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1、PwC|Industrial InsightsTable of contentsTable of contents21.Strategy for business3The new era of net zero as a service(NZaaS)3PwCs 2024 Digital Trends in Operations Survey4The C-suite playbook:Putting security at the epicenter of innovation52.Accounting and financial reporting hot topics6Disclosures

2、 related to Disaggregation of Income Statement Expenses update6FASB changes course on software costs project 6International standard-setting developments what you need to know6Are leases hiding in your service or supply arrangements?83.Regulatory update10Industrial products SEC comment letter trends

3、10Federal Trade Commission approves non-compete ban104.Authored by11PwC|Industrial insights_21.Strategy for businessThe new era of net zero as a service(NZaaS)Given that built environment and construction accounts for 39%of global energy-related CO2 emissions,net zero as a service(NZaaS)is an emergi

4、ng concept that aims to revolutionize the engineering and construction(E&C)industry by integrating energy-efficient and sustainable practices into building design,construction,and operation.Through NZaaS,E&C firms can help enable the monitoring and disclosure of greenhouse gas emissions,including th

5、e quantifying of emissions on an assets operations and lifecycle.Although the SEC stayed its climate disclosure rules on April 4,most companies are still experiencing pressure to disclose more about their environmental impact and associated greenhouse gas emissions,whether from other climate disclos

6、ure regulations in California and Europe,or from customers who are increasingly expecting more from their suppliers on climate disclosure.By investing in these efforts,E&C firms can help differentiate themselves in the market,responding to customers needs and contributing to global decarbonization g

7、oals.The foundation of NZaaS begins with the building of carbon ledgers,which monitor and track emissions from scope 1,scope 2 and scope 3 sources.These ledgers enable facilities to disclose and report their emissions.The responsibility for collecting accurate carbon ledger data and determining calc

8、ulation methodologies can be assigned to facility owners/operators or outsourced to third-party contractors.Similar to industry standards for electronic data and documents,project-specific carbon reporting requirements can be implemented to establish a standardized reporting framework.Integrating th

9、e carbon data ledger with enterprise-wide financial systems allows for investor-grade reporting.Collaboration within the industry has led to the development of standards,including the recently published Open Footprint Data Model Standard,which provides a common data model for reporting emissions.E&C

10、 firms can offer carbon ledgers not only for their contracted projects,but also for facilities built for owners by other entities.NZaaS can provide comprehensive services,including carbon footprint reduction alternatives,sustainability assessments and real-time project optioneering.Advanced technolo

11、gies like generative AI can support data-driven decision-making,performance monitoring and financial analysis for net zero services.The carbon emissions digital thread incorporates data collection and analysis at different levels,treating projects or assets as products and linking emissions data to

12、a bill of materials.This digital thread can be integrated into existing project tools,connecting emissions tracking to project data structures such as work breakdown structure,digital twin/tag centric databases or procurement systems.Scope 1 emissionsScope 1 emissions are direct emissions from owned

13、 or controlled sources.E&C companies already offer several services for measuring and reducing these emissions,but new opportunities are still arising:Baselining:By utilizing building-level energy models and appropriate equipment,E&C firms can leverage baseline data to offer valuable comparative ins

14、ights on energy and emissions performance,satisfying compliance requirements and providing ongoing actual performance data.Energy-efficient design:Engineering firms commonly design buildings and infrastructure to reduce energy use(e.g.,using energy-efficient appliances and incorporating renewable en

15、ergy sources).Construction process improvement:Construction companies can reduce emissions from activities by using energy-efficient equipment,improving logistics to reduce fuel consumption and using low-carbon materials.Carbon capture and storage:A newer opportunity for industrial clients,E&C compa

16、nies can design and build facilities for capturing and storing carbon emissions.Scope 2 emissionsScope 2 emissions are indirect emissions from the generation of purchased energy.Similar to scope 1,many E&C companies already offer some services to reduce these emissions.Opportunities to expand includ

17、e the following:Energy efficiency upgrades:E&C companies can retrofit existing buildings and infrastructure to improve energy efficiency(e.g.,upgrading insulation or installing energy-efficient lighting).PwC|Industrial insights_3 Renewable energy infrastructure:E&C companies can design and build inf

18、rastructure for generating renewable energy such as wind farms,solar power plants and hydroelectric dams to reduce client reliance on fossil fuels.Renewable energy procurement:Where new renewable energy infrastructure is not feasible,E&C companies can help clients identify and procure RECs and offse

