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The Bruce Column — Recognizing the achievement

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May 28, 2014

The new revenue recognition standard has been a long time in gestation. Now that it is published Robert Bruce, our regular resident columnist, assesses its impact and effects.

If accountants were given to cheering they should be cheering the new revenue recognition standard, IFRS 15, which has just been published. There are several things to cheer about.

First it is a fundamental standard. Revenue is a number that everyone reports and is seen as key to any understanding of any business. Second the standard has come through the fire of being a converged effort from both the IASB and the FASB. And third, although it will inevitably not be found to be perfect, it has properly got to grips with the most difficult topic in accounting.

Before this new standard the inconsistencies were huge. Under IFRS there was not enough guidance and parts of the old standards didn’t cover some of the key issues at all. Meanwhile, under the FASB rules, there was a mass of industry-specific rules but this tended to result in a welter of inconsistencies between different industries. The previous efforts of the IASB and FASB had resulted in exactly the opposite of what standards are for – standards are for standardizing. The old regimes simply didn’t provide that.

On the other hand the new standard, despite being an extraordinary achievement, is not going to provide plain sailing. The fact that the IASB and FASB is already setting up a committee to look at all the serious questions which they expect to arise out of its implementation underlines that.

But companies now have to get to grips with it. And they may feel that, with an effective date so far in the future as the 1st of January 2017, they can take it easily, carefully and slowly. This would be a mistake. The impact of the timing of the recognition of profit needs to be thought through. Getting the disclosure sorted out will take time and judgement. And systems and processes will be required to be up to scratch to show that companies have properly complied with the standard. There will be a need for good and flexible systems to provide the complex calculations which will be required. And as ever it will probably be this last difficulty of sorting out new systems, if they are required, which will trip people up. A long lead-time can lead to complacency, followed by an unseemly scramble updating systems when it is almost too late.

And the intricacies of the standard may also mean that companies, which thought they had been doing something reasonable and sensible all along,   have to do something that they feel is unreasonable. They may not think this is a price worth paying. It will be worth coming to terms with this at an early stage in the process.

But in the end the achievement of the publication of this standard is immense. Right across the international scene there will be much greater comparability in an area which has often made little sense in the past.

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