Revenue Out with the old in with the new
IFRS 15 was first issued in May 2014. Ian Mackintosh, IASB vice-chairman at the time, praised the IFRS model for revolutionising the financial reporting landscape. He stated that IFRS has allowed for a “globally consistent language of financial reporting” and also thinks “accounting is on the cusp of becoming the world’s first global profession” thanks to IFRS.
IFRS 15: Revenue from contracts with customers, is one of the joint compliance initiative with the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB). A project which has taken well over 10 years to get to fruition. In the realms of IFRS, IFRS 15 will replace all existing standards and interpretations, including IAS 18 and IAS 11. The implications of IFRS 15 can be pervasive, impacting everything from key financial metrics such as EBITDA to investing in process change and technologies to facilitate. But it does present opportunities too. The impact from adoption of IFRS 15 is far greater in scope and depth than just a change to accounting and reporting processes.
And while the impact could apply to any large public company, care needs to be taken at entity level because every company is different. Specific industries sure to experience significant impact, include software, aerospace and defence, telecommunications, healthcare, logistics, building and construction, media and real estate. The devil will be in the detail.
Most companies will be as focussed with the practical execution of these changes as well as the strategic consequences to their businesses. For the majority, the biggest challenge will start at the first step of this new five-step model, ensuring all documents and contracts are collated and reviewed. Determining what contracts to focus on first. How best to document interpretation of IFRS 15. How best to perform across a large volume of contracts without significantly increasing the audit fees.
It is critical to make your decisions early in order to develop an effective and efficient implementation plan. However, making those decisions may not be so straight forward as there isn’t really a ‘one size fits all’ where the new IFRS 15 is concerned. The standard offers a range of transition options and senior management needs to carefully consider the possible significant effects on revenue and cost trends in the financial statements.
The best approach to these complex issues is for senior management to consider a set of core issues that will be relevant to their business, to take early decisions and implement transition plans. This will ensure that one of the most important financial reporting metrics – revenue – remains a robust and reliable reflection of the company’s performance.
IFRS becomes effective for accounting periods starting from 1st January 2018. To learn more about these issues, including the practical issues to consider, BPP offers relevant courses including: