Revenue: Top 10 Differences Between IFRS 15 and ASC 606, Step 2: Distinct goods and services: Shipping and handling activities – FASB policy election, Step 3: Transaction price: Measurement date for noncash consideration, Step 3: Transaction price: Sales taxes – FASB policy election, Contract costs: Reversal of previously impaired contract acquisition and contract fulfillment costs, Sales outside ordinary activities: Sales of in-substance nonfinancial assets. – meets the criteria to be allocated entirely to a wholly unsatisfied performance obligation, or to a wholly unsatisfied distinct good or service that is part of a single performance obligation under the series guidance. This selection is based on the potential impact on earnings that these differences may have (excluding certain industry-specific implications), as well as the complexity they may create to comply with both GAAPs. Current guidance is unchanged except for losses on long-term construction- and production-type contracts, where an entity is allowed to determine the provision for losses at either the contract level or the performance obligation level. In an effort to simplify the transition, both GAAPs permit not applying the new requirements to completed contracts. SAP Business ByDesign supports a high variety of business processes. Some of the key differences between IFRS 15 and ASC 606 are as follows: Identification of distinct goods and services. ASC 606 / IFRS 15 is nearly here! The Accounting Standards Codification (ASC) 606 issued by FASB and the International Financial Reporting Standards (IFRS) 15 issued by IASB are both titled Revenue from Contracts with Customers and reflect the organizations’ agreement on best practices for contract revenue recognition across industries. This includes partial sale transactions. (1) ESMA public statement: “European common enforcement priorities for 2017 IFRS financial statements”, issued 27 October 2017, (2) ESMA public statement: “Issues for consideration in implementing IFRS Contracts with Customers”, issued 20 July 2016, Ben Levy is a senior manager in Mazars’ Financial Reporting Advisory team. The entity then tracks the progress toward completion of the contract by measuring outputs to date relative to total estimat… Sales of a subsidiary or equity method investee continue to be accounted for under the deconsolidation guidance (IFRS 10 and IAS 28, respectively). The US GAAP practical expedient simplifies the presentation of sales taxes, in line with current US GAAP. For companies involved in delivering complex and long-term projects, the impact of IFRS 15 or its US counterpart will be significant. If so, some revenue is allocated to the shipping activity and deferred until shipping and handling occurs. KPMG does not provide legal advice. 606 is primarily principal-based, so how the rules apply to each business is not absolutely clear. Sales of nonfinancial assets, such as property, plant and equipment (IAS 16), intangible assets (IAS 38) and investment property (IAS 40), are accounted for using the measurement and derecognition guidance of IFRS 15. However, in 2016 the IASB and the FASB issued separate amendments to clarify their respective guidance and, in the case of the FASB, to provide some practical expedients to the requirements. ASC 606 Subscription & IFRS 15: How the new Revenue Standards will impact Subscription Companies. For example, as seen above, the timing of the recognition of revenue could be impacted by the contractual terms, such as the right to be paid. In other words, the output method measures results achieved. It needs a thorough analysis of the current or intended business scenario implementation for every single customer. Under IFRS, an entity recognizes a reversal of an impairment loss that has previously been recognized when the impairment conditions cease to exist. In practice, this right to be paid, evidenced by the contractual terms and/or the applicable legal framework, must cover the costs incurred up to the termination date, plus a reasonable margin. Sales of a subsidiary or group of assets that constitutes a business or not-for-profit activity continue to be accounted for under the deconsolidation guidance (ASC 810). The impact of the implementation of ASC 606. IFRS 15 and ASC 606 are the same with only minor differences. The SAP Business ByDesign enhancements cover the main business pr… IFRS. The company determines if shipping and handling activities are distinct from the shipped goods (i.e. The FASB made more changes to its standard by providing more application guidance and additional practical expedients. a US subsidiary of a foreign multinational company that uses IFRS for group reporting with local reporting under US GAAP, or vice versa. The impact of the transition to IFRS 15 and ASC 606 depends on companies’ current accounting and the nature of their contracts. Here we offer our latest thinking and top-of-mind resources. This is in addition to the differences that already existed in the original versions of the standards. ASC 606 and IFRS 15. A company’s tax position may be impacted by adopting ASC 606 or IFRS 15. Updated September 2019 A closer look at IFRS 15, the revenue recognition standard 2 Overview The largely converged revenue standards, IFRS 15 Revenue from Contracts with Customers and Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers1 (together with IFRS 15, the standards), that were issued in 2014 by the International Accounting Standards Board (IASB Noncash consideration, such as shares or advertising, is measured at fair value for inclusion in the transaction price. Under IFRS, the deconsolidation guidance (IFRS 10) applies and the gain or loss is measured using the fair value of expected proceeds. ASC 606 automation that’s easy to configure out-of-the-box. For tax purposes, a company would need to analyze the new standard and either: 1. IFRS 15 has fewer disclosure requirements for interim financial reporting than ASC 606. Archived recordings can be accessed anytime. Although the first year of adoption is 2018, the judgements required in the transition approach and the disclosures required mean that finance teams who have not started contemplating the implications of the new Standard may find