The real effects of a new accounting standard: The case of IFRS 15 Revenue from Contracts with Customers

This paper considers what we know about the real effects of the new accounting standard on revenue.

Author:

• Christopher J Napier and Christian Stadler, School of Business and Management, Royal Holloway University of London

Abstract

International Financial Reporting Standard 15 (IFRS 15) Revenue from Contracts with Customers has significantly changed the philosophy of revenue recognition, not only to provide a fairer representation of corporate revenues, but also to inhibit the use of revenues for ‘earnings management’ purposes. We provide a general framework to analyse the various effects of new and amended accounting standards. Changes in how companies recognise, measure, present and disclose their revenues (accounting effects) can affect how companies and their transactions are understood, both internally and externally (information effects), can change security prices (capital market effects) and can change how companies operate, and their costs and cash flows (real effects). We provide empirical evidence, based on a review of corporate annual reports, comment letters and interviews, on the effects of IFRS 15. We find evidence of both information and, to a lesser extent, real effects, although, outside a few industries (most notably telecommunications), IFRS 15 has had relatively little impact on the recognition and measurement of revenue.

The full paper will be published in the annual International Accounting Policy Forum special issue of Accounting and Business Research. The paper will be available on the Taylor and Francis website later in 2020.