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IFRS 15 redefines your revenue profile

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Published on February 27, 2015

The issuance of Revenue from Contracts with Customers (IFRS 15 under IFRS and ASU 2014-09 (Topic 606) under US GAAP) is the outcome of a joint project between the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) that has resulted in a converged accounting standard establishing a single, comprehensive framework for revenue recognition.

IFRS 15, which is intended to increase consistency across transactions, industries and capital markets, in an effort to ultimately provide global comparability in the ‘top line’ of financial statements, was issued in May 2014 and is mandatorily effective for annual periods beginning on or after January 1, 2017 for Canadian companies reporting under IFRS.

The new Standard provides significantly more prescriptive guidance on revenue recognition and disclosure requirements, thereby necessitating a considerable increase in the volume of information and data required in order to effectively implement IFRS 15 and apply it on an ongoing basis.

Although the 2017 effective date may seem far-off, it is important that organizations do not underestimate the implementation efforts that IFRS 15 may require. Revenue is arguably the most important driver of financial performance, which impacts key performance indicators and continually remains under the watchful eye of investors, analysts, and regulators. Accounting for revenue also spans beyond the financial reporting function at any organization and is interdependent on many groups within an organization, including sales, marketing, operations, human resources, information technology, tax, etc. As such, it is expected that this new Standard will have a level of impact on all organizations reporting under IFRS. From a Canadian marketplace perspective, drawing from our relatively recent experience with IFRS transition, managing the implementation of any new standard may require business changes that have far reaching effects and therefore an appropriate implementation plan needs to be robust, integrated (i.e. cross-functional), comprehensive (i.e. include step-by-step details) and include accountability. Some realistic near-term actions for implementation may include:

  • form an implementation specific team that engages leaders across service;
  • develop processes to manage decisions, issues, risks, etc.;
  • develop proposed timelines and specific milestones, including roles and responsibilities of all those involved, and
  • determine the appropriate channels and timelines to communicate with the audit committee and external stakeholders.

Many entities have already begun mapping out their implementation plans, and in doing so, have identified a number of challenges in the application of the requirements of this new Standard. For example, have you considered whether your organization may have practical challenges in identifying performance obligations? Does your organization grant any licenses of intellectual property ("IP")? Have you considered how the guidance in the new Standard regarding licenses of IP will be applied?

These are only a few examples of issues that have been raised by stakeholders and submitted to the FASB/IASB Joint Transition Resource Group for Revenue Recognition ("TRG"), and subsequently, based on the recommendation of the TRG, brought to the attention of both the FASB and IASB for further discussion.

Given these on-going discussions and developments we encourage all stakeholders to remain actively informed on activities related to this new Standard. We encourage you to visit our Revenues section on our Website that includes a number of publications, including links to our latest publications in our Clearly IFRS series, which summarize the discussions of the recent TRG meetings. As well, we have included links to a number of other resources that can assist you in better understanding the new Standard. Lastly, we encourage you to reach out to any members of our team of experienced professionals that can assist your organization in developing an action plan to implement the new Standard and answer any questions you may have.

Nura Taef Nura Taef
Manager, National Services

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