these segments can be has the capability to drill-down into source
constrained based on values for other documents via the Accounting
segments, including main accounts. Source Explorer.

IFRS 10, “Consolidated Financial Support for IFRS 10 in Microsoft
Statements” Dynamics 365 Finance
Overview With Financial reports, consolidated
Principles concerning consolidated reports are created by using reporting
financial statements are set out in IFRS trees that roll up subsidiaries into the
10, which was issued by the IASB in parent. These reporting trees can be used
May 2011. on any of the financial statements.
IFRS 10’s objective is to establish Intragroup balances and transactions can

principles for presenting and preparing be eliminated by specifying the
consolidated financial statements when elimination accounts and subtracting them
an entity controls one or more entities. from the consolidated amounts.
IFRS 10 sets out the requirements for Calculations can also be created to report
when an entity should prepare non-controlling interests in subsidiaries
consolidated financial statements, separately from the parent’s equity. It is
defines the principles of control, explains also possible to use a separate legal
how to apply the principles of control and entity for adjustment and
explains the accounting requirements for elimination purposes.
preparing consolidated financial Financial reports provide financial
statements. reporting support for IFRS 10 through the
The key principle in the new standard is capability to report on the recognized
that control exists, and consolidation is value of acquired identifiable assets and
required only if the investor possesses liabilities assumed. It supports the
power over the investee, has exposure to capability to measure any non-controlling
variable returns from its involvement with interest in an acquisition at fair value or as
the investee and has the ability to use its the non-controlling interest’s proportionate
power over the investee to affect share, by entering a percentage of the
its returns. acquiree’s net identifiable assets.
In difficult situations, the precise facts For top-side adjustments, changes might
and circumstances will affect the analysis be appropriate at the transaction level in
under IFRS 10. IFRS 10 does not provide Microsoft Dynamics 365 Finance,
‘bright lines’ and requires consideration of because Financial reports adjustments at
many factors, such as the existence of the consolidation level might not
contractual arrangements and rights be sufficient.
held by other parties, in order to
assess control.

IFRS 3, “Business Combinations” • Determine the acquisition date
Overview • Recognize and measure the identifiable
A business combination is a transaction assets acquired, liabilities assumed and
or event in which an acquirer obtains any non-controlling interest in
control of one or more businesses the acquiree
(‘acquiree(s)’). A business is an acquired • Recognize and measure the
set of activities and assets that must, at a consideration transferred for
minimum, include an input and a the acquire
substantive process that together • Recognize and measure goodwill or a
significantly contribute to the ability to gain from a bargain purchase
create outputs. There is an optional
concentration test to assess if the Support for IFRS 3 in Microsoft
acquired activities and assets Dynamics 365 Finance
constitute a business. See IFRS 10 for more details.
Business combinations occur in a variety IFRS 11, “Joint Arrangements”
of structures. IFRS 3 focuses on the
substance of the transaction, rather than Overview
the legal form. The overall result of a A joint arrangement is a contractual
series of transactions is considered if arrangement in which at least two parties
there are a number of transactions among agree to share control over the activities
the parties involved. For example, any of the arrangement.
transaction contingent on the completion
Unanimous consent over decisions about
of another transaction may be considered
relevant activities is required in order to
linked. An acquirer does not recognize
meet the definition of joint control.
contingent assets acquired in a
business combination. Joint arrangements can be joint
operations or joint ventures. The
All business combinations, excluding
classification is principle-based and
those involving businesses under
depends on the parties’ exposure to the
common control, are accounted for using
arrangement. When the parties’ exposure
the acquisition method. The acquisition
to the arrangement only extends to net
method can be summarized in the
assets of the arrangement, the
following steps:
arrangement is a joint venture.
• Identify the acquirer

Joint operations are often not structured through separate vehicles. Each operator has
rights to assets and obligations to liabilities, which is not limited to their
capital contribution.
Joint operators account for their rights to assets and obligations for liabilities. Joint
venturers account for their interest by applying equity accounting.
Support for IFRS 11 in Microsoft Dynamics 365 Finance
See IFRS 10 for more details.
23
5 Assets and inventory
IAS 2, “Inventories” Support for IAS 2 in Microsoft

Overview Dynamics 365 Finance
Inventories are initially recognized at cost. Inventory cost – Measurement of

Inventory costs include import duties, inventories
non-refundable taxes, transport and Microsoft Dynamics 365 Finance supports
handling costs, and any other directly accumulating costs, such as costs of
attributable costs less trade discounts, purchase, costs of conversion, or costs
rebates and similar items. incurred when inventories are brought to
Inventories are valued at the lower of cost their present location. These costs are
and net realizable value (NRV). NRV is included in inventory valuation.
the estimated selling price in the ordinary Proper configuration of Microsoft
course of business, less the estimated Dynamics 365 Finance will help validate
costs of completion and estimated that only applicable costs are
selling expenses. accumulated and recognized as inventory
IAS 2, ‘Inventories’, requires the cost of costs. Direct and indirect costs can be
items that are not interchangeable or that recognized during the procurement
have been segregated for specific process and accumulated during the
contracts to be determined on an conversion process. Indirect cost,
individual-item basis. The cost of other including overhead, is absorbed based on
items of inventory used is assigned by rate or surcharge.
using either the first-in, first-out (FIFO) or Microsoft Dynamics 365 Finance supports
weighted average cost formula. Last-in, the use of the following cost formulas:
first-out (LIFO) is not permitted. An entity standard cost; weighted average, both
uses the same cost formula for all perpetual and periodic; FIFO perpetual
inventories that have a similar nature and and retrospective; and specific
use to the entity. A different cost formula identification costing based on batch or
may be justified where inventories have a serial number. Inventory items can be
different nature or use. The cost formula correctly classified as, for example,
used is applied on a consistent basis from finished goods, work in process (WIP),
period to period. and raw material. Cost can be maintained
per site within a legal entity.

Expense recognition Classes of PPE are carried at historical
Microsoft Dynamics 365 Finance supports cost less accumulated depreciation and
perpetual recognition of cost of goods any accumulated impairment losses (the
sold (COGS) when inventory is sold. cost model), or at a revalued amount less
any accumulated depreciation and
Net realizable value subsequent accumulated impairment
Microsoft Dynamics 365 Finance supports losses (the revaluation model). The
write-down of individual inventory items or depreciable amount of PPE (being the
groups of inventory items. Comparing and gross carrying value less the estimated
identifying net realizable value is a residual value) is depreciated on a
management decision, and is performed systematic basis over its useful life.
outside Microsoft Dynamics 365 Finance. Subsequent expenditure relating to an
IAS 16, “Property, Plant and item of PPE is capitalized if it meets the
Equipment” recognition criteria.
Overview: Property, plant and equipment PPE may comprise parts with different
(PPE) is recognized when the cost of an useful lives. Depreciation is calculated
asset can be reliably measured and it is based on each individual part’s life. In
probable that the entity will obtain future case of replacement of one part, the new
economic benefits from the asset. part is capitalized to the extent that it
meets the recognition criteria of an asset,
PPE is measured initially at cost. Cost
and the carrying amount of the parts
includes the fair value of the consideration
replaced is derecognized.
given to acquire the asset (net of
discounts and rebates) and any directly Support for IAS 16 in Microsoft
attributable cost of bringing the asset to Dynamics 365 Finance
working condition for its intended use Microsoft Dynamics 365 Finance provides
(inclusive of import duties and the capability to create and maintain fixed
non-refundable purchase taxes). asset records. Costs associated with the
Directly attributable costs include the cost acquisition of assets can be recorded in a
of site preparation, delivery, installation project, in a vendor invoice, in inventory,
costs, relevant professional fees and the or directly in fixed assets. Acquisition
estimated cost of dismantling and adjustments can be made to record
removing the asset and restoring the site additional costs that are incurred to make
(to the extent that such a cost is the asset ready for service.
recognized as a provision). See Appendix
A for reference to IAS 16 amendments
issued but which are not yet effective until
the periods beginning on or after
January 1, 2022.

