September 2016
ACCOUNTING - IFRS 15 Impact
STEP 1: IDENTIFY THE CONTRACT(S)
WITH A CUSTOMER.
IFRS 15 defines a contract as an agreement between two or more parties that
creates enforceable rights and obligations and sets out the criteria for every
contract that must be met.
STEP 2: IDENTIFY THE PERFORMANCE
OBLIGATIONS IN THE CONTRACT.
A performance obligation is a promise in
Conclusion:
a contract with a customer to transfer a
It is clear that companies need to plan
good or service to the customer.
for the significantly expanded disclosure
requirements. For companies that will
STEP 3: DETERMINE THE TRANSACTION experience a significant change in revenue recognition as a result of the new
PRICE.
standard, the implementation effort will
The transaction price is the amount of
be considerable.
consideration (for example, payment) to
which an entity expects to be entitled to
in exchange for transferring promised
goods or services to a customer, exclud- IFRS 15 is effective to an entity's first
ing amounts collected on behalf of third annual IFRS financial statements for a
period beginning on or after 1 January
parties.
2018.
The new standard will have an impact on
the measurement, recognition and disEarly adoption is permissible but I would
closure of revenue, which is often a com- STEP 4: ALLOCATE THE TRANSACTION not advise any entity to implement the
pany’s most important financial perfor- PRICE TO THE PERFORMANCE OBLIGA- standard until it is final.
mance indicator and the one most close- TIONS IN THE CONTRACT.
ly scrutinized by investors and analysts.
For a contract that has more than one
performance obligation, an entity should
allocate the transaction price to each
Obtaining an insight of the effects of the performance obligation in an amount
new standard, providing communication that depicts the amount of consideration
to stakeholders and planning ahead are to which the entity expects to be enticrucial for successful implementation. tled to in exchange for satisfying each
Even companies that do not expect ma- performance obligation.
jor changes in the measurement and
timing of revenue will need to validate
that assumption and identify any neces- STEP 5: RECOGNIZE REVENUE WHEN
sary changes to policies, procedures in- (OR AS) THE ENTITY SATISFIES A PERternal controls and systems to ensure FORMANCE OBLIGATION.
that revenue transactions are appropriately evaluated through the new model.
Mphiliseni Mthembu CA (SA)
To apply this principle, we need to follow a five-step model framework described below:
ACCOUNTING - IFRS 15 IMPACT
T
he International Accounting
Standards Board (IASB) and The
Financial Accounting Standards
Board (FASB) recently issued a
new revenue recognition standard that
replaces the old revenue standard – IAS
18 and Construction contracts IAS 11.
The standard’s core principle is that a
company will recognize revenue when it
transfers goods or services to customers
at an amount that reflects the consideration to which the company expects to be
entitled in exchange for those goods or
services.