Switzerland

Details

  • Service: Audit, Swiss GAAP FER, US GAAP
  • Type: Press release
  • Date: 5/28/2014

New global standard for revenue recognition 

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.

Pharmaceuticals, telecommunications, building and construction particularly affected

Companies that sell products or services as part of a package, or those that are involved in major, longer-term projects may have to recognize revenue earlier or later than has previously been the case. The list below gives some indication of the sectors that may be particularly affected by the new rules:

 

  • Building and construction / Aviation and defense: These sectors are especially likely to be involved in longer-term projects. The method currently used of recording revenue by reference to the stage of completion will be replaced by the continuous transfer of control model, which may mean changes to when revenue is recorded.
  • Pharmaceuticals and media: License agreements play a major role in these sectors. The new rules regarding revenue recording for license agreements may affect at what point and in what timeframe revenue is recognized.
  • Telecommunications and software: These sectors frequently offer their customers goods and services as part of a package. The new rules for separating out these goods and services may have a significant impact on revenue recognition in terms of how the amount of the consideration and the point in time or timeframe for recording revenue are determined.

 

By contrast, other companies may hardly be affected at all in terms of the figures involved. However, some aspects of the new revenue recognition rules will affect all companies, given that the new disclosure obligations are extensive and may involve changes to systems and processes for recording necessary underlying data.

What companies need to clarify and address

The new standard will take effect in January 2017. IFRS users, unlike US GAAP users, also have the option to apply the new rules ahead of time. The publication of the joint standard represents a significant achievement by the two standards bodies. For the companies affected, however, the real work is only just beginning. They would be well advised not to wait too long before assessing the impact of the new rules, as this will give them an opportunity to identify any significant effects on their business activities and prepare communications with investors and analysts. As Lukas Marty, Head of Audit at KPMG Switzerland, explains, “Although the date when the rules come into force may seem a long time away, the up-front decisions will need to be made quite soon – namely when and how the transition to the new rules is to take place and which operating processes and IT systems need to be modified. By taking decisions early, companies will be able to draw up an effective rollout plan and inform their stakeholders in good time.”
 

Simone Glarner

Simone Glarner

Head of Media Relations

+41 58 249 55 71

IFRS

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US GAAP

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The US Accounting & Reporting Group (US ARG) in Switzerland is a team equipped with a high level of technical skills and empowered with professional skepticism that helps deliver an effective and efficient audit.
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