The International Accounting Standards Board (IASB) issued amendments to IFRS 15, Revenue from Contracts with Customers on 12 April 2016, to clarify some requirements and provide additional transitional relief to companies that are implementing IFRS 15.
The International Accounting Standards Board (IASB) issued amendments to IFRS 15, Revenue from Contracts with Customers on 12 April 2016, to clarify
some requirements and provide additional transitional relief to companies
that are implementing IFRS 15.
The amendments do not change the underlying principles of IFRS 15 but clarify how these principles are to be applied. This was a result of the discussions of the Transition Resource Group (TRG) which was set up jointly by the IASB and the U.S. Financial Accounting Standards Board (FASB).
Overview of the guidance
IFRS 15 provides a single model that applies to contracts with customers, to determine how revenue should be recognised. This is a five step model used to determine whether revenue should be recognised at a point in time or over time, and at what amount. The following is an overview of the model.
This model will lead to revenue being recognised when, or as, an entity transfers control of goods or services to a customer at the amount to which the entity expects to be entitled.
The amendments issued by the IASB on 12 April 2016 clarify how an entity should apply this model in terms of:
In addition to the clarifications, the amendments provide the following two
additional practical expedients available on transition to IFRS 15, when an
entity elects to adopt the standard on a fully retrospective basis:
With the issue of these clarifications by the IASB, the final version of IFRS 15 is now available for companies to assess its impact on their contracts and
transactions. IFRS 15 is applicable internationally from accounting periods
beginning on or after 1 January 2018.
Applicability in India: We expect that corresponding changes will be made to Indian Accounting Standard (Ind AS) 115, Revenue from Contracts with Customers and notified in due course by the Ministry of Corporate Affairs (MCA).
As reported in our IFRS Notes dated 1 April 2016, the application of Ind AS 115 has been deferred by the MCA. Therefore, the new standard is not immediately applicable to Indian companies that are transitioning to Ind AS on or after 1 April 2016 or those that otherwise report under IFRS. However, when it becomes applicable, IFRS 15/Ind AS 115 is expected to have a significant impact on how and when companies recognise revenue, and will require a significant use of judgements and estimates.
Companies that have complex transactions with multiple components or variable amounts of consideration, or operate in sectors that are likely to experience a significant impact such as telecom, software, engineering and construction or real estate should commence assessing the extent of impact of this standard and its wider business implications.
KPMG IFRG Limited has released its publication First Impressions: IFRS 15 Revenue in April 2016. This publication has been fully revised and updated to provide a digestible introduction to the clarified version of IFRS 15.
To read more about KPMG’s First Impressions on the new IFRS 15, Revenue from Contracts with Customers, please click here.
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