Improving business performance, turning risk and compliance into opportunities, developing strategies and enhancing value are at the core of what we do for leading organizations. However, in 2016 the IASB and the FASB issued separate amendments to clarify their respective guidance and, in the case of the FASB, to provide some practical expedients to the requirements. While the implementation of all new accounting standards requires CFOs to think through its implications — because revenue is at the heart of all profit orientated business — the impact of IFRS 15 could fundamentally change the profit, forecasts and thus the business model of some companies. In March 2016, the FASB issued ASU 2016-08,4which amended the principal-versus-agent imple… 2. The upcoming changes to revenue recognition … All software and software-as-a-service companies secure compliance with the ASC 606 /IFRS 15 revenue standard; these efforts would implement the Aptitude Revenue Recognition Engine or the Aptitude RevStream solution of which several examples … 2018 is expected to be a year where changes to the financial reporting environment are so extensive, the implications will seep into the financial management of the company, Ben Levy, senior manager in Mazars’ Financial Reporting Advisory team, explains the impact of new financial reporting standards. Gone are the days of thinking of a contract as a singular transaction; the performance obligation is now the new unit of account in revenue recognition. The FASB made more changes to its standard by providing more application guidance and additional practical expedients. ASC 606 relies on a five-step model to conduct revenue recognition. How Apttus Intelligent Quote-to-Cash solves compliance and automates across Contracts, Orders, Incentive Compensation Management and Revenue Recognition. The new accounting rules ASC 606 in the U.S., and its international counterpart IFRS 15, standardize and simplify revenue recognition across all industries. Although substantially converged when originally published, subsequent amendments have resulted in a few areas of divergence between the two standards, which are important to identify for US GAAP preparers and UK subsidiaries of US groups. When the customer obtains control of the goods before shipping, the shipping and handling activities may be a separate performance obligation. 2018 is expected to be one of those years. Revenue from Contracts with Customers — A guide to IFRS 15 21 Mar 2018 This detailed guide is intended to assist preparers and users of financial statements to understand the impact of IFRS 15 … Here we offer our latest thinking and top-of-mind resources. Revenue: Top 10 Differences Between IFRS 15 and ASC 606, Step 2: Distinct goods and services: Shipping and handling activities – FASB policy election, Step 3: Transaction price: Measurement date for noncash consideration, Step 3: Transaction price: Sales taxes – FASB policy election, Contract costs: Reversal of previously impaired contract acquisition and contract fulfillment costs, Sales outside ordinary activities: Sales of in-substance nonfinancial assets. All revenue and costs are then recognised on transferring control of the goods to the customer. This includes partial sale transactions. The move to a global standard for accounting and reporting is important, especially as new … A company’s tax position may be impacted by adopting ASC 606 or IFRS 15. IFRS 15 establishes a restrictive definition of the costs that shall be recognised as an asset when obtaining a contract. IAS 18 was issued in December 1993, and IFRS 15 … In some cases revenue will be recognised over time and in others at completion, depending on the way control of the underlying good or service is transferred to the customer, or possibly, the nuances in the wording of the contract. However, in 2016 the IASB and the FASB issued separate amendments to clarify their respective guidance and… Comparing the New Revenue Recognition Standards: IFRS 15 and ASC 606 (August 30, 2016) As originally issued, IFRS 15 and ASC 606 were very similar with very little difference between the two standards. In developing ASC 606, FASB and IASB wanted to provide a framework to drive consistency in financial reporting, improve comparative analysis and reporting, and simplify the preparation of financial statements through a 5 Step Model for Revenue Recognition. Components of a Contract (IFRS-15/ASC (606-10-25-2) b) … Key Difference – IFRS 15 vs IAS 18 Both IFRS 15 – ‘Revenue from Contracts with Customers’ and IAS 18 -‘Revenue’ relate to the accounting treatments on recording income generated through business activities. Annual periods beginning on or after January, 2018. Transition to ASC 606 / IFRS 15: Revenue from Contracts with Customers summarizes the way the new revenue recognition rules require change to current practice and the critical insights that will facilitate a successful transition to the new world of accounting and financial reporting for revenue. This model covers the following: The transition between the old and new rules will create several M&A challenges, explain experts from Berkeley Research Group, Effective data governance is reliant on data integrity and uniformity and with a raft of new regulation on data governance, organisations need to understand what is expected of them, IASB clarifies how to apply IFRS 15 revenue recognition standard. whether the impact will modify the amount of revenue to be recognised, the timing or both) and by revenue streams’ and ‘explain the nature of the impacts so that users of financial statements understand the changes to current practices and their key drivers when compared with the existing principles on recognition and measurement in IAS 11, IAS 18 and related interpretations’ (2). IFRS 15 (as with current IFRS) does not specify a measurement date for noncash consideration to be received in a revenue contract. What are ASC 606 and IFRS 15? Policy election to treat shipping and handling activities undertaken by the company after the customer has obtained control of the related goods as a fulfillment activity (i.e. Noncash consideration, such as shares or advertising, is measured at fair value for inclusion in the transaction price. In addition, ESMA ‘expects that entity-specific quantitative and qualitative disclosures about the application of the new standards will be provided’ and that since ‘the 2017 annual financial statements will be published after the requirements in IFRS 9 and IFRS 15 (and IFRS 16, if early adopted) will have become effective, ESMA expects that issuers will have substantially completed their implementation analyses (1). These differences may be challenging for companies that report under both US GAAP and IFRS – e.g. ASC 606 and IFRS 15. disaggregated revenue, contract balances and remaining performance obligations. ASC 606 and IFRS 15. ASC 606 and its international counterpart, IFRS 15, set a new global standard for the revenue recognition process. Sales of nonfinancial assets and in-substance nonfinancial assets scoped in ASC 610-20 are accounted for using the contract existence, separation, measurement and derecognition guidance in ASC 606. It was designed to help businesses make the transition with peace of mind that they’re managing their data and reporting with both accuracy and visibility, both today and after all the reporting changes take effect in 2018. Although the first year of adoption is 2018, the judgements required in the transition approach and the disclosures required mean that finance teams who have not started contemplating the implications of the new Standard may find themselves under pressure in the forthcoming year. Connor Group has reviewed SEC comment letters issued to date as of March 31, 2018 regarding the adoption or implementation of ASC 606 Revenue from Contracts with Customers (or its IFRS equivalent, IFRS 15). Fortunately, public companies have diagnosed many of the issues associated with implementation and private companies may … See this post for further discussion of the accounting for shipping and handling under ASC 606. IFRS. Effective date. For example, if a subsidiary that has only a building and does not represent a business is sold for a fixed price plus a contingent fee: Onerous contracts: Determination of provisions for loss-making and onerous contracts, Transition: Effective date for nonpublic companies, Transition: Definition of 'completed contract', Disclosures: Remaining performance obligations. Similar to annual disclosures -- e.g. US GAAP has no general guidance for recognizing a provision for onerous contracts, but instead focuses either on types of contracts or on industry-specific arrangements. As standalone regulations, revenue recognition (IFRS 15 and ASC 606) and lease accounting (IFRS 16 and ASC 842) are each challenging in their own right. This population of relevant SEC comment letters was determined and the filings were retrieved via searches within CompanyIQ™¹ The new standard is effective for annual periods beginning on or after January 1, … As such, the new standard will have a global impact across industries. However, businesses should also consider engaging with their shareholders through other means if they are aware of a significant impact on transition to the new Standard. Fair value can be measured at contract inception under both IFRS and US GAAP. The impact on Sales, Finance, and Legal teams. Under IFRS 15, the entity needs to estimate certain variable consideration for disclosure purposes only, even when those estimates are not needed for the recognition of revenue. Any reversal of the impairment loss is limited to the carrying amount, net of amortization, that would have been determined if no impairment loss had been recognized. of Professional Practice, KPMG US, Partner in Charge, US Germany Corridor, KPMG US. ASC 606 and its international counterpart, IFRS 15, set a new global standard for the revenue recognition process. Current IFRS (IAS 18) already requires a principal vs. agent evaluation for sales tax presentation. FASB ASC 606-10-15-2 through 15-4 The revenue recognition standard affects all entities—public, private, and not-for-profit—that either enters into contracts with customers to transfer goods or services or … Under IFRS, an entity recognises a reversal of an impairment loss that has previously been recognised when the impairment conditions cease to exist. The ASC 606 / IFRS 15 Model. As explained above, ESMA has provided guidance on the disclosures required in the 2017 financial statements. ASC 606 … A company’s tax position may be impacted by adopting ASC 606 or IFRS 15. Policy election to present all sales and similar taxes on a net basis. Sales of a subsidiary that only has nonfinancial assets and/or