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Signature Qualification CA that Empowers to Lead PAKISTAN IAS & IFRS New Revenue Standards When to recognise? How much to recognise? by Touseef Alam Khan These simple questions are, at times, most controversial and What has changed? difficult to answer. Upon application, IFRS 15 would virtually replace all existing guidance on revenue recognition under current Revenue is an important number in assessing entity’s practice (IAS 11, IAS 18, IFRIC 13, IFRIC 15, IFRIC 18 and financial performance and prospects over time or comparing SIC 31) except for recognition and measurement guidance different entities. Therefore, use of consistent, comparable on interest and dividends which have been excluded from and appropriate revenue recognition framework is integral scope of IFRS 15 and moved from IAS 18 to IFRS 9. to fair financial reporting. What is the scope of IFRS 15? International Accounting Standards Board (IASB) has issued a new revenue standard (IFRS 15). Here, detailed coverage The Standard is applicable to all contracts with customers of IFRS 15 (‘the Standard’) is neither possible nor aimed. across all industries except for lease contracts, insurance Instead, we would try to explore what new Standard holds contracts, financial instruments and other contractual in store for companies by answering key questions about its rights and obligations within the scope of IFRS9, IFRS 10, application, impact and implementation issues. IFRS 11, IAS 27 and IAS 28, and non-monetary exchanges between entities in same industry to facilitate customers. When was the new revenue Standard What is the overview of IFRS 15? issued? A five-step model is introduced which answers when and On May 28, 2014, two premier international accounting how much: standards setting bodies, (IASB and US Financial Accounting Standards Board, FASB) jointly issued new revenue Identify standards (IFRS 15 and Topic 606 respectively) after over Identify the Performance a decade long project. Both standards are mirror image of Contract Obligations each other with minimal differences. Creation of common 01 02 revenue recognition guidance for IFRSs and US (Generally Accepted Accounting Principles) GAAP is a significant step towards their convergence and improvement in financial Determine Allocate reporting. Transaction Transaction 03 Price 04 Price Why is the new Standard required? Existing revenue standards and interpretations have many weaknesses and inconsistencies. They have limited Recognize guidance and are difficult to apply to complex transactions Revenue (e.g. arrangements with multiple elements) partially 05 because existing revenue standards do not include Basis of Conclusions. This often resulted in entities accounting IFRS 15 provides detailed guidance to be used within each for similar transactions differently which led to diversity step. in revenue recognition. To address these deficiencies, IASB undertook a major joint project with FASB to develop What is the ‘core principle’ of IFRS 15? a comprehensive and robust framework for revenue Entity shall recognise revenue to depict the transfer of recognition, measurement and disclosures. promised goods or services to customers for an amount that 52 The Pakistan Accountant July - September 2015