IFRS and US GAAP are likely to remain unaligned for the foreseeable future. Determine the obligating event for recognition of revenue for each performance obligation separately. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. In an effort to simplify the transition, both GAAPs permit not applying the new requirements to completed contracts. However, four ASUs later, the standards are moving further apart. IFRS 15 is effective for periods commencing on or after 1 January 2018. In addition, ESMA ‘expects that entity-specific quantitative and qualitative disclosures about the application of the new standards will be provided’ and that since ‘the 2017 annual financial statements will be published after the requirements in IFRS 9 and IFRS 15 (and IFRS 16, if early adopted) will have become effective, ESMA expects that issuers will have substantially completed their implementation analyses (1). Because the definition of a completed contract differs and US GAAP permits entities to apply the new standard either just to open contracts or to both open and completed contracts, the population of contracts to analyze may differ. Under US GAAP (ASC 610-20), the company estimates the transaction price following the variable consideration guidance that is subject to constraint. And it takes care of the various designations—contract asset, unbilled receivable, billed receivable, paid, or contract liability—of revenue from contracts. 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 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’. 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. The revenue recognition principle describes that revenue should be recognized on the income statement in the period when it is realized and earned, and not necessarily when money is received. The IFRS 15/ASC 606 standard’s detailed disclosure requirements arose in part because regulators and the board members believed that existing financial statements inadequately disclosed revenue information and because of the nature of the new revenue recognition standard which requires more judgments and estimation. Delivered to you weekly, straight to your inbox. (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. Some or all of the services described herein may not be permissible for KPMG audit clients and their affiliates or related entities. disaggregated revenue, contract balances and remaining performance obligations. Thankfully, the new ASC 606 standards simplify and clarify a lot of accounting principles when it comes to SaaS, so read on for an overview of what that means for you, and guidance on how you can implement it. All rights reserved. Join us for upcoming webcast events. The combined effect of both of the following: 2.1. Outside a lack of technology, part of the challenge is also interpreting the rules. This means the delivery of the committed … Completed contract for the purposes of transition is a contract for which the company has transferred all of the goods or services identified under legacy IFRS, regardless of whether all of the revenue has been recognized. The impact on Sales, Finance, and Legal teams. Financial statements are required to disclose the impact of forthcoming accounting standards; therefore we should be able to have first sight of how market leaders in their sectors have been affected. Explore challenges and top-of-mind concerns of business leaders today. When the customer obtains control of the goods before shipping, the shipping and handling activities may be a separate performance obligation. US GAAP has no general guidance for recognizing a provision for onerous contracts, but instead focuses either on types of contracts or on industry-specific arrangements. Connect with us via webcast, podcast, or in person at industry events. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. The US GAAP policy election simplifies the accounting and accelerates recognition of the revenue and costs relating to the shipping and handling activities in comparison to IFRS. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. KPMG does not provide legal advice. There’s a corresponding tweak to international accounting standards called IFRS 15. The US GAAP policy election simplifies the accounting and may accelerate recognition of the revenue and costs relating to the shipping and handling activities in comparison to IFRS, which is silent on the issue. The company evaluates whether sales and similar taxes are collected on behalf of a third party (e.g. Fresh standards changes are approaching fast in the form of ASC 606 (and the jointly-developed IFRS 15), and now’s the perfect time to get compliant. not a performance obligation). In the situation where the customer obtains control of the goods before shipping, the shipping and handling activities may be a separate performance obligation. Improving business performance, turning risk and compliance into opportunities, developing strategies and enhancing value are at the core of what we do for leading organizations. An entity needs to disclose the aggregate amount of the transaction price allocated to unsatisfied or partially satisfied performance obligations and when it expects to recognize this amount as revenue, unless: –   the contract is one year or less; or. Similar to annual disclosures -- e.g. US GAAP vs IFRS: Key Similarities. Revenue recognition: IFRS 15 and ASC 606 were issued; Lease accounting: IFRS 16 and ASC 842 were issued; Financial instruments: IFRS 9 was completed and FASB issued many subtopics such as 815-10, 820-10, 825-10, 946-320; ASC 860); Insurance: IFRS 17 and ASC 944 were issued. 4) and most other current revenue recognition guidance (including other industry-specific guidance). 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. Peush Patel - Zuora. In other words, the output method measures results achieved. For the first time in several decades, the organizations that establish accounting and reporting standards for public and private companies – the Financial Accounting Standards Board (FASB) in the USA and the International Accounting Standards … 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. ESMA guidance on the disclosure objective includes their expectation for issuers to ‘provide information about the accounting policy choices that are to be taken upon first application of IFRS 15’, ‘disaggregate the expected impact depending on its nature (i.e. There are some years in the life of a company where changes to the financial reporting environment are so extensive that the implications of change can seep into the financial management, decision making and costs of the company. The company determines if shipping and handling activities are distinct from the shipped goods (i.e. IFRS 15 (as with current IFRS) does not specify a measurement date for noncash consideration to be received in a revenue contract. The US standard setter (the Financial Accounting Standards Board; FASB) issued ASC 606 at the same time IFRS 15 was issued by the IASB.  