19、ts to support achievement of net zero.Using currently available technologies,an estimated 31%reduction in energy intensity can be achieved by 2030.However,only 10%of CEOs say their companies have completed efforts to improve energy efficiency.To aid companies in identifying fit-for-purpose energy re

20、duction strategies,PwC developed an Energy Value Framework:Create resilience Onsite generation Energy storage Transport mode shifting Other renewablesMaximize markets Market arbitrage Feed in tariffs Wholesale demand response Environmental certificatesReduce emissions Circular design address waste a

21、nd leakage Reducing waste in operations Electrifying operations Electrifying transportOptimize demand Value chain engagement Energy efficiency Peak shaving Energy optimizationScope 3 emissionsMeasuring and reporting emissions throughout a projects value chain can be challenging for engineering and c

22、onstruction(E&C)firms.Estimating scope 3 emissions can be particularly difficult due to the relatively recent development of tools,databases and skillsets required to conduct these analyses.However,many tools and resources have been developed in recent years to aid E&C companies in tackling scope 3

23、emissions for their buildings(e.g.,robust databases of environmental product declarations).By building these capabilities,E&C firms can gain a competitive advantage and better support clients in the emerging era of NZaaS.PwCs 2024 Digital Trends in Operations surveyPwCs 2024 Digital Trends in Operat

24、ions survey surveyed 600 operations executives and supply chain officers in January and February 2024.Respondents included C-suite executives,upper management,directors,managers and board members based in the US who either have sole responsibility for business decisions on operations and supply chai

25、n or procurement operations or share influence with others regarding those decisions.Investments in operational innovation and efficiency,but the total potential benefits are not being obtainedThe survey reveals that businesses are increasingly investing in multiple technologies to digitize operatio

26、ns.Over two-thirds of survey respondents indicated they have experienced shortcomings in their investments in operations technology,with some of these most selected reasons including integration complexity,technology not meeting expectations and people capabilities.With GenAI,7 out of 10 survey resp

27、ondents reported testing or implementation,which aligns with high expectations for the technology.However,the survey results also indicated that GenAI solutions have not been implemented uniformly across a variety of activities,which is an indication of a lack of cohesive GenAI strategy.Companies sh

28、ould invest the upfront time to establish the business case for digitization,and then make time to build employee understanding of long-term goals.Supply chain developments are still to be madeSupply chain disruptions and cyber threats are identified as the top major risks to companies operations,ou

29、tpacing concerns such as labor costs and non-US regulatory environments.The survey highlights the importance of incorporating PwC|Industrial insights_4resilience into long-term planning and addressing compliance with regulations in the short-term.Many companies prioritize investing in cybersecurity

30、and data privacy over addressing climate or trade regulations.This implies that while they acknowledge the need for supply chain reorientation and operational changes,they dont have the capabilities to think more broadly and innovatively,instead favoring incremental changes.Over half of operations a

31、nd supply chain officers surveyed believe that integrating sustainability into operations is increasingly crucial,indicating that companies are recognizing the strategic opportunities sustainability presents.This includes offering sustainable products and services,reducing carbon emissions in the su

32、pply chain,and conducting ESG reporting to drive growth.Companies that take a meaningful approach to sustainability can potentially attract new business,increase market share,and benefit from digital investments.In order to move the needle on digital investments,companies can take a number of action

33、s.For example,they can embrace complexity and think holistically,consider both employee and customer experience in tech implementation,and make technology a means to measurable business outcomes.The 2024 Global Digital Trust Insights is a survey of 3,876 business,technology and security executives(C

34、EOs,corporate directors,CFOs,CISOs,CIOs and C-Suite officers)conducted in the May through July 2023 period.The survey aimed to understand the perspectives of business and technology executives on cybersecurity risk.Per the survey results,only half of the organizations express high satisfaction with

35、their technology capabilities in key cybersecurity areas.Moreover,greater than 30%of companies dont consistently follow standard practices of cyber defense.The 5%top-performing organizations who excel in managing digital trustA group of top-performing organizations,representing 5%of the survey respo

36、ndents,have experienced higher satisfaction and greater success as compared to the other respondents.These organizations experience fewer breaches,incur lower costs from attacks,and have streamlined security solutions.For example,the top 5%are more likely to invest more into cyber budgets,with 85%in

