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New revenue standard – Introducing AASB 15
New revenue standard – Introducing AASB 15
The new accounting standard may change how you do business. AASB 15 Revenue from Contracts with Customers, replaces existing accounting guidance and introduces a comprehensive revenue recognition model aimed at enhancing comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets.
IFRS 15 (adopted in Australia as AASB 15) is the result of the IASB’s and the FASB’s joint project to harmonise the financial reporting of revenue under IFRS and US GAAP.
The new standard applies to years commencing on or after 1 January 2018. Comparative information may be required, depending on the transition option chosen – retrospective or cumulative effect.
ASIC has warned companies that AASB 15, together with AASB 16 and AASB 9, represent the most significant change to financial reporting since IFRS adoption in 2005. ASIC released a statement on 16 December 2016 outlining its expectation that companies should disclose the impact of all these standards, including AASB 15, in their upcoming financial reports.
5 step model
A five-step model is applied to determine when to recognise revenue, and at what amount.
Revenue is recognised when (or as) a company transfers control of goods or services to a customer for the amount to which the company expects to be entitled.
Depending on whether certain criteria are met, revenue is recognised either over time (in a manner that best reflects the company’s performance) or at a point in time (when control of the goods or services is transferred to the customer).
How may AASB 15 affect your organisation?
The implications of AASB 15 can be pervasive, but the new revenue standard may also present opportunities. In our experience, the true magnitude of the standard’s impact emerges only after a company commences its implementation. Organisations will need to consider impacts which include, but are not limited to, the following:
- timing of recognition and amount of revenue recognised may change
- changes to systems, processes and controls may be required
- extensive new disclosures will be required
- KPIs and ratios may be affected, which could impact share price and access to capital
- investors will require education on the change in revenue profile.
Among industries most impacted are telecommunications, construction and engineering, and software development.
Implementation journey
Implementation of the new revenue standard may seem daunting. It is critical to do it in an organised manner to maximise chances for a timely and smooth transition. You may want to adopt our three phase approach outlined below.
Impact assessment phase
During the impact assessment phase, the organisation will set the scope of the implementation project, determine the impact of the new standard on its revenue streams and identify key judgments and estimates it is required to make under the new standard.
Design phase
During the design phase, the organisation will update its accounting policies and manuals, develop functional specifications on the processes which need to be changed and prepare its system implementation plan.
Implementation phase
During the implementation phase, the organisation will build and test IT system or manual solutions.
How KPMG may be able to help
| Tasks | How KPMG may be able to help |
| Gain an awareness of the new standard |
|
| Contract review |
|
| Transition option assessment |
|
| Project management |
|
| Assess gaps in current finance systems, processes & controls |
|
| Accounting policy update |
|
| Broader impact assessment |
|
| Implementation |
|
For a summary of the key requirements of AASB 15 and further guidance of the factors to consider in your implementation project refer to our brochure.
Authoritative sources
- AASB 15 – Revenue from Contracts with Customers (PDF 732KB) – October 2015
- Basis for Conclusions on IFRS 15 (PDF 463KB) – May 2014
- Illustrative Examples on IFRS 15 (PDF 220KB) – May 2014
- Clarifications to AASB 15 (PDF 764KB) – April 2016
– Basis for Conclusions Amendments (PDF 911KB)
– Illustrative Examples Amendments (PDF 564KB) - Amendments to Effective Date of AASB 15 (PDF 327KB) – October 2015
- Amendments to Australian Accounting Standards – Deferral of AASB 15 for Not-for-Profit Entities (PDF 696KB) – December 2016
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