Although substantially converged when originally published, subsequent amendments have resulted in a few areas of divergence between the two standards, which are important to identify for US GAAP preparers and UK subsidiaries of US groups. By now, most companies have a plan to address ASC 606 and IFRS 15, however, not all of them are taking an integrated approach between sales, operations, and finance to implement the new rules. Revenue is a core element of the financial function and it is the prime identifier of your business' performance. 13th February 2018 IFRS 15 & ASC 606 | revenue recognition The first issue our Project Manager faced at this growing company was around their manual high touch environment. Contract and Revenue Management is an Intacct module that provides an automated solution for the effects of ASC 606 and IFRS 15. © 2020 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. Here are the differences explained in more detail. The difference, if any, between the amount of promised consideration and the cash selling price of the promised goods or services. We will continue to update this publication periodically for new developments. Sales of a subsidiary or equity method investee continue to be accounted for under the deconsolidation guidance (IFRS 10 and IAS 28, respectively). Fair value can be measured at contract inception under both IFRS and US GAAP. 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. Most companies who are therefore about to start their 2018 financial year will be in the same position and will need to account for their revenue under IFRS 15 for the first time. 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. A provision is recognized when the unavoidable costs of meeting the obligations under a contract exceed the economic benefits to be received. Â. The US GAAP practical expedient simplifies the presentation of sales taxes, in line with current US GAAP. Many offer CPE credit. Mandatory effective dates and early adoption provisions: Annual periods: For public business entities and certain not-for-profit entities* the effective date for annual periods is the fiscal years beginning after Dec. 15, 2017. Â. Noncash consideration, such as shares or advertising, is measured at fair value for inclusion in the transaction price. or. Identification of performance obligations. Communication of the impact of the transition to IFRS 15. Early adoption is permitted, although the level of update from early adopters has not been extensive. The new revenue standards, IFRS 15 and ASC 606, originally published in May 2014, are substantially converged. Sales of nonfinancial assets and in-substance nonfinancial assets scoped in ASC 610-20 are accounted for using the contract existence, separation, measurement and derecognition guidance in ASC 606. Although most of these new developments brought US GAAP and IFRS closer together, some other … For more detail about the structure of the KPMG global organization please visit https://home.kpmg/governance. Policy election to present all sales and similar taxes on a net basis. 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. In fact, that makes it even … Revenue from Contracts with Customers — A guide to IFRS 15 21 Mar 2018 This detailed guide is intended to assist preparers and users of financial statements to understand the impact of IFRS 15 and includes a high-level executive summary of the new requirements, followed by a specific focus on the important issues and choices available for entities on transition to the new Standard. ASC 606 Subscription & IFRS 15: How the new Revenue Standards will impact Subscription Companies. The IASB has made it clear that IFRS preparers are not required to consider the decisions of the FASB and the US Transition Resource Group for Revenue Recognition for guidance in applying IFRS 15. Nonpublic entities in the United States may therefore decide not to take advantage of the one year deferral offered by ASC 842 if they are also IFRS preparers. Annual periods beginning on or after January, 2018. ... Company that is comparing US GAAP to IFRS; Effective dates. Here we offer our latest thinking and top-of-mind resources. Get compliant with the new ASC 606 & IFRS 15 standards. The deadlines for private companies to comply with new FASB accounting and reporting standards is less than a year away. 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. Comparing the New Revenue Recognition Standards: IFRS 15 and ASC 606 (August 30, 2016) As originally issued, IFRS 15 and ASC 606 were very similar with very little difference between the two standards. This release reflects guidance effective in 2019 and guidance finalized by the FASB and the IASB generally as of … KPMG’s insights on the latest of everything you need to know about ASC 606. Under IFRS, the deconsolidation guidance (IFRS 10) applies and the gain or loss is measured using the fair value of expected proceeds. Annual periods beginning after December,2017 (public business entities and certain not-for-profis) or after December, 2018 (other entities). With more international understanding and a closer alignment of global accounting standards when doing business, the possibility for increased capital flow and international investments could increase. Contract Revenue Management, a solution for ASC 606 and IFRS 15. ASC 606 and IFRS 15. As explained above, ESMA has provided guidance on the disclosures required in the 2017 financial statements. Since the new revenue standard was released, companies have been hard at work to achieve compliance. For example, maintenance services which do not represent significant improvements to an asset; or, The entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced. Overall, transition options are slightly different between the two GAAPs, so that opening numbers may not be similar under IFRS and US GAAP. 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