Five steps to danger
Phil Barden explains why implementing the IASB’s new revenue recognition standard could be a significant logistical challenge.
IFRS 15 Revenue from Contracts with Customers is effective from 1 January 2017*. The new standard may significantly change the timing of revenue recognition for some contractual arrangements. Moreover, some entities will need to amend their systems and processes to cope with its requirements. But even those entities that are less significantly affected will need to plan for transition and for the increased disclosures that will be required. IFRS reporters should therefore be starting to plan for potential impacts now.
IFRS 15 is based on a five-step model, a brief overview of which is set out below. In almost all cases, the new requirements are significantly more detailed than those of existing standards. The standard generally applies to individual contracts, but application to a portfolio of contracts is permitted if the entity reasonably expects that this will not lead to a material difference.
This is an extract from an article in the Financial Reporting Faculty’s journal, By All Accounts, January 2015 edition.
*Please note that since this article was published, the effective date of IFRS 15 has been deferred to 1 January 2018.
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Full article is available to Financial Reporting Faculty members and subscribers of Faculties Online or International Accounting, Auditing & Ethics (IAAE).