• Service: Audit
  • Type: Press release
  • Date: 28/05/2014

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New accounting standard could change when companies recognise revenue: KPMG 

Telecoms, software and construction are some of the sectors which will be most affected by a long-awaited revenue accounting standard, to be issued globally today says KPMG.

Kim Heng, Audit Partner, KPMG said:  “Companies that sell products and services in a bundle, or those engaged in producing products that take a long time to complete, could see significant changes to the timing of revenue recognition. This could have a major impact on their profit and loss account”.

She added: “For those in the telecom industry, it is likely that more goods and services will be separately identified in a contract, possibly resulting in earlier recognition of revenue. Those in the software industry with  licences requiring them to maintain or enhance  the software may see more deferral of revenue.  Companies in construction industries such as property development and contract engineering could see either more deferral or earlier recognition of revenue, depending on contract terms and property law.”

Other elements of the new standard – to be jointly published on 28 May by the International Accounting Standards Board and the US Financial Accounting Standards Board - likely to have an impact are the tighter restrictions on costs that can be capitalised for winning contracts. This includes the requirement to capitalise such costs to begin with and deferral of revenue in connection with warranties that are purchased separately. Further, the treatment of variable contract prices, for example, those associated with discounts, credits, price concessions, returns or performance bonuses could result in some companies recognising revenue earlier.

Kim Heng said: “While some sectors will be more directly affected than others, all companies will need to assess the extent of the impact, so that they can address the wider business implications, including implications for sales incentive programs, tax, contract conditions and communications with investors and analysts.” 

She added: “The new disclosure requirements are extensive and might require changes to systems and processes as companies seek to collect the necessary data – even if there is no change to the headline numbers in the financial statements.”

The global standard will also have knock-on effects on projects being undertaken by the Australian Accounting Standards Board (AASB). The finalisation of the revenue standard will enable some key AASB initiatives on Not-for-profit income and grantor service concession accounting to progress.  Exposure drafts for these projects are likely to result in significant improvement in accounting for grants and more recognition of infrastructure projects and associated debt, on government balance sheets.

The new standard takes effect in January 2017, though companies which use International Financial Reporting Standards (IFRS) can choose to apply it earlier.

Kim Heng concluded: “Although 2017 sounds a long way off, decisions need to be made soon – namely, when and how to transition to the new standard. An early decision will allow companies to develop an efficient implementation plan and inform their key stakeholders”.



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