Implementing IFRS 15: The new revenue recognition standard
- 1. Implementing IFRS 15 Revenue from contracts with customers March 20, 2017 www.howliteinc.com This presentation has been prepared for general discussion on the subject matter and does not constitute professional advice.
- 2. Background IASB & FASB joint effort at a converged revenue recognition standard The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) have been working towards a single comprehensive revenue recognition standard since the initial joint project was put together in 2002. The objective of the joint effort was to: Remove inconsistences and weaknesses in the existing revenue recognition frameworks Provide a more robust framework for addressing revenue issues Improve comparability across entities, industries, jurisdictions, and capital markets Provide more useful information to financial statement users through enhanced disclosures Simplify financial statement preparation by streamlining and reducing the volume of guidance The joint effort culminated in the issuing of the new revenue standards by both boards in 2014. ASC 606: Revenue from contracts with customers, issued by FASB and IFRS 15: Revenue from contracts with customers issued by IASB. The initial standards issued in 2014 have been severally amended and updated by both boards in response to industry input, with the most recent amendment issued by FASB in December 2016. While the standards are largely converged, some material differences remain. Implementing IFRS 15 2
- 3. IFRS 15: The new revenue recognition standard Objective & Scope of IFRS 15 IASB states that the objective of IFRS 15 is to establish the principles that an entity shall apply to report useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from a contract with a customer. IFRS 15 should be applied to all contracts with customers except for: Lease arrangements within the scope of IAS 17: Leases Financial instruments and other contractual rights or obligations within the scope of IFRS 9: Financial Instruments, IFRS 10: Consolidated Financial Statements, IFRS 11: Joint Arrangements, IAS 27: Separate Financial Statements and IAS 28: Investments in Associates and Joint Ventures Non-monetary exchanges between entities in the same line of business to facilitate sales to customers or potential customers Implementing IFRS 15 3
- 4. IFRS 15 provides a single comprehensive framework to be used by businesses to recognize revenue with customers. Six current revenue recognition guidance including IAS 11: Construction Contracts and IAS 18: Revenue, will be superseded by IFRS 15. Implementing IFRS 15 IFRS 15: A single comprehensive revenue recognition framework 4
- 5. IFRS 15: Five-step model IFRS 15 moves way from the “transfer of risk and rewards” approach and introduces a new “transfer of control” approach delivered through the new five- step model. Entities are required to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Implementing IFRS 15 5
- 6. IFRS 15: Disclosure requirements IFRS 15’s significant disclosure requirements are in line with the new standard's objective of providing users of financial statements with information that will help them understand the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts with customers. Implementing IFRS 15 6
- 7. IFRS 15: Impact beyond accounting Due to the fact that revenue is a central and critical component of all business activities, the effects of IFRS 15 will impact almost all areas of the business. A multi-disciplinary conversion team is a prerequisite for an effective implementation of the new standard. Implementing IFRS 15 7
- 8. IFRS 15: Implementation options Implementing IFRS 15 8
- 9. IFRS 15: Now is the time to act Implementing IFRS 15 Regardless of which implementation option is selected, businesses will go through some form of parallel reporting, where accounting records are maintained under both the current standard and the new IFRS 15 standard during some phases of the implementation timeline. This will compound pressure on resources and systems required to deliver an effective implementation of the new standard. Implementing the new standard will be a significant project and will require a strong team to see it through. Most businesses will need to strengthen their internal teams with outside experts to deliver an effective implementation of the standard. As the effective date of January 1, 2018 gets closer there will be increased pressure and competing demands for both internal and external IFRS implementation resource. The best approach is to start now. How we can help Our team offers a broad range of experience and deep technical expertise in IFRS implementation and accounting solutions. Our professionals have been delivering world class IFRS implementations and advisory services since 2009 in Canada and around the world. We can help your business with planning, analysis, implementation, and ongoing support related to IFRS 15 and other unique accounting solutions that your business may need. Howlite Consulting Inc. www.howliteinc.com info@howliteinc.com +1 587 317 4481 9