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Revenue Recognition IFRS

What You Need to Know About Revenue Recognition IFRS 15 and ASC 606

Replacing the existing IFRS and US GAAP guidance, the IASB and FASB jointly issued a new revenue recognition IFRS standard: IFRS 15 and ASC 606, Revenue from Contracts with Customers. A set of international accounting standards, International Financial Reporting Standards (IFRS), provides guidance on how some transactions and other events should be reported in financial statements. So, what are the important points in the new IFRS guidance to know about? Let’s find out.

Understanding the New Revenue Standard

The standard that will replace the existing IFRS and US GAAP revenue guidance, IFRS 15 and ASC 606 Revenue from contracts with customers has been developed to ensure the following:

  • Create a single model for revenue recognition for contracts with customers

  • Promote greater consistency and comparability across industries and capital markets

Early adoption of the standard is permitted for IFRS preparers and early preparation will be key to successful implementation of the new standard. The principles in the standard will be applied using a five-step model. Following are the five steps, the relevant technical issues at each step and the possible impact of each step.

Identify the Contract with the Customer

This is the first step in the five-step model used to apply the new revenue standard. Relevant technical issues at this stage include contract modifications while the possible impact of this step is the increase or decrease in revenue for the year as certain modifications will result in a cumulative catch-up adjustment.

Identify the Separate Performance Obligations in the Contract

Technical issues that may arise during this step include complex contracts with many deliverables and implicit promises to the customer. The possible impact of this step is allocation of revenue to distinct performance obligations.

Determine the Transaction Price

Time value of money and variable considerations such as rebates, discounts and performance bonuses are some of the technical issues that may arise during this step. The possible impacts of this step include earlier revenue recognition when contingencies exist and increase in revenue or income if financing element is significant.

Allocate the Transaction Price to the Separate Performance Obligations

This is the fourth step of the five-step model to apply the new revenue recognition IFRS standard. Relevant technical issues at this step include standalone selling prices, which are a major impact for complex contracts with many performance obligations and free goods or services. The possible impacts of this step include more estimation and different revenue profile and increase or decrease in revenue for the year as an allocation must be made to these.

Recognizing Revenue When an Entity Satisfies a Performance Obligation

Technical issues that may arise at this step include the need to assess transfer of control, and explicit guidance on over-time recognition. The possible impacts include potentially increasing or decreasing revenue for a year if the timing of recognition changes and the requirement for re-assessment to support any current over-time basis, which could lead to a change to ‘point in time’ if unsupportable.

Webinar: Accounting for Commissions and Other Contract Costs under ASC 606

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If you want to avoid the technical issues that may arise in the implementation of the new revenue recognition IFRS standard, then get in touch with CallidusCloud today!

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Making the Move to ASC 606: What to Know

Learn the three steps you need to take now to comply on time without losing your sanity:

  • Accounting Assessment
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