in-substance nonfinancial assets and is not a business are scoped into ASC 610-20. IFRS 15 has fewer disclosure requirements for interim financial reporting than ASC 606. Onerous revenue contracts are accounted for under IAS 37, Provisions, Contingent Liabilities and Contingent Assets. (IFRS 15 & ASC 606: 606-10-25-1 THROUGH 25-13) a) A contract is an agreement between 2 parties that creates enforceable rights and obligations. The customer simultaneously receives and consumes the benefits of the entity’s performance as the entity performs. For more detail about the structure of the KPMG global organization please visit https://home.kpmg/governance. Fresh standards changes are approaching fast in the form of ASC 606 (and the jointly-developed IFRS 15), and now’s the perfect time to get compliant. Foreign Private Issuers that file IFRS financial statements will face a more subtle issue. However, four ASUs later, the standards are moving further apart. They argue that the … Fill out the form to download "ASC 606/IFRS 15: The Definitive Guide to New Revenue Recognition Rules". A performance obligation is a promise to transfer to the customer either ‘a good or service (or a bundle of goods or services) that is distinct’ or ‘a series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer’. Tune in to KPMG Advisory podcasts to hear perspectives on today's business issues. IFRS 15 and ASC 606 are the same with only minor differences. Outside a lack of technology, part of the challenge is also interpreting the rules. However, other dates (e.g. Ind AS 115 is largely converged with IFRS 15 and ASC 606 issued by the IASB and FASB. Private companies face significant changes from ASC 606 or IFRS 15. The standard contains principles that an entity will apply to determine the timing and amount of revenue to be … The new revenue standards, IFRS 15 and ASC 606, originally published in May 2014, are substantially converged. Transition to ASC 606 / IFRS 15: Revenue from Contracts with Customers summarizes the way the new revenue recognition rules require change to current practice and the critical insights that will facilitate … ASC 606/IFRS 15 In ASC 606 and IFRS 15, Revenue recognition criteria are applied separately for each Performance Obligation (POB). Some or all of the services described herein may not be permissible for KPMG audit clients and their affiliates or related entities. The complex revenue-recognition requirements of ASC 606 and IFRS 15 mean finance teams face some of the most sweeping changes since Sarbanes-Oxley. Peush Patel - Zuora. In making the assessment of whether a significant financing component exists, ASC 606-10-32-16 provides the following factors that must be considered: 1. a performance obligation). Sage Intacct Contract Revenue Management is the first automated solution to handle the complexities of ASC 606 and IFRS 15. This collaboration was created because multiple accounting revenue-recognition standards existed, so inconsistencies arose … Corporate strategy insights for your industry, Explore Corporate strategy insights for your industry, Financial Services Regulatory Insights Center, Explore Financial Services Regulatory Insights Center, Explore Risk, Regulatory and Compliance Insights, Explore Corporate Strategy and Mergers & Acquisitions, Customer service transformation & technology. Here are the differences explained in more detail. Outside a lack of technology, part of the challenge is also interpreting the rules. To meet this disclosure objective, the European Securities Markets Authority (ESMA) has issued what can only be interpreted as a warning shot to companies, as well as further guidance on the matter. Aptitude addresses IFRS 15 ‸ve-step recognition process The Aptitude Revenue Recognition Engine (ARRE) is designed to empower telecoms providers to comply with IFRS 15 (FASB ASC 606). Any entity that enters into contracts with customers to transfer goods or services in exchange for payment will be affected by the new regulations. The issues here are significant because the identification of more than one performance obligation in a contract means entities must: The timing of the recognition of revenue depends on the timing of the transfer of the promised good or service to a customer. ESMA highlights the fact that while they have ‘identified a number of informative qualitative disclosures on the implementation of the new standards, practice has varied concerning the specificity of the information provided’, they ‘expected a higher level of disclosure of the quantitative impact of the new standards’. What’s changing with ASC 606/IFRS 15 and why. Current guidance is unchanged except for losses on long-term construction- and production-type contracts, where an entity is allowed to determine the provision for losses at either the contract level or the performance obligation level. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. Most companies who are therefore about to start their 2018 financial year will be in the same position and will need to account for their revenue under IFRS 15 for the first time. Annual periods beginning after December,2017 (public business entities and certain not-for-profis) or after December, 2018 (other entities). The upcoming changes to revenue recognition standards are more than just a headache for your finance department. 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