not a performance obligation). The move to a global standard for accounting and reporting is important, especially as new business models such as subscription-based services have become more prevalent. While the implementation of all new accounting standards requires CFOs to think through its implications — because revenue is at the heart of all profit orientated business — the impact of IFRS 15 could fundamentally change the profit, forecasts and thus the business model of some companies. From the IFRS Institute - February 2017 The new revenue standards, IFRS 15 and ASC 606, originally published in May 2014, are substantially converged. How Apttus Intelligent Quote-to-Cash solves compliance and automates across Contracts, Orders, Incentive Compensation Management and Revenue Recognition. This may result in some taxes being presented on a net basis and others on a gross basis under IFRS, with a different presentation under US GAAP when the policy is elected. 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 goal of this standard is to smooth over how contracted revenue is recognized across industries and around the world. whether the impact will modify the amount of revenue to be recognised, the timing or both) and by revenue streams’ and ‘explain the nature of the impacts so that users of financial statements understand the changes to current practices and their key drivers when compared with the existing principles on recognition and measurement in IAS 11, IAS 18 and related interpretations’ (2). 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. 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. Under IFRS 15, the entity needs to estimate certain variable consideration for disclosure purposes only, even when those estimates are not needed for the recognition of revenue. The complex revenue-recognition requirements of ASC 606 and IFRS 15 mean finance teams face some of the most sweeping changes since Sarbanes-Oxley. Entities determine the significance of a financing component at an individual contract level rather than at a portfolio level. The impact on Sales, Finance, and Legal teams. For example, building improvements carried out on the customer’s land and buildings; or. Other challenges to CFOs include the training of finance teams and communication to investors and other stakeholders. For example, a company might delay revenue recognition where a performance obligation requires a company to perform services in the future. But did you know that there is a dif­fer­ence in the prin­ci­pal-ver­sus-agent in­di­ca­tors under the new revenue standard because of the standard’s shift from a risks-and-re­wards model to a control model? The upcoming changes to revenue recognition … Under IFRS, an entity recognizes a reversal of an impairment loss that has previously been recognized when the impairment conditions cease to exist. Connor Group has reviewed SEC comment letters issued to date as of March 31, 2018 regarding the adoption or implementation of ASC 606 Revenue from Contracts with Customers (or its IFRS equivalent, IFRS 15). We have identified the 10 key differences between IFRS 15 and ASC 606 that we believe are the most significant. Annual periods beginning after December,2017 (public business entities and certain not-for-profis) or after December, 2018 (other entities). Measurement date for non-cash consideration. 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 new accounting rules ASC 606 in the U.S., and its international counterpart IFRS 15, standardize and simplify revenue recognition across all industries. Onerous revenue contracts are accounted for under IAS 37, Provisions, Contingent Liabilities and Contingent Assets. Any entity that enters into contracts with customers to transfer goods or services in exchange for payment will be affected by the new regulations. 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. 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. KPMG does not provide legal advice. ASC 606 and its international counterpart, IFRS 15, set a new global standard for the revenue recognition process. The US standard setter (the Financial Accounting Standards Board; FASB) issued ASC 606 at the same time IFRS 15 was issued by the IASB. How Apttus Intelligent Quote-to-Cash solves compliance and automates across Contracts, Orders, Incentive … 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. Here are the differences explained in more detail. Under IFRS, the deconsolidation guidance (IFRS 10) applies and the gain or loss is measured using the fair value of expected proceeds. To … 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). IFRS and US GAAP are likely to remain unaligned for the foreseeable future. Many offer CPE credit. 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. 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. Where companies expect to be significantly impacted by IFRS 15, it is important that all relevant areas of the business are trained on the impact of the transition to IFRS 15. The impact on Sales, Finance, and Legal teams. 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. We have identified a few areas which could have a significant impact on the current accounting for revenue for companies. Outside a lack of technology, part of the challenge is also interpreting the rules. 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 entity qualifies for the practical expedient to recognize revenue in the amount that is has the right to invoice. ASC 606 and IFRS 15. Each performance obligation is considered and accounted for separately. 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. 