THE IASB has issued amendments to the Revenue Standard, IFRS 15 Revenue from Contracts with Customers, clarifying some requirements and providing additional transitional relief for companies implementing the 2014 standard.
The underlying principles of the standard are unaffected by the amendments, instead the update illustrates how the principles should be applied across 96 pages.
The amendments clarify how to identify a performance obligation (the promise to transfer a good or a service to a customer) in a contract; determine whether a company is a principal (the provider of a good or service) or an agent (responsible for arranging for the good or service to be provided); and determine whether the revenue from granting a licence should be recognised at a point in time or over time.
The standard applies to all businesses reporting under IFRS for periods beginning on or after 1 January 2018.
According to PwC, experience of applying the standard to date has shown that the impact is not limited to specific industries, but depends on the way a company structures its contracts with customers.
Companies with contracts that include a bundle of goods and services, contingent pricing arrangements, goods or services that are delivered over time or licensing arrangements, could see the biggest changes. For example, companies with bundled offerings in the telecommunications, media and technology sector among others may need to recognise revenue by reference to the stand-alone selling price of the individual goods and services, which may differ from the cash-based recognition models used today.
PwC accounting advisory partner Galina Ryltsova said: “Revenue is a particularly sensitive area of accounting that has been subject to much shareholder scrutiny in recent years, particularly where there are complex contractual arrangements. Companies should therefore be careful in their adoption of the new standard.
“With the standard now finalised, companies should begin or continue their implementation process with the confidence that IFRS 15 will not be subject to further changes.”