The international and US bodies responsible for setting financial accounting and reporting standards have today published a joint new standard for revenue recognition. A milestone has thus been reached on the journey toward more uniform international financial reporting standards and may have a significant impact across a number of sectors in terms of when revenue needs to be recognized.
Revenue represents an important indicator for stakeholders with an interest in financial accounting and reporting and can help them make a judgment about a company’s performance and future prospects. The existing IFRS and US GAAP rules regarding revenue recognition have suffered from certain shortcomings, which has led to revenue not always being recognized in a uniform way in practice. There have also been complaints that the relevant provisions regarding disclosure are not sufficient to provide the readers of balance sheets with the information they need. In order to tackle these various criticisms, the bodies responsible for setting the standards have published a uniform global standard for revenue recognition, namely “IFRS 15 Revenue from Contracts with Customers” and “Accounting Standards Update 2014-09: Revenue from Contracts with Customers (Topic 606)”. The new requirements replace most of the existing IFRS and US GAAP revenue rules, set out the principles for recording revenue and can be applied to all customer transactions – subject to a few exceptions – regardless of the sector. Companies should not delay on deciding how to manage the transition to the new rules and which operating processes and IT systems need to be modified.