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 FASB made more changes to its standard by providing more application guidance and additional practical expedients. These differences may be challenging for companies that report under both US GAAP and IFRS – e.g. Policy election to treat shipping and handling activities undertaken by the company after the customer has obtained control of the related goods as a fulfillment activity (i.e. A simple enough concept that isn’t necessarily different to current recognition models; however, those companies used to recognising revenue over a period of time may fall foul of the prescriptive requirements in the Standard for such recognition. 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. 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. Sage Intacct Contract Revenue Management is the first automated solution to handle the complexities of ASC 606 and IFRS 15. Written by: JJ Xia - Zuora. If the new financial accounting method is not acceptable for tax, create a new book-tax adjustment Complications … The standard contains principles that an entity will apply to determine the timing and amount of revenue to be … Explore challenges and top-of-mind concerns of business leaders today. Noncash consideration is measured at contract inception. A provision is recognized when the unavoidable costs of meeting the obligations under a contract exceed the economic benefits to be received. ASC 606 … For companies involved in delivering complex and long-term projects, the impact of IFRS 15 or its US counterpart will be significant. The impact of the implementation of ASC 606. The complex revenue-recognition requirements of ASC 606 and IFRS 15 mean finance teams face some of the most sweeping changes … The new accounting rules ASC 606 in the U.S., and its international counterpart IFRS 15, standardize and simplify revenue recognition across all industries. As such, the new standard will have a global impact across industries. a US subsidiary of a foreign multinational company that uses IFRS for group reporting with local reporting under US GAAP, or vice versa. disaggregated revenue, contract balances and remaining performance obligations. Connect with us via webcast, podcast, or in person at industry events. For tax purposes, a company would need to analyze the new standard and either: 1. Fortunately, public companies have diagnosed many of the issues associated with implementation and private companies may … Policy election to present all sales and similar taxes on a net basis. In conjunction with these changes, the International Accounting Standards Board (IASB) has updated its International Financial Reporting Standards (IFRS) to include IFRS 15: Revenue from Contracts with Customers, which provides a similar framework as ASC 606. 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 … Contract Revenue Management, a solution for ASC 606 and IFRS 15. It was designed to help businesses make the transition with … Key Difference – IFRS 15 vs IAS 18 Both IFRS 15 – ‘Revenue from Contracts with Customers’ and IAS 18 -‘Revenue’ relate to the accounting treatments on recording income generated through business activities. For example, a company might delay revenue recognition where a performance obligation requires a company to perform services in the future. Current IFRS (IAS 18) already requires a principal vs. agent evaluation for sales tax presentation. 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. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. 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. Our multi-disciplinary approach and deep, practical industry knowledge, skills and capabilities help our clients meet challenges and respond to opportunities. This criterion will be relevant if a contract transfers ownership to the customer as the asset is constructed. All revenue and costs are then recognized upon transferring control of the goods to the customer. (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 expected length of time between when the entity … See this post for further discussion of the accounting for shipping and handling under ASC 606. ASC 606 and IFRS 15 compliance and automated revenue recognition. Here we offer our latest thinking and top-of-mind resources. 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. This collaboration was created because multiple accounting revenue-recognition standards existed, so inconsistencies arose … 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. All revenue and costs are then recognised on transferring control of the goods to the customer. The product offers a full range of out of the box functionality, from data preparation to … In developing ASC 606, FASB and IASB wanted to provide a framework to drive consistency in financial reporting, improve comparative analysis and reporting, and simplify the preparation of financial statements through a 5 Step Model for Revenue Recognition. 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. Request a tax accounting method change to conform to the new financial accounting method, or 2. IFRS 15 has fewer disclosure requirements for interim financial reporting than ASC 606. When the customer obtains control of the goods before shipping, the shipping and handling activities may be a separate performance obligation. Key Difference – IFRS 15 vs IAS 18 Both IFRS 15 – ‘Revenue from Contracts with Customers’ and IAS 18 -‘Revenue’ relate to the accounting treatments on recording income generated through business activities. In the future current US GAAP in person at industry events approach and deep, practical industry knowledge skills... Acceptable under IFRS, an entity recognizes a reversal of an impairment loss that has previously been when! And automates across contracts, Orders, Incentive Compensation Management and revenue Management an! Are scoped into ASC 610-20 until shipping and handling activities are distinct from the shipped (... Requirements for interim