Depreciation entries can be automatically A lease gives one party (the lessee) the
generated based on user-defined right to use an asset over an agreed
depreciation profiles that control the period of time in return for payment to the
systematic allocation of the depreciable lessor. Leasing is an important source of
amount of an asset over its useful life. medium and long-term financing;
Posting policies for each asset are used accounting for leases can have a
to determine the correct accounts for significant impact on lessees’ and lessors’
financial reporting. financial statements.
For cost-based accounting, Microsoft IFRS 16 is a “right of use” model and
Dynamics 365 Finance supports carrying lessees should initially recognize a right-
the asset at cost less any accumulated of-use asset and lease liability based on
depreciation and impairment losses. the discounted payments required under
For fair value accounting, Microsoft the lease, taking into account the lease
Dynamics 365 Finance supports carrying term as determined under the standard.
the asset at fair value and the capability An exemption is allowed for short-term
to record revaluation. Determining fair (i.e., 12 months or less) or low value
value is a management decision and is leases (i.e., $5,000 or less). Determining
performed outside Microsoft Dynamics the lease term will require judgment which
365 Finance. was often not needed prior to the
adoption of IFRS 16 for an operating
Fixed assets can be disposed of when the lease as this did not change the expense
asset is sold or scrapped, or when it no recognition. Initial direct costs and
longer provides future economic benefits. restoration costs are also included.
The carrying amount of the fixed asset is
removed, and any gain or loss is Contingent rentals or variable lease
recognized. payments will need to be included in the
measurement of lease assets and
IFRS 16 “Leases” liabilities when these depend on an index
Overview or a rate or where they represent fixed
payments in substance. A lessee should
In January 2016, the IASB issued IFRS
reassess variable lease payments that
16, effective for periods beginning on or
depend on an index or a rate when the
after January 1, 2019 and superseding
lessee remeasures the lease liability for
previous guidance in IAS 17.
other reasons (for example, because of a
reassessment of the lease term) and
when there is a change in the cash flows
resulting from a change in the reference
index or rate (that is, when an adjustment
to the lease payments takes effect).

The lessee depreciates the right-of-use Historically, many entities did not
asset on a straight-line basis within separate any operating lease component
operating expense and the interest in the contracts because the accounting
portion is booked as a part of interest for an operating lease and for a
expense; interest expense will be service/supply arrangement generally had
weighted towards the front end of the a similar impact on the financial
lease term due to the application of the statements. Under IFRS 16, lessee
effective interest method. accounting for the two elements of the
IFRS 16 did not make major changes to contract diverges as the lease element
the historical lessor accounting model. will have to be recognized on the balance
Lessors are still required to classify sheet. Both lessors and lessees are
leases as either finance or operating at required to determine if a right to use an
inception, depending on whether underlying asset is a separate lease
substantially all the risks and rewards of component in their contracts if both (a)
ownership transfer to the lessee. Under a the lessee can benefit from use of the
finance lease, the lessee retains asset either on its own or together with
substantially all of the risks and rewards other resources that are readily available
of ownership. All other leases are to the lessee and (b) the underlying asset
operating leases. For a finance lease, the is neither dependent on, nor highly
lessor recognizes a receivable at an interrelated with, the other underlying
amount equal to the net investment in the assets in the contract.
lease; this is the present value of the
aggregate of lease payments receivable
by the lessor and any unguaranteed
residual value. For an operating lease, the
lessor continues to recognize the
underlying asset on its balance sheet.
27
Reform in 2020 to replace interest rate
benchmark (e.g., LIBOR, EURIBOR, and
TIBOR) with alternative benchmark rates
led to the introduction of a required
practical expedient effective for periods
beginning on or after January 1, 2021. If a
change results directly from IBOR reform
and occurs on an ‘economically
equivalent’ basis, changes will be
accounted for by updating the effective
interest rate.
During the COVID-19 pandemic, some
lessors provided relief to lessee by
deferring or relieving them of amounts
that would otherwise be payable. For
periods beginning on or after June 1,
2020, lessees have an exemption from
assessing whether a COVID-19 related
rent concession is a lease modification,
which should be applied retrospectively
without restatement and disclosed. This
practical expedient is available for lease
payments due through June 2021 to
capture rent concessions granted now
and lasting for 12 months.

Support for IFRS 16 in Microsoft Interest rates tied to an index, such as
Dynamics 365 Finance LIBOR, can be captured as part of the
The lessee can use the asset leasing configuration of index rate types. As rates
module to manage operating and fluctuate, a periodic process can be run to
financing leases where the company is capture the impact of the new interest rate
the lessee within Microsoft Dynamics 365 on leases with variable payments.
Finance. Attributes of the lease If events transpire resulting in the need to
agreement are inputted into the lease modify the lease, the updated lease
details for the system to perform the lease attributes can be captured in Microsoft
classification test based on the five Dynamics 365 Finance. A new payment
criteria outlined in IAS 17. The system schedule will be created based on the
calculates the right of use based on the modified lease details. The system
lease details. The payment schedule generates the revised payment schedule
details are captured during the setup and allows for the adjusted payment
of the lease within Microsoft Dynamics amounts to be edited prior to
365 Finance. confirmation. Upon completing the lease
The initial recognition process is used to modification in the system, Microsoft
create a journal that captures the right of Dynamics 365 Finance creates adjusting
use and lease liability amount in the lease entries for the right of use amount, initial
subledger and general ledger. direct costs, lease incentives,
prepayments, and dismantling costs
The detailed payment schedule can be as a result of the lease modification.
viewed from the lease book associated All versions of the lease and their
with the lease. Periodically, the values in corresponding details are stored
the payment schedule can be transferred for visibility.
to a general journal to recognize the lease
payment. Standard vendor invoice processing can
be used to expense operating lease
Microsoft Dynamics 365 Finance tracks payments (Note: This is only relevant
the lease liability amortization schedule under IAS 17).
per leased asset. On a periodic basis, a
general journal can be created to Standard customer invoice processing
recognize the associated interest can be used to record receivables for the
expense, lease expense, depreciation lessor. After it is determined, lease
expense, reduction in the right of use income or finance income can be
amount, and/or in lease liability depending recognized for the invoice or through
on the lease classification. The main journal entry adjustments.
account used for each transaction type is
driven based on the configuration of the
posting profile.

