AASB 15 Revenue from Contracts with Customers is coming for 31 December 2018 year-ends onward. Have you fully considered all the implementation issues? As part of your implementation project consideration should be given to a range of different issues around revenue recognition and measurement, capitalisation of costs, disclosures, transition and flow on impacts to other standards. This article explores the disclosure requirements of the new standard, and specifically what is the easiest way to disclose disaggregated revenue.
Users of accounts often complain that a single revenue line does not tell them enough about how a company earns its revenue. As part of the expanded disclosures required by the new revenue standard, there is now a requirement to disclose disaggregated revenue in both year-end and half-year accounts. Have you thought about the most efficient way to provide this additional information?
Many of you would argue that you already provide these disaggregated disclosures as part of your segment note required by AASB 8 Operating segments, and today we will explore if those disclosures will still be sufficient, or whether you are going to need to add more.
AASB 15 requires entities to disaggregate their revenue ‘into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors’. The standard is asking for a meaningful breakdown of revenue, which many of you consider would already be in your segment note. Indeed when working out how to disaggregate revenue, the standard tells you to consider how you present information in your earning releases, investor presentations and to consider similar information used to determine your operating segments and the segment disclosures.
Understandably, companies are concerned too much disclosure about revenue will give away commercially sensitive information. Before assuming the disaggregation of revenue in the operating segment note is sufficient, you will need to consider whether the segment note will provide information that meets the objectives of the revenue standard. Below are two particular areas to consider.
If your segment note is based on geographical regions, then what are the business operations in the region? Where there are varying business lines in the same region, it is possible revenue contracts will be different raising questions as to whether disaggregation by geography really will provide information about how economic factors impact revenue and cash flows.
Consider the way that you discuss revenue in investor presentations, the director’s report and even in internal reporting. If you are slicing and dicing revenue into different, lower disaggregation in those discussions than you do in the segment disclosures, this may be an indication that the segment disclosures are not sufficiently disaggregated to meet the AASB 15 requirements.
If you plan to use your operating segment note to comply with the disaggregation of revenue requirements, make sure you are able to explain why this is appropriate. Additional disclosure do not always provide useful and relevant information and can be inconsistent with the recent push to cut the clutter in financial statements. However, be cautious in assuming you have already covered the disaggregation of revenue disclosures in your operating segment note. ASIC will be looking closely at AASB 15 implementation including the disclosures and you want to ensure that yours are not lacking.
If you would like to discuss the implementations of the new standard on your organisation contact your usual KPMG contract or the contacts on this page.
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