IFRS Recognition of interest income of IAS 18 Revenue

IFRS Recognition of interest income of IAS 18 Revenue: The International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB) (collectively, the Boards) have jointly issued a new revenue standard, IFRS 15 Revenue from Contracts with Customers, that will supersede virtually all revenue recognition requirements in IFRS and US GAAP.

Noting several concerns with existing requirements for revenue recognition under both US GAAP and IFRS, the Boards decided to develop a joint revenue standard that would:

• Remove inconsistencies and weaknesses in the current revenue recognition literature

• Provide a more robust framework for addressing revenue recognition issues

• Improve comparability of revenue recognition practices across industries, entities within those industries, jurisdictions and capital markets

• Reduce the complexity of applying revenue recognition requirements by reducing the volume of the relevant standards and interpretations

• Provide more useful information to users through new disclosure requirements IFRS 15 specifies the accounting treatment for all revenue arising from contracts with customers.

IFRS Recognition of interest income of IAS 18 Revenue

IFRS Recognition of interest income of IAS 18 Revenue

It applies to all entities that enter into contracts to provide goods or services to their customers, unless the contracts are in the scope of other IFRSs, such as IAS 17 Leases.

The standard also provides a model for the measurement and recognition of gains and losses on the sale of certain non-financial assets, such as property or equipment. As a result, IFRS 15 will likely affect an entity’s financial statements, business processes and internal control over financial reporting. While some entities will be able to implement the standard with limited effort, others may find implementation a significant undertaking.

IFRS Recognition of interest income of IAS 18 Revenue

An early assessment will be the key to managing implementation. While the Boards actually issued two separate standards, we refer to them in this publication as a single standard. The standards under IFRS and US GAAP are identical except for the following:

• The Boards use the term ‘probable’ to describe the level of confidence needed when assessing collectability to identify contracts with customers, which has a lower threshold under IFRS than US GAAP (as discussed in Section 3.1.5)

• The FASB requires more disclosures in interim financial statements than the IASB

• The IASB allows early adoption

• The IASB permits reversals of impairment losses and the FASB does not

• The FASB provides relief for non-public entities (as defined in the US GAAP version of the standard) relating to specific disclosure requirements, the effective date and transition The standard outlines the principles an entity must apply to measure and recognise revenue and the related cash flows. The core principle is that an entity will recognise revenue at an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to a customer.

IFRS Recognition of interest income of IAS 18 Revenue

principles in IFRS 15 will be applied using the following five steps:

1. Identify the contract(s) with a customer

2. Identify the performance obligations in the contract

3. Determine the transaction price

4. Allocate the transaction price to the performance obligations in the contract

5. Recognise revenue when (or as) the entity satisfies a performance obligation An entity will need to exercise judgement when considering the terms of the contract(s) and all of the facts and circumstances, including implied contract terms. An entity also will have to apply the requirements of the standard consistently to contracts with similar characteristics and in similar circumstances.

IFRS Recognition of interest income of IAS 18 Revenue

In response to feedback received, the Boards included more examples in the final standard than they had in the November 2011 exposure draft. We include a list of these examples in Appendix B to this publication. IFRS 15 must be adopted using either a fully retrospective approach for all periods presented in the period of adoption (with some limited relief provided) or a modified retrospective approach.

For IFRS preparers, the standard is mandatory effective for annual periods beginning on or after 1 January 2017. US GAAP preparers must adopt the standard for annual periods beginning after 15 December 2016. Early adoption is permitted for entities that report under IFRS, but not for public entities (as defined in the US GAAP version of the standard) that report under US GAAP. This publication highlights key aspects of IFRS 15.

We also plan to issue industry-specific publications that will address, in further detail, significant changes to current industry practice. We encourage preparers and users of financial statements to read this publication and the industry supplements carefully and consider the potential effects of the standard. The views we express in this publication are preliminary. We may identify additional issues as we analyse the standard and as entities begin to apply it and our views may evolve during that process.

IFRS Recognition of interest income of IAS 18 Revenue

The scope of the standard includes all contracts with customers to provide goods or services in the ordinary course of business, except for the following contracts, which are specifically excluded:

• Lease contracts within the scope of IAS 17 Leases

• Insurance contracts within the scope of IFRS 4 Insurance Contracts

• Financial instruments and other contractual rights or obligations within the scope of IFRS 9 Financial Instruments or IAS.

IFRS Recognition of interest income of IAS 18 Revenue

39 Financial Instruments: Recognition and Measurement, IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IAS 27 Separate Financial Statements and IAS 28 Investments in Associates and Joint Ventures

• Non-monetary exchanges between entities in the same line of business to facilitate sales to customers or potential customers For certain arrangements, entities will have to evaluate their relationship with the counterparty to the contract in order to determine whether a vendor-customer relationship exists. Some collaboration arrangements, for example, are more akin to a partnership, while others have a vendor-customer relationship.

Only transactions that are determined to be with a customer are within the scope of IFRS 15. See Section 2.2 for a discussion on collaborative arrangements. Certain arrangements include repurchase provisions, either as part of a sales contract or as a separate contract that relates to the same or similar goods in the original agreement. The form of the repurchase agreement and whether the customer obtains control of the asset will determine whether the agreement is within the scope of the standard.

Entities may enter into transactions that are partially within the scope of IFRS 15 and partially within the scope of other standards. In these situations, the standard requires an entity to apply any separation and/or measurement requirements in the other standard first, before applying the requirements in IFRS 15.

IFRS Recognition of interest income of IAS 18 Revenue

When initial application of an IFRS has an effect on the current period or any prior period, would have such an effect except that it is impracticable to determine the amount of the adjustment, or might have an effect on future periods, an entity shall disclose:

1. the title of the IFRS;
2. when applicable, that the change in accounting policy is made in accordance with its transitional provisions.
3. the nature of the change in accounting policy.
4.  when applicable, a description of the transitional provisions.
5. when applicable, the transitional provisions that might have an effect on future periods.
6. for the current period and each prior period presented, to the extent practicable, the amount of the adjustment.
   1.  for each financial statement line item affected.
   2.  if IAS 33 Earnings per Share applies to the entity, for basic and diluted earnings per share.
7. the amount of the adjustment relating to periods before those presented, to the extent practicable.
8. if retrospective application is impracticable for a particular prior period, or for periods before those presented, the circumstances that led to the existence of that condition and a description of how and from when the change in accounting policy has been applied. Financial statements of subsequent periods need not repeat these disclosures.

IFRS Recognition of interest income of IAS 18 Revenue

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