37、creasing their cyber budget in 2024(versus 79%overall),of which 19%are increasing cyber budget in 2024 by 15%or more,compared to 10%of overall survey respondents.Cybersecurity breaches continue to remain a threat and have grown in the past three yearsMitigating cyber risk is a top priority for 2024,

38、per survey respondents.Mega breaches are increasing in number,scale and cost.The percentage of those reporting costs being$1 million or more for their worst breach in the past three years rose to 36%from 27%last year.In contrast,for the top 5%,respondents said their most damaging cyber breach in the

39、 last three years cost them less than$100k.Around one-third of organizations lack a risk management plan to address challenges related to cloud service providers,although 47%of respondents cited cloud security as the number one cyber risk concern.Further,97%of respondents have gaps in their cloud ri

40、sk management plan only 3%maintain up-to-date plans that address all nine cloud security areas,which are:disaster recovery and back-up,shared responsibility with the cloud service provider,records management,contract negotiation with cloud service provider,third-party risk,data mapping/data use issu

41、es,concentration risk,fragmented regulations and inability to grow in-house talent in cloud disciplines.Regulations:Providing a safe place to play and growAbout a third of this years respondents believe that the future growth of their organizations relies on four key types of regulation:(1)regulatio

42、n of AI,(2)harmonization of cyber and data protection laws,(3)mandatory reporting of cyber risk management,strategy,and governance and(4)operational resilience requirements.The survey reveals that as much as three-quarters of respondents anticipate significant financial and time investments to achie

43、ve compliance with these regulations.However,businesses can potentially avoid incurring high costs and revenue impacts by actively engaging with regulatory processes early on.This can involve meeting with law enforcement,for example,participating in public comments and even collaborating with regula

44、tors to shape or influence proposed directives.Overall,the survey results highlight the increasing recognition of digital trust as a crucial factor for businesses.It also emphasizes the need for organizations to strengthen their cybersecurity measures and effectively manage third-party relationships

45、.Additionally,PwC created a playbook for C-level executives to help each C-level executive focus on the questions they need to answer with their Chief Information Security Officer.PwC|Industrial insights_5The C-suite playbook:Putting security at the epicenter of innovation2.Accounting and financial

46、reporting hot topicsDisclosures related to Disaggregation of Income Statement Expenses updateIn May 2024,the FASB continued deliberations on the Disaggregation of Income Statement Expenses(DISE)project and reached certain decisions.In regards to joint ventures and other cost-sharing and cost-reimbur

47、sement arrangements,the Board decided that costs related to joint ventures or other cost-sharing/reimbursement arrangements(i.e.,collaborative arrangements)may either be(1)disclosed as an aggregate reimbursement amount that is either received or paid as a separate line item in the tabular disclosure

48、 or(2)included in the required expense categories.Additionally,the Board decided to require an entity to disclose qualitative descriptions for the natural expense categories that the reimbursement relates to.For the inventory and manufacturing expense disaggregation approach,the Board removed“invent

49、ory and manufacturing expense”as a required expense category and added“purchases of inventory”as a required expense category.The FASB has included an illustrative example on the project page where further details of the latest updates can also be found.FASB changes course on software costs projectEa

50、rlier this year,the FASB reconsidered the direction of its project on software costs after receiving feedback from stakeholders.After considering various approaches,the FASB decided to pursue targeted improvements to the guidance for internal-use software in ASC 350-40.At its meeting in June,the FAS

51、B approved the issuance of proposed amendments to that guidance including:providing factors to consider when evaluating whether it is probable a project will be completed(and thus,the capitalization threshold is met),focusing on software with significant development uncertainty(e.g.,software with no

52、vel,unique,unproven functions and features or technological innovations)removing references to stages of software development and requiring the same recognition guidance for all in-scope software regardless of the development process utilized(e.g.,linear or nonlinear)The FASB also decided to require

53、 cash outflows for in-scope software costs(excluding implementation costs of hosting arrangements that are service contracts)to be presented separately as investing cash flows.Lastly,the FASB decided the proposed amendments would be applied on a prospective basis,with a retrospective option permitte

54、d.The FASB directed the staff to draft a proposed ASU,which will have a 90 day comment period.For the latest updates,refer to the FASBs project page.International standard setting developments what you need to knowSo far in the first half of 2024,the IASB has issued a significant new standard on fin

55、ancial statement presentation and a proposal focused on disclosures about acquired businesses.Although US GAAP reporters will not be subject to these new requirements,US companies may want to get up to speed on the changes as they could impact subsidiaries reporting under IFRS.Additionally,developme

