The new revenue recognition standard – IFRS 15 – will change the way many automotive suppliers account for nomination fees, framework agreements, and pre-production engineering and tooling.
To help you drive your implementation project to the finish line, we’ve pulled together a list of the key considerations that you need to focus on, along with a more detailed practical guide (PDF 346 KB).
How you might be affected
IFRS 15 might impact automotive suppliers in the following areas.
Suppliers may pay nomination fees to car makers when tendering for contracts. The new guidance on payments to customers may result in more payments being deducted from revenue compared with current practice. In addition, judgement will be required to determine whether payments to potential customers could be capitalised.
Suppliers and car makers may enter into framework agreements to determine standard terms on which future purchase orders would be based. IFRS 15’s guidance on whether a contract exists may result in no revenue being recognised for pre-production activities in some cases, or a change in the transaction price allocated to certain activities in a project.
Automotive suppliers may need to account for some pre-production engineering and tooling activities outside of revenue if they fall outside the scope of IFRS 15, whilst some pre-production activities may not be considered a separate deliverable and any consideration paid for them may be attributable to future goods or services.
Other areas affected may include accounting for pricing arrangements and modifications.
Automotive suppliers – Getting to the finish line
Unexpected changes may also arise as the new standard is more detailed than the existing revenue requirements. Therefore, it’s essential that the accounting impacts are considered in detail, as well as the broader business impacts – e.g. the impact on tax and employee bonus schemes.
Our SlideShare IFRS 15 Revenue – Are you good to go? outlines the key considerations that automotive suppliers need to focus on. You can also download a PDF version (PDF 270 KB).
Our IFRS 15 for automotive suppliers – Are you good to go? (PDF 346 KB) application guidance provides more detailed and practical insight, using examples to illustrate how automotive suppliers might apply the new requirements.
Our IFRS 15 transition toolkit page will help you understand the new requirements and decide which transition option to use – it also provides illustrative disclosures.
Our IFRS blog provides topical insight and discussion, and practical guidance to help you implement the new IFRS accounting standards.
Please speak to your usual KPMG contact if you would like to find out more about how KPMG can help your business.
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