IAS 36, “Impairment of Assets” When considering whether an asset is
Overview: impaired, both external indicators, for
example, significant adverse changes in
Nearly all assets, current and non-current, the technological, market, economic or
are subject to an impairment test to legal environment or increases in market
confirm that they are not overstated on interest rates, and internal indicators, for
balance sheets. example, evidence of obsolescence or
The basic principle of impairment is that physical damage of an asset or evidence
an asset may not be carried on the from internal reporting that the economic
balance sheet at above its recoverable performance of an asset is, or will be,
amount. Recoverable amount is defined worse than expected, are considered.
as the higher of the asset’s fair value less Recoverable amount is calculated at the
costs to sell and its value in use. Fair individual asset level. However, an asset
value less costs to sell is the amount seldom generates cash flows
obtainable from a sale of an asset in an independently of other assets, and most
arm’s length transaction between assets are tested for impairment in groups
knowledgeable, willing parties, less costs of assets described as cash-generating
of disposal. Value in use requires units (CGUs). A CGU is the smallest
management to estimate the future cash identifiable group of assets that generates
flows to be derived from the asset and inflows that are largely independent from
discount them using a pre-tax market rate the cash flows from other CGUs.
that reflects current assessments of the
time value of money and the risks specific The carrying value of an asset is
to the asset. compared to the recoverable amount,
which is the higher of value in use or fair
All assets subject to the impairment value less costs to sell. An asset or CGU
guidance are tested for impairment where is impaired when its carrying amount
there is an indication that the asset may exceeds its recoverable amount. Any
be impaired. Certain assets such as impairment is allocated to the asset or
goodwill, indefinite lived intangible assets assets of the CGU, with the impairment
and intangible assets that are not yet loss recognized in profit or loss.
available for use, are also tested for
impairment annually even if there is no Goodwill acquired in a business
impairment indicator. combination is allocated to the acquirer’s
CGUs or groups of CGUs that are
expected to benefit from the synergies
of the business combination. However,
the largest group of CGUs permitted for
goodwill impairment testing is the lowest
level of operating segment before
aggregation.

Support for IAS 36 in Microsoft IAS 37, “Provisions, Contingent
Dynamics 365 Finance Liabilities and Contingent Assets”
Impairment is recognized in the general Overview:
ledger as an expense, and Microsoft A liability is a present obligation of the
Dynamics 365 Finance supports entity arising from past events, the
subsequent revaluations through the settlement of which is expected to result
Fixed assets module. Identifying the in an outflow from the entity of resources
impairment and recoverable amount of an embodying economic benefits. A
asset, whether from an external or provision falls within the category of
internal source, is a management liabilities and is defined as ‘a liability of
decision and is performed outside uncertain timing or amount’.
Microsoft Dynamics 365 Finance.
Recognition and initial measurement
A provision is recognized when: the entity
has a present obligation to transfer
economic benefits as a result of past
events; it is probable (more likely than
not), that such a transfer will be required
to settle the obligation; and a reliable
estimate of the amount of the obligation
can be made.
The amount recognized as a provision is
the best estimate of the expenditure
required to settle the obligation at the
balance sheet date, measured at the
expected cash flows discounted for the
time value of money. Provisions are not
recognized for future operating losses.
A present obligation arises from an
obligating event and may take the form of
either a legal obligation or a constructive
obligation. An obligating event leaves the
entity no realistic alternative to settling the
obligation. If the entity can avoid the
future expenditure by its future actions, it
has no present obligation, and no
provision is required.

For example, an entity cannot recognize a However, an asset can only be
provision based solely on the intent to recognized if it is virtually certain that
incur expenditure at some future date or settlement of the obligation will result in a
the expectation of future operating losses, reimbursement, and the amount
unless these losses relate to an onerous recognized for the reimbursement should
contract. not exceed the amount of the provision.
See Appendix A for reference to IAS 37 The amount of any expected
amendments issued but which are not yet reimbursement is disclosed. Net
effective until the periods beginning on or presentation is permitted only in the
after January 1, 2022. statement of profit or loss.
Restructuring provisions Subsequent measurement
There are specific requirements for Management performs an exercise at

restructuring provisions. A provision is each balance sheet date to identify the
recognized when there is: (a) a detailed best estimate of the discounted
formal plan identifying the main features expenditure required to settle the present
of the restructuring, and (b) a valid obligation at the balance sheet date. The
expectation in those affected that the increase in provision due to the passage
entity will carry out the restructuring by of time, that is, as a consequence of the
starting to implement the plan or by discount rate, is recognized as interest
announcing its main features to expense.
those affected. Contingent liabilities
A restructuring plan does not create a Contingent liabilities are possible
present obligation at the balance sheet obligations whose existence will be
date if it is announced after that date, confirmed only on the occurrence or non-
even if it is announced before the financial occurrence of uncertain future events
statements are approved. The provision outside the entity’s control, or present
includes only incremental costs resulting obligations that are not recognized
from the restructuring and not those because: (a) it is not probable that an
associated with the entity’s ongoing outflow of economic benefits will be
activities. Any expected gains on the sale required to settle the obligation, or (b) the
of assets are not considered in measuring amount cannot be measured reliably.
a restructuring provision. Contingent liabilities are not
Reimbursements recognized but are disclosed and
An obligation and any anticipated described in the notes to the financial
recovery are presented separately as a statements, including an estimate of their
liability and an asset respectively. potential financial effect and uncertainties
relating to the amount or timing of any
outflow, unless the possibility of
settlement is remote.

Contingent assets Support for IAS 37 in Microsoft
Contingent assets are possible assets Dynamics 365 Finance
whose existence will be confirmed only on The determination of a contingent asset, a
the occurrence or non-occurrence of liability, or a provision is performed
uncertain future events outside the outside Microsoft Dynamics 365 Finance.
entity’s control. Contingent assets are not Microsoft Dynamics 365 Finance provides
recognized. When the realization of indirect support for IAS 37 by providing
income is virtually certain, the related the capability to record journal entries for
asset is not a contingent asset, it is any provision that must be recognized, or
recognized as an asset. to classify a contingent liability or asset.
Contingent assets are disclosed and IAS 38, “Intangible Assets”
described in the notes to the financial Overview:
statements, including an estimate of their
potential financial effect if the inflow of An intangible asset is an identifiable non-
economic benefits is probable. monetary asset without physical
substance. The identifiable criterion is met
when the intangible asset is separable,
that is, when it can be sold, transferred, or
licensed, or where it arises from
contractual or other legal rights.
Separately acquired intangible assets
Separately acquired intangible assets are
recognized initially at cost. Cost
comprises the purchase price, including
import duties and non-refundable
purchase taxes, and any directly
attributable costs of preparing the asset
for its intended use. The purchase price of
a separately acquired intangible asset
incorporates assumptions about the
probable economic future benefits that
may be generated by the asset.
Internally generated intangible assets
The process of generating an intangible
asset is divided into a research phase and
a development phase.

No intangible assets arising from the Intangible assets acquired in a business
research phase may be recognized. combination
Intangible assets arising from the If an intangible asset is acquired in a
development phase are recognized when business combination, both the probability
the entity can demonstrate: and measurement criterion are always
• Its technical feasibility considered to be met. An intangible asset
• Its intention to complete the will therefore always be recognized,
developments regardless of whether it has been
previously recognized in the acquiree’s
• Its ability to use or sell the intangible financial statements.
asset
Subsequent measurement
• How the intangible asset will generate
probable future economic benefits (for Intangible assets are amortized unless
example, the existence of a market for they have an indefinite useful life.
the output of the intangible asset or for Amortization is carried out on a
the intangible asset itself) systematic basis over the useful life of the
intangible asset. An intangible asset has
• The availability of resources to an indefinite useful life when, based on an
complete the development analysis of all the relevant factors, there is
• Its ability to measure the attributable no foreseeable limit to the period over
expenditure reliably which the asset is expected to generate
net cash inflows for the entity.
Any expenditure written off during the
research or development phase cannot Intangible assets may be subsequently
be capitalized if the project meets the measured at a revalued amount as a
criteria for recognition at a later date. The policy election, but only to the extent that
costs relating to many internally an active market exists for the asset.
generated intangible items cannot be Support for IAS 38 in Microsoft
capitalized and are expensed as incurred. Dynamics 365 Finance
This includes research, start-up and
advertising costs. Expenditure on The Fixed assets module supports
internally generated brands, mastheads, recognition of intangible assets at cost in
customer lists, publishing titles and the financial statements. The identification
goodwill are not recognized as intangible of an intangible asset is a management
assets. decision and is performed outside
Microsoft Dynamics 365 Finance. Project
accounting can be used to recognize
internally generated intangible assets.
The amortization of assets can be
performed by using the depreciation
routines..

IAS 40, “Investment Property” Any other properties are accounted for in
Overview: accordance with:
Certain properties are classified as • IAS 16 if they are held for use in the
investment properties for financial production or supply of goods or
reporting purposes in accordance with services. Owner-occupied property
IAS 40 as the characteristics of these does not meet the definition of
properties differ significantly from owner- investment property
occupied properties. It is the current value • IAS 2 as inventory, if they are held for
of such properties and changes to those sale in the ordinary course of business.
values that are relevant to users of Initial measurement of an investment
financial statements. property is the fair value of its purchase
Investment property is property, for consideration plus any directly attributable
example, land or a building, or part of a costs. Subsequent to initial measurement,
building or both, held by an entity to earn management may choose as its
rentals and/or for capital appreciation. accounting policy either to carry
This category includes such property in investment properties at fair value or at
the course of construction or cost. The policy chosen is applied
development. consistently to all the investment
properties that the entity owns.

If the fair value option is chosen, The cost model requires investment
investment properties in the course of properties to be carried at cost less
construction or development are accumulated depreciation and any
measured at fair value if this can be accumulated impairment losses
reliably measured; otherwise, they are consistent with the treatment of PPE; the
measured at cost. fair values of these properties is disclosed
Under IAS 40, fair value is the price at in the notes.
which the property could be exchanged Support for IAS 40 in Microsoft
between knowledgeable, willing parties in Dynamics 365 Finance
an arm’s length transaction. Under IFRS Overview:
13, fair value is defined as the price that
would be received to sell an asset or paid An investment property can be recorded
to transfer a liability in an orderly in Microsoft Dynamics 365 Finance as a
transaction between market participants fixed asset. The determination of a fixed
at the measurement date. Changes in fair asset by using the fair value or cost model
value are recognized in profit or loss in is a management decision and is
the period in which they arise. performed outside Microsoft Dynamics
365 Finance. The fixed asset journals can
be used to adjust acquisition value based
on changes in fair value, and also to
recognize the change in the income
statement.

Investment properties can be classified by IFRS 5 defines a disposal group as a
using specific asset groups and specific group of assets to be disposed of, by sale
posting rules to ease disclosure of or otherwise, together as a group in a
required information. single transaction, and liabilities directly
IFRS 5, “Non-current Assets Held for associated with those assets that will be
Sale and Discontinued Operations” transferred in the transaction. The non-
current asset (or disposal group) is
Overview: classified as ‘held for sale’ if it is available
IFRS 5 is relevant when any disposal for its immediate sale in its present
occurs or is planned. The held-for-sale condition and its sale is highly probable. A
criteria in IFRS 5 apply to non-current sale is ‘highly probable’ where: there is
assets (or disposal groups) whose value evidence of management commitment;
will be recovered principally through sale there is an active program to locate a
rather than through continuing use. The buyer and complete the plan; the asset is
criteria do not apply to assets that are actively marketed for sale at a reasonable
being scrapped, wound down or price compared to its fair value; the sale is
abandoned. expected to be completed within 12
months of the date of classification; and
actions required to complete the plan
indicate that it is unlikely that there will be
significant changes to the plan or that it
will be withdrawn.

Non-current assets (or disposal groups) An operation is classified as discontinued
classified as held for sale are: only at the date on which the operation
• Carried at the lower of the carrying meets the criteria to be classified as held
amount and fair value less costs to sell for sale or when the entity has disposed
of the operation. Although balance sheet
• Not depreciated or amortized information is neither restated nor re-
• Presented separately in the balance measured for discontinued operations, the
sheet (assets and liabilities should not statement of comprehensive profit or loss
be offset) information does have to be restated for
the comparative period.
A discontinued operation is a component
of an entity that can be distinguished Discontinued operations are presented
operationally and financially for financial separately in the statement of profit or
reporting purposes from the rest of the loss and either on the face of the cash
entity and: flow statement or in the notes. There are
additional disclosure requirements in
• Represents a separate major line of
relation to discontinued operations.
business or major geographical area of
operation
• Is part of a single coordinated plan to
dispose of a separate major line of
business or geographical area of
operation
• Is a subsidiary acquired exclusively
with a view for resale

The date of disposal of a subsidiary or disposal group is the date on which control
passes. The consolidated income statement includes the results of a subsidiary or
disposal group up to the date of disposal; the gain or loss on disposal is the difference
between (a) the carrying amount of the net assets plus any attributable goodwill and
amounts accumulated in other comprehensive income (for example, foreign translation
adjustments and available-for-sale reserves); and (b) the proceeds of sale.
Support for IFRS 5 in Microsoft Dynamics 365 Finance
In Microsoft Dynamics 365 Finance, fixed assets that are classified as held for sale can
be measured at the lower of the carrying amount and the fair value less costs to sale.
For any assets that are held for sale, Microsoft Dynamics 365 Finance enables
reclassification and transfer into new assets.
Asset disposal groups can be managed by transferring multiple assets into a single
asset. Assets can be set to not depreciate. General ledger accounts can be defined for
the assets that are held for sale to provide for the correct presentation in the financial
statements.