56、nts in international reporting can influence the perspectives of stakeholders and standard setters in the US.PwC|Industrial insights_6New financial performance reporting requirementsIn April,the IASB issued IFRS 18,Presentation and Disclosure in Financial Statements,introducing new requirements to i

57、mprove the comparability of the financial performance of similar entities,with a focus on updates to the statement of profit or loss.The new standard will be effective beginning in 2027 for calendar year-end IFRS reporters and requires retrospective application.IFRS 18 includes three major areas of

58、change:Defined structure of the statement of profit or lossRelated disclosures Categories Items in the statement of profit or loss will be classified into categories.The three main categories are:Operating Includes:(1)results from main business activities and(2)income and expenses that are not class

59、ified in any of the other categories(i.e.,the“residual”category)Investing Includes income and expenses from:(1)investments in associates,joint ventures,and unconsolidated subsidiaries,(2)cash and cash equivalents,and(3)other assets that generate a return individually and largely independent of other

60、 resources Financing Includes:(1)all income and expenses from liabilities that involve only the raising of finance(such as typical bank borrowings),and(2)interest expense and the effects of changes in interest rates from other liabilities(such as unwinding of the discount on a pension liability)Requ

61、ired subtotals Entities will be required to present specified totals and subtotals,including“operating profit or loss,”“profit or loss,”and“profit or loss before financing and income taxes,”with some exceptions.Management-defined performance measures IFRS 18 defines certain measures used by manageme

62、nt that relate to financial performance as management-defined performance measures(MPMs).Information related to these measures shall be disclosed in a single footnote,including a reconciliation between the MPM and the most similar specified subtotal in IFRS Accounting Standards.Disclosure of expense

63、s by nature Expenses will be presented in the operating category by nature,function,or a mix of both.IFRS 18 includes guidance on determining the most appropriate approach.When items are presented by function,an entity is required to disclose information by nature for specific expenses(e.g.,employee

64、 benefits,depreciation,amortization).Aggregation and disaggregationIFRS 18 provides enhanced guidance on the principles of aggregation and disaggregation,which are used in defining the line items presented in the primary financial statements and information disclosed in the notes.Proposed amendments

65、 to improve reporting about acquisitionsIn March,the IASB issued a proposal that would add new disclosures about a business combination in response to stakeholder concerns about the sufficiency of information about the performance of acquisitions and the challenges associated with goodwill impairmen

66、t tests.The proposed disclosures would include:information about the performance of business combinations,including acquisition-date key objectives and related targets for a strategic business combination and the extent to which those key objectives and related targets are met in subsequent periods,

67、and quantitative information about the synergies expected to arise from a business combination.The proposal also includes targeted amendments to the impairment test for cash-generating units containing goodwill.Comments on the proposal are due July 1.For more informationFor more details regarding IF

68、RS 18,refer to our publication,IFRS 18 is here:redefining financial performance reporting.Also,listen to our podcasts on IFRS 18 and the proposed disclosures for acquisitions.PwC|Industrial insights_7Are leases hiding in your service or supply arrangements?Leases that are embedded within a service o

69、r supply arrangement might get overlooked because,unlike a regular lease,the purpose of these transactions is to provide services or goods to a customer,not to allow for the use of an asset.In fact,the contract usually does not even include the word“lease.”However,failing to identify an embedded lea

70、se can have significant accounting implications for both the supplier and the customer in these arrangements.Assessing whether a contract contains a leaseA contract generally contains a lease when it conveys the right to control the use of a suppliers physical asset to a customer.The table below sum

71、marizes the conditions that,if met,result in the contract containing a lease:ConditionFactors to considerThe supplier must use specific assets while fulfilling the contract.The contract might not identify those assets,but even if it does not,assets might be implicitly identified.Examples of when a s

72、pecified asset may exist include(1)the asset is physically on,or near,the customers premises,(2)the supplier is buying or building new assets to fulfill the contract,or(3)the supplier only has one set of assets that would be feasible to use to fulfill the contract.The supplier does not have a substa

73、ntive right to substitute the asset throughout the usage period.Substituting the asset due to maintenance should be ignored.Even if the terms of the contract allow the supplier to substitute the asset,the right is not substantive if(1)the supplier does not have the practical ability to substitute,fo

