KPMG welcomed the second round of proposals on revenue issued today by the International Accounting Standards Board and the US Financial Accounting Standards Board.
Phil Dowad, KPMG’s Global IFRS revenue recognition leader, noted his appreciation: “It’s good news that the Boards listened to much of the feedback on the first round of proposals. All interested parties now have one more chance to influence a new standard on revenue.”
While the proposals may ultimately represent ‘business as usual’ for many companies, certain industries would likely see significant changes. Gary Reader, leader of KPMG’s Global IFRS Initiative, explained: “The most affected companies could be those with bundled products and services, or those engaged in construction activities – for example, the telecoms, software and engineering industries. Under the new proposals the timing of their revenue recognition could change, but the exact impact would vary. Some companies would get earlier revenue recognition, but for others revenue would be delayed.” For companies in these industries, there are also the wider business implications to consider, including contract terms, employee incentives and communications with investors and analysts.
But Reader urged caution: “All companies should take note of the proposed disclosure requirements. These might require changes to systems and processes as companies seek to collect the necessary data – even if there is no change to the numbers in the financial statements.”
The proposed standard entails a single model that applies to all companies. This necessarily means that preparers would be required to exercise a greater degree of judgement, heightening the challenge of consistent interpretation. Dowad concluded: “While we welcome a more principles-based approach rather than detailed rules, companies should consider whether the proposals have sufficient clarity to be successfully applied.”
The proposals are out for consultation until 13 March 2012, with a final standard likely to take effect not earlier than January 2015.