6 Foreign currency
IAS 21, “The Effects of Changes in An entity may have foreign operations, for
Foreign Exchange Rates” example, overseas subsidiaries, branches
Overview or associates that maintain their
accounting records in their local currency.
Many entities do business with overseas Because it is not possible to combine
suppliers or customers, or have overseas transactions measured in different
operations. This gives rise to two main currencies, the foreign operation’s results
accounting issues: and financial position are translated into a
Some transactions, for example, those single currency, namely that in which the
with overseas suppliers or customers, group’s consolidated financial statements
may be denominated in foreign are reported (presentation currency).
currencies. These transactions are The methods required for each of the
expressed in the entity’s own currency above circumstances are summarized
(functional currency) for financial reporting below.
purposes.

Expressing foreign currency transactions The financial statements of a foreign
in the entity’s functional currency operation that has the currency of a
A foreign currency transaction is hyperinflationary economy as its
expressed in the functional currency using functional currency are first restated in
the exchange rate at the transaction date. accordance with IAS 29. All components
Foreign currency balances representing are then translated to the presentation
cash or amounts to be received or paid in currency at the closing rate at the end of
cash (monetary items) are reported at the the reporting period.
end of the reporting period using the Support for IAS 21 in Microsoft
exchange rate on that date. Exchange Dynamics 365 Finance
differences on such monetary items are Microsoft Dynamics 365 Finance provides
recognized as income or expense for the capability to define a functional
the period. currency as the accounting currency for a
Non-monetary balances that are not ledger. The initial recognition of foreign
re-measured at fair value and are currency transaction amounts are
denominated in a foreign currency are translated to the accounting currency by
expressed in the functional currency using using the exchange rate at the
the exchange rate at the transaction date. transaction date.
Where a non-monetary item is re- For foreign currency monetary items, a
measured at fair value in the financial periodic currency revaluation process can
statements, the exchange rate at the date be run in accounts receivable, accounts
when fair value was determined is used. payable, and the general ledger for
Translating functional currency financial accounts that are set up for currency
statements into a presentation currency revaluation.
Assets and liabilities are translated from Non-monetary items that are measured in
the functional currency to the presentation terms of historical cost in a foreign
currency at the closing rate at the end of currency can be excluded from currency
the reporting period. The income revaluation and can be carried at the
statement is translated at exchange rates exchange rate at the date of the
at the dates of the transactions or at the transaction.
average rate if that approximates the
actual rates. All resulting exchange
differences are recognized in other
comprehensive income.

Non-monetary items that are measured at Reporting currency translation is
fair value in a foreign currency can be supported by the use of either a
translated by using the exchange rate at consolidation company or Management
the date of the transaction. Reporter. For consolidation companies,
Microsoft Dynamics 365 Finance the transaction rate, average exchange
automatically recognizes realized profit rate, or closing rate can be applied to
and loss postings related to the accounts. The difference calculated to
settlement of monetary items at rates that balance when you translate to the
differ from the previous closing rate. reporting currency will be identified as the
currency translation adjustment amount
Investments in foreign operations can be and will be presented appropriately in the
recognized in Microsoft Dynamics 365 financial statements.
Finance as separate financial statements
of the reporting entity. Financial reports can be viewed in any of
the currencies with the appropriate rate
applied. Reports can also be created
using the Financial reporting client for
‘design’ to view balances in specific
currencies side by side.

7 Revenue recognition
IFRS 15 “Revenue from Contracts with IFRS 15 specifies how and when revenue
Customers” should be recognized as well as provides
Overview: specific disclosure requirements. The
standard provides a single, principles
In May 2014, the IASB issued IFRS based five-step model to be applied to all
15, superseding IAS 11 and 18 and a contracts with customers. Significant
number of IFRS Interpretations management judgment on accounting for
Committee (“IFRIC”) interpretations, revenue recognition may be required, and
effective for periods beginning on or after the adoption of the standard has resulted
January 1, 2018. in pervasive impacts on people, policies,
processes and systems. Companies are
finding that circumstances such as tiered
pricing, marketing offers (including
volume discounts), contract modifications
and a host of other potential contract
terms are creating issues that require
careful consideration under the new
standard.
Many revenue transactions are
straightforward, but some can be highly
complex. For example, software
arrangements, licenses of intellectual
property, outsourcing contracts, barter
transactions, contracts with multiple
elements, and contracts with milestone
payments can be challenging to
understand. It might be difficult to
determine what the entity has committed
to deliver, how much and when revenue
should be recognized.

Contracts often provide strong evidence Arrangements may also include elements
of the economic substance, as parties to that are partly in the scope of other
a transaction generally protect their standards and partly in the scope of the
interests through the contract. revenue standard. The elements that are
Amendments, side letters, and oral accounted for under other standards are
agreements, if any, can provide additional separated and accounted for under those
relevant information. Other factors, such standards. Only contracts with a customer
as local legal frameworks and business are in the scope of the revenue standard.
practices, should also be considered to Five-step model
fully understand the economics of the
arrangement. An entity should consider The core principle of IFRS 15 is that an
the substance, not only the form, of a entity recognizes revenue to depict the
transaction to determine when revenue transfer of promised goods or services to
should be recognized. The revenue customers in an amount that reflects the
standard provides principles that an entity consideration to which the entity expects
applies to report useful information about to be entitled in exchange for those goods
the amount, timing, and uncertainty of or services. An entity recognizes revenue
revenue and cash flows arising from its in accordance with that core principle by
contracts to provide goods or services to applying the following steps:
customers. The core principle requires an • Step 1: Identify the contract(s) with a
entity to recognize revenue to depict the customer – A contract is an agreement
transfer of goods or services to between two or more parties that
customers in an amount that reflects the creates enforceable rights and
consideration that it expects to be entitled obligations. The requirements of IFRS
to in exchange for those goods or 15 apply to each contract that has been
services. agreed upon with a customer and
Scope of contracts with customers meets specified criteria. In some cases,
IFRS 15 requires an entity to combine
The revenue standard applies to all contracts and account for them as one
contracts with customers, except for contract. IFRS 15 also provides
contracts that are within the scope of requirements for the accounting for
other standards, such as leases, contract modifications.
insurance, and financial instruments.
Other items might also be presented as
revenue because they arise from an
entity’s ordinary activities but are not
within the scope of the revenue standard,
such as interest and dividends.

• Step 2: Identify the performance • Step 3: Determine the transaction
obligations in the contract – A price – The transaction price is the
contract includes promises to transfer amount of consideration in a contract to
goods or services to a customer. If which an entity expects to be entitled in
those goods or services are distinct, the exchange for transferring promised
promises are performance obligations goods or services to a customer. The
and are accounted for separately. A transaction price can be a fixed amount
good or service is distinct if the of customer consideration, but it may
customer can benefit from the good or sometimes include variable
service on its own or together with consideration or consideration in a form
other resources that are readily other than cash. The transaction price
available to the customer and the is also adjusted for the effects of the
entity’s promise to transfer the good or time value of money if the contract
service to the customer is separately includes a significant financing
identifiable from the other promises in component and for any consideration
the contract. payable to the customer. If the
consideration is variable, an entity
estimates the amount of consideration
to which it will be entitled in exchange
for the promised goods or services.
The estimated amount of variable
consideration will be included in the
transaction price only to the extent that
is it highly probable that a significant
reversal in the amount of cumulative
revenue recognized will not occur
when the uncertainty associated with
the variable consideration in
subsequently resolved.

