United Kingdom

Revenue recognition 

The IASB's latest revenue recognition proposals retain a principles-based approach to the recognition of revenue from contracts. It introduces new concepts for obligations satisfied over, or at a point in time. In particular, the current proposals will change the way many complex, long-term or multiple-component contracts are accounted for.

 

The comment period on the revised proposals is now closed and the IASB is considering the comments received.

Overview of proposals

  • Contracts will be segmented into performance obligations and revenue allocated to each obligation. 
  • Revenue will be recognised when the control of the promised goods or services in each performance obligation are transferred to the customer and discounted for time value if this is significant.
  • Revenue will be measured net of customer incentives. 
  • Incremental costs expected to be recovered when bidding for contracts are recognised as an asset. 
  • More extensive disclosures will be required in the financial statements, even if there is no change to the numbers. 
  • Greater use of estimates and judgements in recognising and measuring revenue.
  • Proposals expected to be applicable for accounting periods beginning on or after 1 January 2017. Retrospective application may be allowed. The transitional requirements may be complex.

Practical Issues

  • Management will have to explain the impact of the changes to stakeholders, including analysts, shareholders, lenders and other creditors.
  • The new requirements may lead to changes in internal policies and procedures.  Sales forecasts and KPIs may also need to be revised.
  • For entities with numerous contracts investment in, or modification of, IT systems, may be required.
  • Entities may need to consider the impact on existing bonus structures and other remuneration implications.
  • Changes to the timing of revenue recognition may change forecasted tax payments or other tax planning arrangements
  • Finance and sales staff will require training in the new standard and its impact on financial reporting.

Contacts

Andrew Vials

Andrew Vials

Senior Technical Partner

KPMG LLP (UK)

  

020 7694 8473  andrew.vials@kpmg.co.uk

 

 

Nick Chandler

Nick Chandler

Partner

Accounting Advisory Services

KPMG LLP (UK)

  

020 7311 4443  nick.chandler@kpmg.co.uk

 

Colin Martin

Colin Martin

Partner

Banking Accounting Advisory Services

KPMG LLP (UK)

  

020 7311 5184  colin.martin@kpmg.co.uk

 

 

Sarah Waddington

Sarah Waddington

Director
Accounting Advisory Services

KPMG LLP (UK)

  

020 7311 3773 

sarah.waddington@kpmg.co.uk 

 

 

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