Prof. Watson: 6 tips to get to grips with IFRS 15 (Revenue)
The publication of the new standard on revenue, IFRS 15, in May 2014 is the most significant change to IFRS in the last couple of years. Almost every company earns revenue in some form or other, and for most of those companies revenue is the single largest figure in the financial statements. Preparers need to prioritise getting to grips with how IFRS 15 will impact their business.
Don't let the effective date of "years beginning on or after 1 January 2017" (or earlier) lull you into complacency. For some companies, changes will be required to systems to get the information required; for others retrospective restatement will be required, necessitating the calculation of the cumulative effect at December 2015. It is worth noting that the requirement to disclose the possible impact of standards that are issued but not yet effective (IAS 8.30), implies that all companies need to give this immediate consideration.
This raises the question of 'What is the best way to get to grips with a new standard'?
My suggestion is to follow the steps below:
- Check to see whether the IASB has published any documentation on the topic in its 'investor resources' section. If there is a document, this is always a good place to start as it provides a high level overview of the topic. Fortunately there is one on revenue, "Revenue recognition: finally a Standard approach for all" accessible at this website. This document provides a high level summary of the key issues in addition to identifying what will change from existing practice.
- Make sure that you are familiar with the structure of IFRS standards and supporting material. The IFRS standards have a consistent format, and understanding that format makes the task considerably less daunting. At the risk of appearing self-promoting, you could consider watching this this 10 minute video on how to use IFRS effectively.
- Read only the bold paragraphs of IFRS 15 - that should give you a sense of the key requirements. This will give you a high level overview of what is required. You can read the remaining paragraphs if and when you want more detail.
- Read IN7 & IN8 to IFRS 15. Those introductory paragraphs to IFRS 15 explain the 5 steps that are required to apply the principles of IFRS 15. This expresses the requirements of IFRS 15 in a more structured approach.
- Find the index to the 63 illustrative examples of IFRS 15 and identify those that are most relevant to your business. (Remember that those are in Part B of the IFRS handbooks).
- Read the preamble to those examples which includes references to the applicable sections in IFRS before working through the most relevant examples. The examples cover most of the potential issues in IFRS 15 and should provide the necessary guidance on the application for your business.
*Prof. Watson is also editor of various Financial Reporting textbooks, member of national and international reporting work groups and independent director and audit committee chair of two listed companies. As part of SAICA's Competency Framework Part 1 Working Group she was involved in the latest CA examination changes.
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