• Step 4: Allocate the transaction price Other revenue considerations
to the performance obligations in the Transactions where a seller retains a right
contract – An entity typically allocates or obligation to repurchase the goods do
the transaction price to each not result in revenue recognition because
performance obligation on the basis of control cannot have been transferred.
the relative stand-alone selling prices of
each distinct good or service promised An entity should recognize an asset for
in the contract. If a stand-alone selling the incremental costs to obtain a contract
price is not observable, an entity if management expects to recover those
estimates it. Sometimes, the costs. Incremental costs of obtaining a
transaction price includes a discount or contract are costs that the entity would
a variable amount of consideration that not have incurred if the contract had not
relates entirely to a part of the contract. been obtained (for example, sales
The requirements specify when an commissions). Costs that the entity would
entity allocates the discount or variable have incurred if the contract had not been
consideration to one or more, but not obtained (such as facilities costs and
all, performance obligations (or distinct sales force salaries) are not capitalized.
goods or services) in the contract. An entity can elect to expense the cost of
obtaining a contract if the amortization
• Step 5: Recognize revenue when (or period would be one year or less.
as) the entity satisfies a performance
obligation – An entity recognizes An entity will recognize an asset for costs
revenue when (or as) it satisfies a to fulfil a contract if those costs (a) relate
performance obligation by transferring a directly to a contract or anticipated
promised good or service to a customer contract that the entity can specifically
(which is when the customer obtains identify; (b) generate or enhance the
control of that good or service). The entity’s resources that will be used to
amount of revenue recognized is the satisfy future performance obligations;
amount allocated to the satisfied and (c) are expected to be recovered.
performance obligation. A performance An asset recognized for the costs to
obligation may be satisfied at a point in obtain or fulfil a contract will be amortized
time (typically for promises to transfer on a systematic basis as the goods or
goods to a customer) or over time services to which the assets relate are
(typically for promises to transfer transferred to the customer. The asset will
services to a customer). For also be assessed for impairment each
performance obligations satisfied over reporting period.
time, an entity recognizes revenue over
time by selecting an appropriate
method for measuring the entity’s
progress towards complete satisfaction
of that performance obligation.

Support for IFRS 15 in Microsoft • Step 3: Determine the transaction price
Dynamics 365 Finance – The transaction price and any
Five-step model applicable discounts on the sales order
default from the customer’s contract. In
Microsoft Dynamics 365 Finance has the absence of predefined pricing for
capabilities to support the company in the customer, Microsoft Dynamics 365
each of the five steps of the Revenue Finance uses the default list price.
Recognition model:
• Step 4: Allocate the transaction price
• Step 1: Identify the contract(s) with a to the performance obligations in the
customer – Microsoft Dynamics 365 contract – Transaction prices may be
Finance provides the ability to define set and associated at the most granular
customer contracts to capture selling unit level including a bundle.
applicable data attributes critical to the The transaction price can be allocated
evaluation of revenue for contracts with across a single or multiple sales orders.
customers (e.g., contract start/end
dates; pricing; volume discounts; • Step 5: Recognize revenue when (or
product or service bundling). as) the entity satisfies a performance
obligation – Microsoft Dynamics 365
• Step 2: Identify the performance Finance supports configuration to
obligations in the contract – The recognize revenue based on the
performance obligation configuration is revenue type and revenue schedule
done through released products to specified on the sales order line,
define the type of revenue, revenue including intercompany sales order
price, and revenue schedule. Bundles lines. When a line item on the invoice
may also be defined for a grouping results in deferring revenue, the
of items. process for subsequently reducing
deferred revenue and recognizing
revenue in accordance with the
revenue schedule is managed through
the sub-ledger. When deferring revenue
for an inventoried item, the
corresponding cost of goods sold will
be booked as revenue is recognized
each period. In an event where the
sales order is in a foreign currency,
Microsoft Dynamics 365 Finance will
use the original exchange rate at the
time of invoicing for subsequent
revenue recognition transactions.

For contracts utilizing milestone-based When reallocating the price with new
revenue recognition, Microsoft Dynamics order lines, the system creates a
365 Finance supports manually releasing reversing entry for the original invoice and
revenue as the milestone occurs. create a new accounting entry based on
Performance obligations delivered over a the updated allocated price. The reversing
period of time can also use Microsoft date of the original invoice can be
Dynamics 365 Finance Project manually specified. The resulting revenue
management and accounting to specify recognition adjustment journal posts to
the appropriate revenue recognition policy the accounts receivable sub-ledger to
(1 - Ratable or Straight-line; 2 - Percent align with the general ledger. The system
complete; 3- Cost amount; 4 - quantity). will automatically settle the original
Microsoft Dynamics 365 Finance does invoice to the reversing invoice. In the
allow contract terms to be updated after event a payment was applied to the
the original sales order has been posted. original invoice, the system will
The original revenue recognition automatically unsettle the payment from
transactions will be reversed and a new the original invoice and re-settle it against
revenue schedule is created. the new invoice.
When releasing revenue in Microsoft Certain complex judgements (e.g.,

Dynamics 365 Finance, a general journal revaluation of variable considerations) will
is created based on the revenue require analysis outside of the Microsoft
schedules. The system utilizes the Dynamics 365 Finance environment to
financial dimensions from the sales order identify and measure revenue against the
line when creating the journal lines and delivery of performance obligations (vs.
corresponding ledger accounts to invoice and/or billing dates). Adjustments
recognize revenue. As a control, the are primarily made through accounting
system will not allow updates to the journals.
deferred revenue main account in the It should be noted that Third Party “bolt-
general journal that is created. on” applications made be considered in
In the event an additional line item needs industry sectors of significantly complex
to be included or a credit note applied to a contract arrangements (e.g., Technology,
sales order that has already been Telecommunications).
invoiced, the reallocate price with new
order lines functionality may be used
recalculate the revenue price for
recognition.