74、r example an alternative asset is not readily available,or(2)the supplier would not economically benefit from using the substitute asset.The customer has the right to obtain substantially all of the economic benefits.Consider both primary outputs and by-products.Assess whether the customer is contra

75、ctually entitled to substantially all of the economic benefits.The assessment should also consider whether the supplier must obtain the customers permission to use the assets to serve other customers,or to use the output internally.The customer directs how and for what purpose the asset is used thro

76、ughout the period of use.Decisions made before or after the period of use(e.g.,who designed the asset)should be ignored.Consider decisions most relevant to changing how and for what purpose the asset will be used.Weight should be given to decisions that significantly impact the economic benefit that

77、 could be derived from the asset.Does the customer control most of those decisions?It is often the last condition whether a customer could“direct how and for what purpose an asset is used throughout the period of use”that requires the most judgment.Key questions and examples of answers that may indi

78、cate this condition is met include:QuestionExamplesHow?Customer decides how the asset will be used.For example,customer decides what to produce with the equipment,or decides whether to use a container for transportation or for storage.When?Customer controls when the asset will be used.For example,a

79、power generator is only used when the customer facility is open and it needs electricity.Or,the customer may order goods or services“on demand;”that is,with such short lead time that the supplier has little discretion over the production schedule.Where?Customer controls where the asset is used.For e

80、xample,when portable,the customer may move the equipment from one floor to another.Whether,or how much?Customer decides whether,or how much,the asset will be used.For example,the asset is idle when not in use,or the customer can determine how much or how long the asset will be used.PwC|Industrial in

81、sights_8Accounting implications of embedded leasesWhen the contract contains a lease,the arrangement is no longer simply a service or supply contract.For example,if a supply arrangement contains a lease,the customer is no longer purchasing products.The customer is leasing a piece of equipment and al

82、so hiring the supplier to operate and maintain the leased equipment on its behalf.The supplier,rather than selling products,is leasing equipment and providing contract labor and maintenance services.Both parties would recharacterize the arrangement from its contractual form and may have to allocate

83、the consideration among the newly characterized lease and nonlease components.This allocation can be complex,particularly when the arrangement includes variable consideration.For more informationTo learn more,listen to our podcast,Identifying embedded leases in your contracts,and read chapter 2 of o

84、ur Leases guide.PwC|Industrial insights_93.Regulatory updateIndustrial products SEC comment letter trendsThe SEC Division of Corporation Finances filing review process monitors the disclosures made by registrants.Based on the analysis of comment letters publicly issued to Industrial Products compani

85、es in the 12 months ended March 31,2024,(1)non-GAAP measures,(2)segment reporting,(3)managements discussion and analysis,(4)income taxes,and(5)inventory and cost of sales generated the highest volume of SEC comments.We have seen a slight increase in frequency of comments in each of these areas compa

86、red to the 12 months ended March 31,2023.Check out the following links for more details related to current comment letter trends,as well as some of the current top five trending areas:Whats trending in 2023 SEC comment letters Non-GAAP measures:SEC comment letter trends Segments,today and tomorrow:S

87、EC comment letter trends MD&A:SEC comment letter trends Inventory and cost of sales:SEC comment letter trendsVisit our SEC comment letter trends for Industrial products page to see our insights on the nature of the SEC staff comments by topic,sample text from the SEC staffs comments,and links to whe

88、re you can learn more about the accounting and disclosure requirements addressed in each topical area.Federal Trade Commission approves non-compete banIn April,the Federal Trade Commission(FTC)approved a final rule that non-compete clauses are an unfair method of competition.Under the FTCs new rule,

89、existing non-compete agreements with workers will no longer be enforceable after the rules effective date of September 4,2024.Existing non-compete agreements with senior executives(as defined by the rule)will continue to be enforceable.However,new non-competes cannot be created,except as it relates

90、to non-compete arrangements between buyers and sellers of a business.Companies with intangible assets related to existing employee non-compete agreements should assess whether such agreements will cease to be enforceable upon the effective date of the rule and consider the impact to the useful life

91、for such assets.PwC|Industrial insights_104.Authored byBeth PaulPartner,Deputy Chief AccountantNational Accounting and SEC Services Group Patrick SpagnaDirectorNational Accounting and SEC Services G Christos ApazidisDirectorNational Auditing Services Group Scott PoberDirectorNational Accounting and SEC Services GClaire WeddleSenior AssociateNational Accounting and SEC Services G PwC|Industrial insights_11PwC|Industrial insights_12