Unravelling revenue accounting – An analysis of sector impacts
Unravelling revenue accounting – An analysis of sector
The publication captures the significant impact of Ind AS 115 on various sectors.
Ind AS 115, Revenue from Contracts with Customers has introduced a single comprehensive guidance – a ‘five step model’ for analysing revenue transactions. The model specifies that revenue should be 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. It is applicable to Indian companies (who follow Ind AS) from 1 April 2018.
Revenue is a key performance metric for many entities and the new revenue model has an impact across sectors and to all types of revenue generating transactions. However, the requirements affect different sectors in different ways. Some companies may have witnessed little change in the timing and amount of revenue recognised. We found that not all five steps may be significant for all the sectors. Importantly, all companies across sectors will also be subject to extensive new disclosure requirements as they prepare their annual financial statements for year ending 31 March 2019.
Ind AS 115 is more than just an accounting change. It has impact on systems and processes including data collection and areas like contracting with customers. It will also impact measurement of a company’s performance, more specifically revenue and profitability based metrics which in turn may impact debt covenants, targets for employee performance incentives, thus impacting many facets of business.
About the publication
KPMG in India’s ‘Unravelling revenue accounting – An analysis of sector impacts’ captures the significant impact of Ind AS 115 on various sectors. We have also explained the five step model in a practical way, with the help of flowcharts and examples.
The publication intends to highlight some of the practical application issues with the help of certain facts and circumstances detailed in the examples used. In practice, transactions or arrangements involving Ind AS 115 may be complex. Therefore, further interpretation and significant use of judgement may be required for an entity to apply Ind AS 115 to its facts, circumstances and individual transactions.
We hope that you find this publication useful and we welcome any suggestions or feedback that you may have.
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