Revenue recognition is arguably the most important and controversial topic in financial reporting. Preparers must develop policies for measuring the amount and timing of revenue for goods and services. Revenue is a key performance indicator that drives the recognition of expenses and profits and valuation of an entity.
The IASB and the US Financial Accounting Standards Board (FASB) collaborated on a project to develop improved, converged standards for revenue recognition. The Boards issued substantially converged standards in May 2014. The IASB’s standard, IFRS 15 is mandatory for periods beginning on or after 1 January 2018 with earlier application permitted. The FASB published ASU 2014-09 Revenue from Contracts with Customers (Topic 606) at the same time, and this is compulsory for public entities for annual periods beginning after December 15, 2017: early adoption is permitted.
Subsequently the Boards have separately issued clarifications of several aspects of their new standards. These apply from the same effective dates as the original standards.
This course will focus on the requirements of the new standards, IFRS 15 and Topic 606. Concise explanations are provided, with detailed examples to illustrate application of the standard.
IFRS previously comprised two principles-based standards, IAS 18 Revenue and IAS 11 Construction Contracts as well as three IFRS Interpretations. These were criticised for failing to provide adequate guidance on application - they have been described as ‘vague and inconsistent’.
US GAAP had broad revenue recognition concepts and numerous detailed pronouncements on revenue (more than 200), many of which dealt with industry-specific issues. Here the criticism was that, in some cases, this resulted in different accounting for revenue from economically similar transactions.
This important program answers questions such as:
- How will the new standards affect the timing of revenue recognition?
- What are the standards’ presentation requirements?
- How can preparers deliver the enhanced disclosures required by the new standard?
- What choices are there regarding transitional requirements?
- What is the likely impact on different industries, such as telecoms, software, extractive industries, manufacturing and retail?
- How and when are royalties, dividends and interest income recorded?