Other revenue considerations Grants related to income are recognized
Contract modification introduces a in profit or loss over the periods
downstream risk that may impact revenue necessary to match them with the related
recognition patterns set by the initial costs that they are intended to
customer contract agreement. Revenue compensate. They are either offset
adjustments may be needed to adjust against the related expense or presented
revenue in this scenario and are primarily as separate income. The timing of such
made through accounting journals. recognition in profit or loss will depend on
the fulfillment of any conditions or
Revenue accounts are defaulted based obligations attaching to the grant.
on accounting rules, but they can be
modified for each transaction. Revenue Grants related to assets are either offset
adjustments, including recognition for against the carrying amount of the
multiple elements and rights of return, are relevant asset or presented as deferred
primarily made through accounting income in the balance sheet. Profit or loss
journals. It should be noted that the new will be affected either by a reduced
standard may introduce additional depreciation charge or by deferred
complexity that will require judgment income being recognized as income
using analysis outside of Microsoft systematically over the useful life of the
Dynamics 365 Finance and manual related asset.
adjustment to system entries in an Support for IAS 20 in Microsoft
organization’s transaction and/or Dynamics 365 Finance
reporting systems. Overview:
Uncollected amounts or amounts for Microsoft Dynamics 365 Finance supports
which recovery has ceased to be the registration of grants and grants
probable are expensed as part of the amounts. Grants can be classified as
receivable collection process in Microsoft deferred income. The Project
Dynamics 365 Finance. management and accounting module can
IAS 20, “Accounting for Government be used to recognize conditional grants
Grants and Disclosure of Government as income and match them with the
Assistance” related costs that they are intended to
Overview: compensate. Alternatively, the recognition
and matching can be made by using
Government grants are recognized when journal entries. If a grant becomes
there is reasonable assurance that the repayable, it can be recognized within
entity will comply with the conditions unamortized deferred income, and any
related to them and that the grants will be excess can be recognized as expense.
received.

Grants related to assets can be registered
as carrying amount adjustments in the
Microsoft Dynamics 365 Finance Fixed
assets module. Adjustments are tracked
separately and can be reversed in the
event of repayment. Adjustments to
cumulative depreciation as a result of a
repayment can be charged as an
expense.
IAS 23, “Borrowing Costs”
Overview:
Under IAS 23, costs that are directly
attributable to the acquisition, construction
or production of a qualifying asset should
be capitalized.
Support for IAS 23 in Microsoft
See IAS 16 for more details.

8 General ledger concepts in Microsoft
Microsoft Dynamics 365 Finance provides Management Reporter is used for the
the capability to define and share any creation, distribution, and analysis of
number of charts of accounts, fiscal financial statements and other financial
calendars, and currencies. The general reports, and is included in Microsoft
ledger for a company or legal entity Dynamics 365 Finance.
defines a combination of a specific chart Management Reporter provides out-of-
of accounts, a fiscal calendar, and the box report templates that can be used to
functional and reporting currency. report on Microsoft Dynamics 365
Furthermore, attributes for main accounts, Finance general ledger data. These
fiscal calendar, and currencies can be templates can be modified to meet
defined per legal entity. specific business needs.
Microsoft Dynamics 365 Finance provides
support for global businesses and
intracompany and intercompany
transactions.
Microsoft Dynamics 365 Finance supports
a vast array of financial dimensions.
Accounting rules are defined, based on
the chart of accounts and the
organizational hierarchies, to provide that
the appropriate dimensions and
dimension values are captured for each
accounting entry. These rules should be
used to confirm that correct information is
available for financial and management
reporting.
Management Reporter for Microsoft
Dynamics ERP supports the creation of
statutory and operational reports based
on general ledger data.

9 U.S. GAAP vs. IFRS
Overview of U.S. GAAP, and identification of ERP differences between U.S.

GAAP and IFRS
U.S. companies became increasingly aware of IFRS over the past decade, as the
FASB and the IASB (collectively, the Boards) worked jointly and focused their agendas
on the convergence of U.S. GAAP and IFRS. Although the Boards’ work both improved
financial reporting and brought the accounting frameworks closer together in some
areas, the future of further convergence remains uncertain as the Boards shift attention
to their own independent agendas. IFRS is increasingly relevant to many U.S.
companies, large and small, public and non-public. PwC has created a document titled
IFRS and US GAAP: similarities and differences that can help the reader understand
the implications and variations between U.S. GAAP and IFRS reporting requirements.

10 How Microsoft Dynamics 365 Finance
supports the compliance initiative
Overview of Sarbanes-Oxley General overview of Microsoft

The Sarbanes-Oxley (SOx) Act was Dynamics 365 Finance and the
signed into law on July 30, 2002. This act compliance initiative
was designed to restore and enhance Companies continue to find themselves in
public confidence in the financial reporting an environment of economic uncertainty
and disclosure process and the and under pressure to become more
accounting profession. In addition, it was efficient. At the same time, the number
designed to strengthen enforcement of and complexity of regulatory requirements
federal securities laws and improve continues to increase. Performance
executive responsibility and expectations, increasing stakeholder
accountability. demands, and changing market
The Sarbanes-Oxley Act Section conditions are forcing business leaders to
404 requires: search for cost-effective ways to enforce
compliance adoption without jeopardizing
• Public companies to have an effective organizational agility and business
framework for internal controls and growth.
documentation of controls
Microsoft Dynamics 365 Finance includes
• Quarterly certification by management functionality that helps organizations meet
of the nature and effectiveness of their compliance obligations in a flexible,
internal controls and the quality of adaptable and scalable fashion.
information contained
• An annual report by management about
internal controls and procedures for
financial reporting and in certain
instances, an attestation by the
company’s external auditor as to the
company’s internal controls over
financial reporting

Access control and segregation of duties
A key component of compliance is securing who has access to various features and
data in the system. To enforce effective controls, companies should create appropriate
checks and balances to confirm that their systems are not only secured but also
maintain strong segregation of duties between conflicting functions in the organization
that could lead to potential risk of unintended, malicious or fraudulent activity.

Microsoft Dynamics 365 Finance supports Compliance with corporate policies and
role-based security, which helps manage procedures
growing complexities in organizations Microsoft Dynamics 365 Finance policies
security by utilizing reusable permissions, and workflows allow an organization to
default and sample security definitions. In help define business rules and automate
a role-based security environment, users processes, enabling users to follow a
are assigned to roles based on their specified set of processes that give
responsibilities in the organization and companies greater and stronger internal
their participation in business processes. automated controls.
Microsoft Dynamics 365 Finance supports
segregation of duties giving the ability to Workflow in Microsoft Dynamics 365
setup rules indicating when two duties Finance enables the setup of an approval
must be performed by separate roles or process for selected source documents,
users for better security or better for example accounting journals. The
compliance with policies and regulations. approval process allows a user to define
Microsoft Dynamics 365 Finance supports the conditions under which approvals are
access to only authorized users through required and link this to the organizational
single sign-on capabilities. hierarchy to provide appropriate levels of
review and approval. The posting of the
In Microsoft Dynamics 365 Finance, the transaction is therefore placed in a
extensible data security framework can be pending status until the appropriate
used to help secure the data. By using approvals are received providing internal
this framework, one can create data control over workflow-enabled processes.
security policies that, for example, grant Lastly, in addition to capturing levels of
‘view’ access to one subset of sales approach, workflow capabilities in
orders and ‘edit’ access to another subset Microsoft Dynamics 365 Finance provide
of sales orders. Microsoft Dynamics 365 a mechanism to track the status of a
Finance supports electronic signatures to document workflow (e.g., from initiation,
help enable compliance and pending approval, approved, rejected) to
accountability as required by regulations, help provide a timely completion of
law or company policy for critical business open item.
processes.