themselves under pressure in the forthcoming year. Except for the amendment to the principal vs. agent guidance (revenue being presented on a gross or net basis), these amendments may create differences in certain areas. Policy election to present all sales and similar taxes on a net basis. Partner, Dept. 12 The convergence of ASC 606 and IFRS 15 impact accounting and reporting standards at a global scale, affecting investors, accounting professionals, stock markets, corporate management, and more. IAS 18 was issued in December 1993, and IFRS 15 will be effective for accounting periods starting from January 2018. A performance obligation is a promise to transfer to the customer either ‘a good or service (or a bundle of goods or services) that is distinct’ or ‘a series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer’. not a performance obligation). IFRS 15 is the new standard on revenue to replace all existing revenue standards, including: The new Standard sets out a five-step model and is generally considered to be more detailed and prescriptive than existing guidance. Our multi-disciplinary approach and deep, practical industry knowledge, skills and capabilities help our clients meet challenges and respond to opportunities. The International Accounting Standards Board (IASB) has issued two major accounting standards, which will be effective in 2018: IFRS 15 Revenue from Contracts with Customers (IFRS 15, or the “Standard”) and IFRS 9 Financial Instruments. The new revenue standards, IFRS 15 and ASC 606, originally published in May 2014, are substantially converged.However, in 2016 the IASB and the FASB issued separate amendments to clarify their respective guidance and, in the case of the FASB, to provide some … The customer simultaneously receives and consumes the benefits of the entity’s performance as the entity performs. In this article, we shall consider the implications of IFRS 15 and its US Generally Accepted Accounting Principles (GAAP) counterpart, ASC 606 Revenue from Contracts with Customers (“ASC 606”). Outputs are the result of inputs and processes in a business and are goods or services finished and transferred to the customer. For companies involved in delivering complex and long-term projects, the impact of IFRS 15 or its US counterpart will be significant. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. We have identified a few areas which could have a significant impact on the current accounting for revenue for companies. The entity’s performance does not create an asset that the entity could use in any other way, and that throughout the duration of the contract the entity has an enforceable right to payment for performance completed to-date should the customer terminate the contract for its convenience before its termination date. ASC 606 / IFRS 15 Implementation Insights. As explained above, ESMA has provided guidance on the disclosures required in the 2017 financial statements. Some or all of the services described herein may not be permissible for KPMG audit clients and their affiliates or related entities. Additional to the two exceptions under IFRS 15, ASC 606 permits not including variable consideration in the disclosure of remaining performance obligations when variable consideration: – is a sales- or usage-based royalty for a license of intellectual property; or. Any reversal of the impairment loss is limited to the carrying amount, net of amortization, that would have been determined if no impairment loss had been recognized. The issues here are significant because the identification of more than one performance obligation in a contract means entities must: The timing of the recognition of revenue depends on the timing of the transfer of the promised good or service to a customer. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. 2018 is expected to be a year where changes to the financial reporting environment are so extensive, the implications will seep into the financial management of the company, Ben Levy, senior manager in Mazars’ Financial Reporting Advisory team, explains the impact of new financial reporting standards. Use simple configuration choices – and sidestep the need for scarce IT resources – to see your subscription business from numerous angles. We have identified the 10 key differences between IFRS 15 and ASC 606 that we believe are the most significant. However, businesses should also consider engaging with their shareholders through other means if they are aware of a significant impact on transition to the new Standard. Agency relationship). The deadline to comply the new ASC 606 / IFRS 15 revenue recognition is just around the corner. Before ASC 606, revenue recognition was done purely based on industry to bring consistency to revenue reporting. ASC 606 and IFRS 15 are the latest revenue recognition standards designed to reflect the new business standards. Other challenges to CFOs include the training of finance teams and communication to investors and other stakeholders. Global recovery hinges on vaccine, says Western Union strategist, Finance teams Brexit preparedness ‘alarming’, Finance teams still in early stages of digital transformation, Aligning strategy and execution with rolling forecasts, Digital Realty CFO on building relationships, Bunzl CFO on the importance of communication, L'Oréal CFO on driving growth during crisis, IFRS 15 Revenue from Contracts with Customers, The regulations having the biggest impact on data governance, IASB updates IFRS 15 revenue recognition standard, Connected Reporting: Taming The Finance Transformation Beast, Most businesses ill-prepared to handle IR35 tax changes, Cable pursues Government over Big Four audit domination, Woodhouse stays at Agent Provocateur as accounting probe continues, FRC proposes changes to reduced disclosure framework FRS 101, The Rules: FRS 102 presents an opportunity to rethink the way information is presented in financial statements, Allocating the transaction price to performance obligations, Allocate the revenue to each of the performance obligations identified (based on a prescribed approach) – a separate margin for each separately recognised performance obligation will need to be applied. 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