The new revenue standard has wide-ranging impacts for every industry and every business.
The new revenue standard (AASB 15 Revenue from Contracts with Customers) applies to every industry and every business from 1 January 2018.
The new standard is designed to deal with customer contracts and evolving business models, including contracts that bundle goods and services, contingent pricing arrangements, goods or services that are delivered over time, licensing agreements and other complex arrangements.
The new rules have wide-ranging implications that go well beyond the accounting function. Revenue underpins and affects many crucial business and control processes, including budgeting, compensation systems, IT systems and data, controls, key performance indicators and investor metrics.
The Standard was first published in May 2014 (and subsequently amended in April 2016) and was the result of a joint project between the IASB and the FASB to harmonize the revenue recognition principles in the world’s two dominant sets of accounting standards.
The basis for the new Standard is a 5-step model. This requires companies to consider:
The concept of control replaces the existing requirements to consider when the ‘risks and rewards’ pass to the customer as the trigger point to recognise revenue.
The impact for individual companies will vary, but changes introduced by the new Standard could affect both the timing and amount of revenue recognised. These changes could also have wide-ranging implications for numerous areas across the business. We’ve highlighted a number of these areas and the questions businesses need to be asking as they implement the Standard:
The new Standard is designed to be industry-neutral: all industries will have to apply the same model and there is no industry-specific guidance. However, as the nature of contracts is different for different industries, specific parts of the model might have more significant impacts for some industries than for others. We’ve taken a look at some of the potential issues to consider and likely areas of change for different industries.
AASB 15 should be applied for annual reporting periods beginning on or after 1 January 2018. Many entities will need to issue interim financial statements under AASB 134 Interim Financial Reporting before they issue their first annual financial statements applying AASB 15. This Straight Away alert and Value Accounts Holdings for interim financial reporting discuss the disclosures requirement in interim financial statements on the initial adoption of AASB 15.
Appendix I in Value Accounts Holdings for December 2017 includes disclosure examples for the new revenue standard in the first year of adoption.
Are you struggling with IFRS 15 Revenue from Contracts with Customers? This short series of videos will quickly help you with the key points.
The new revenue guidance, together with other changes in leasing and financial instruments, present the most significant period of accounting change since the introduction of IFRS in 2005. Our specialist team have extensive practical experience in managing and implementing complex accounting change projects. We are currently working with a number of companies, each at different stages of their implementation journey.
Please contact us to discuss what the new Standard means for your business, what steps you should take to prepare and how we can help.