Another example to enable your company Tracking and tracing changes
policies through Microsoft Dynamics 365 Many compliance requirements focus on
Finance automation is leveraging recording exactly what was done, when,
business process capability to help and by whom. Microsoft Dynamics 365
prevent and/or detect risk through Finance supports audit trails to identify
configuration or configurable business the origin of an entry, the user who
process controls. Module specific policies created it, and the date and time when it
can be configured to provide internal was created. Database logging in
control for a specific business process. Microsoft Dynamics 365 Finance provides
For example, within account payables, the capability to track, trace and report
configuration can be applied at an changes to data fields and tables that are
enterprise-wide, vendor or product level to relevant to your compliance strategy.
enable automated control areas such as a Alert rules can also be configured to
three-way or two-way match. Capabilities deliver automatic notification about
exist in configuration to define the sensitive data.
matching policy for any level based on
invoice totals and tolerances to provide Audit trails
control, yet flexibility per your When high risk activities can’t be
organization’s requirements. If a matching controlled through other configurations or
discrepancy exceeds the tolerance it will reporting. A company may need to enable
require to be resolved or accepted should specific review of user activity and
the differences be based on approval by compare back to business process
an authorized user. requirements to confirm appropriateness
Further, internal controls may be enabled of the activity.
to require mandatory data fields and Audit trails can be enabled to see
validate data input (e.g., within your changes to information stored in the
customer or vendor master records) for Microsoft Dynamics 365 Finance data
additional control across the organizations tables. Through the enablement of audit
critical master data. trails on these tables, management can
keep a record of old and changed values
within configurations, master data, and
transactional data. Best practice is
generally to limit the enablement of audit
trails on master data and configurations,
due to potential impact on system
performance through tracking high
volumes of transactional activity.

Documenting processes and controls
Microsoft Dynamics 365 Finance provides
a central location for users to view,
manage and control the internal controls,
business process content and reporting
for the organization's compliance
program. The Compliance site provides
access to required documentation,
internal controls and status tracking. From
the Compliance site, users have the
capability to view graphs representing the
efficiency and effectiveness of the internal
controls, examine key performance
indicators, manage action items from
alerts or workflow and add links to
important external compliance sites.
The Business Process Modeler in
Microsoft Dynamics Lifecycle Services is
pre-populated with a standard process
map based on the APQC’s (American
Productivity & Quality Center ) cross
industry framework. Task Recorder in
Microsoft Dynamics 365 Finance delivers
capabilities to automatically document
business processes, by recording tasks
performed in Microsoft Dynamics 365
Finance as video recordings, process
flow diagrams and step by step
documentation.

11 Appendix A – Relevant Standard updates
issued; not yet effective
The following table outlines relevant standard updates which have been issued, but are
not yet effective as of the publication of this document.
Pronouncement Standard Public company effective date Update summary

Amendments resulting IFRS 1 Periods beginning on or after For subsidiaries that move from
from Annual January 1, 2022 national GAAP to IFRS at a later date
Improvements to IFRS than its parent, the subsidiary may
Standards 2018–2020 elect to measure cumulative
(subsidiary as a first- translation differences based on the
time adopter parent's date of transition to IFRS 1.
January 2020 IAS 1 Periods beginning on or after In January 2020, IASB amended IAS
Amendments regarding January 1, 2023. 1 to clarify that the classification of
the classification of liabilities on the statement of financial
liabilities position should be based on rights
that exist for the liability at the end of
the reporting period (e.g., the right to
defer settlement by twelve months
would lead to non-current
classification).
May 2020 Amendments IAS 16 Periods beginning on or after To clarify that the cost of PPE is not
prohibiting a company January 1, 2022 reduced by any proceeds from selling
from deducting from the items produced when bringing the
cost of property, plant asset to working condition.
and equipment amounts
received from selling
items produced while
the company is
preparing the asset for
its intended use
May 2020 Amendments IAS 37 Periods beginning on or after To clarify that when determining if a
regarding the costs to January 1, 2022 contract is onerous, the ‘cost of
include when assessing fulfilling’ a contract comprises the
whether a contract is ‘costs that relate directly to the
onerous contract’ (e.g., incremental costs of
fulfilling that contract or an allocation
of other costs that relate directly to
fulfilling contracts).

12 Contacts
page
PricewaterhouseCoopers LLP (PwC) and Under the agreement, PwC consultants

Microsoft Corporation have formed a will provide advice and implementation
strategic alliance to help companies assistance to clients who select Dynamics
engaged in enterprise transformation 365 together with other Microsoft
projects that use Microsoft Business technologies, including Microsoft
Applications technology. With this Dynamics 365 Finance (enterprise
alliance, PwC is the first major service resource planning (ERP), customer
partner recognized by Microsoft's relationship management (CRM) and
Dynamics Group as a Global Business business intelligence (BI) solutions, as
Transformation Partner, which allows it to part of a business transformation project.
build business transformation services
around the Dynamics 365 suite of
applications.
PwC contacts
Jamie Draper, Principal Abhijit Patankar, Principal

[email protected] [email protected]
Rajesh Balaraman, Principal Matthew Korros, Director

[email protected] [email protected]
Michael Gallagher, Sr Manager

[email protected]
Contact Microsoft
Dynamics 365 for Operations IFRS Discussion
[email protected]

www.pwc.com
pwc.com
© 2021 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms,
each of which is a separate legal entity. Please see www.pwc.com/structure for further details.
This content is for general information purposes only and should not be used as a substitute for consultation
with professional advisors.
@ 2021 Microsoft Corporation . All rights reserved. This document is provided “as is.” Information and views
expressed in this document, including URL and other internet website references, may change without notice.
You bear the risk of using it. Some examples are for illustration only and are fictitious. No real association is
intended or inferred. This document does not provide you with any legal rights to any intellectual property in
any Microsoft product. You may copy and use this document for your internal, reference purposes. Microsoft
is the sole owner of the Marks and associated goodwill. Microsoft will be the sole beneficiary of any goodwill
associated with your use of the Marks. Microsoft reserves all rights not expressly granted herein. Microsoft
may revoke these Publications, Seminars, and Conference Guidelines, generally or as applied to your use, at
any time at its sole discretion.

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Support for IFRS in

Dynamics 365 Finance

Publish date: 22nd July

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The globalization of business and finance Technology is a key enabler to address

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International Financial Reporting Influences the transaction structuring by

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IAS 1, “Presentation of Financial There is no prescribed format for the

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• Employee benefits • Asset impairments

• Cumulative translation differences • Inventories

• Investments in subsidiaries, joint • Revenue recognition

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IFRS 10’s objective is to establish Intragroup balances and transactions can

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IAS 2, “Inventories” Support for IAS 2 in Microsoft

Inventories are initially recognized at cost. Inventory cost – Measurement of

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Restructuring provisions Subsequent measurement

There are specific requirements for Management performs an exercise at

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When releasing revenue in Microsoft Certain complex judgements (e.g.,

48 PwC | Support for IFRS in Dynamics 365 Finance

49 PwC | Support for IFRS in Dynamics 365 Finance

50 PwC | Support for IFRS in Dynamics 365 Finance

51 PwC | Support for IFRS in Dynamics 365 Finance