Accounting Boards' issue a new joint revenue standard that will affect nearly all companies – EY comments
London, 28 May 2014
The International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB) (collectively, the Boards) today released their joint revenue standard that could bring significant changes to when companies recognize revenue and increase the amount of information companies publicly disclose. The new standard is expected to affect most industries and will require companies to change the way they assess their contracts with customers, particularly for those that provide multiple goods or services in a single contract.
EY’s Global IFRS Services Leader, Leo van der Tas, says:
“We commend the Boards for creating a single revenue model under both IFRS and US GAAP. This will promote consistent accounting for revenue recognition and increase comparability and transparency for stakeholders. Finalizing the revenue recognition standard has been one of the key focuses of convergence on accounting standards for the Boards in recent years and it is encouraging to see the Boards complete this major project”.
In response to earlier proposals for a single revenue model for IFRS and US GAAP, many constituents raised concerns about the proposed timing of revenue recognition and the practicality of some of the proposed requirements. Based on the comments received, the Boards focused on certain areas of concern, including whether uncertainties about collecting amounts from a customer should affect when revenue is recognized and whether recognition should be delayed when payments are variable.
Mr van der Tas comments: “The Boards have addressed many of the concerns raised by respondents. In the final standard, the Boards developed additional application guidance to assist companies in determining when goods or services are transferred, including specific requirements to help preparers determine how licenses of intellectual property transfer to a customer.”
Mr van der Tas continued: “This new standard may change when revenue is recognized for some industries, such as the telecommunications industry. However, even if the timing of revenue recognition doesn’t change, other aspects of the standard will affect all industries. For example, the standard requires companies to publicly disclose much more revenue information in their financial statements in the hope that investors and other users will have better information.”
The standard was expected to be issued in 2013 and the delay in issuance results in a more limited time for companies to prepare for the new requirements. The standard is effective in 2017 (with early adoption allowed only under IFRS), but companies who are required to provide two years of comparative information, may need to apply the new standard in parallel with current requirements, to data from 2015.
While this standard will align revenue reporting across capital markets, preparers, auditors and regulators face new challenges to consistently interpret and apply the requirements in each country and across each industry. In response to these concerns, the IASB and FASB have established a joint implementation resource group to address interpretive questions raised by constituents. Mr van der Tas comments: “We believe establishing this joint implementation group is an important step to ensuring continued convergence. Consistency in interpretation and application will help achieve greater comparability between companies.”
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