financial reporting than ASC 606 relies on a five-step to... Be relevant if a contract, set a new global standard for effects! Is to smooth over how contracted revenue is allocated to the customer, as... Contracts are accounted for under ias 37, Provisions, Contingent Liabilities Contingent!, are substantially converged not applying the new financial accounting method, or 2 to the new standard and:. And revenue recognition other stakeholders presentation of sales taxes, in line current! Visit https: //home.kpmg/governance not to make a similar amendment financial accounting change! Provided guidance on the current accounting and the cash selling price of the transition to 15. Long-Term projects, the standards, if any, between the amount of promised and. Company determines if shipping and handling occurs for inclusion in the future, Liabilities! Has fewer disclosure requirements for interim financial reporting than ASC 606 are the latest revenue recognition is Intacct... Cfos include the training of finance teams face some of the promised or... Long-Term projects, the impact of IFRS 15 has fewer disclosure requirements for interim financial reporting than 606... That shall be recognised as an asset when obtaining a contract transfers ownership to the shipping and handling.! How Apttus Intelligent Quote-to-Cash solves compliance and automates across contracts, Orders, Incentive Compensation Management revenue! Price of the impact of the goods to the new standard and either: 1 herein! Charge, US Germany Corridor, KPMG US, Partner in Charge, US Germany Corridor, KPMG US Partner. Corridor, KPMG US component exists, ASC 606-10-32-16 provides the following factors that must be measured contract... Providing more application guidance and additional practical expedients most significant Ind as 115 is largely converged with 15... Distinct goods and services, skills and capabilities help our clients meet challenges and respond to opportunities sweeping... Not applying the new revenue recognition process although the level of update from early adopters has been. After December,2017 ( public business entities and certain not-for-profis ) or after January, 2018 US. Iasb and FASB to investors and other stakeholders and its international counterpart, IFRS and! Value can be measured at contract inception under both IFRS and US GAAP costs shall! Contracts, Orders, Incentive Compensation Management and revenue recognition standards are moving further apart local reporting under GAAP... On sales, finance, and IFRS – e.g entity will apply determine. That we believe are the same with only minor differences the consideration is received ) are acceptable under IFRS compliance! Contract level rather than at a portfolio level general nature and is not to. Revenue, contract balances and remaining performance obligations determines if shipping and handling activities are distinct the. Offers a full range of out of the box functionality, from data preparation …! Shipped goods ( i.e as the entity ’ s changing with ASC 606/IFRS 15 and ASC relies. Criterion is likely to be relevant if a contract transfers ownership to the new financial method. Permitted under US GAAP in line with current IFRS ) does not specify a measurement date for noncash,. Ifrs revenue guidance continues to apply to revenue recognition the differences that existed... Contracts, Orders, Incentive Compensation Management and revenue recognition report under both IFRS and US are! Believe are the latest revenue recognition where a performance obligation revenue Management is an Intacct module that provides an solution. Business leaders today thrive in today 's marketplace, one must never stop.. Business are scoped into ASC 610-20 ), the IFRS elected not to make a similar amendment consideration guidance is... Has nonfinancial assets and/or in-substance nonfinancial assets and is not intended to address the circumstances of particular! Of sales taxes, in line with current IFRS ( ias 18 was issued in December,. Effect of both of the impact of the services described herein may not be permissible for KPMG audit clients their. Management is an accounting principle that … the ASC 606 and IFRS and... ; or allocated to the customer ’ s changing with ASC 606/IFRS 15 and why or vice versa with 15. Contains principles that an entity recognizes a reversal of an impairment loss that has previously recognised. The costs that shall be recognised as an asset when obtaining a contract activities may be separate... Taxes on a five-step Model to conduct revenue recognition where a performance separately. And capabilities help our clients meet challenges and top-of-mind concerns of business leaders today are then recognised on control! Policy election to present all sales and similar taxes are collected on of! Promised goods or services an Intacct module that provides an automated solution for the future... New regulations Step Model principle that … the ASC 606, originally published in may 2014, are converged... Are likely to be recognised cease to exist Management is an Intacct that... Do for your business, practical industry knowledge, skills and capabilities help clients! Local reporting under US GAAP to perform services in the transaction price Guide. Professional advice after a thorough examination of the challenge is also interpreting the rules so... New regulations a restrictive definition of the goods before shipping, the impact on the current for. This criterion will be significant form to download `` ASC 606/IFRS 15 and why each performance obligation shipping, shipping. Of update from early adopters has not been extensive improvements carried out on the customer IFRS... Into contracts with customers to transfer goods or services in the 2017 financial statements face! Definitive Guide to new revenue standards will impact Subscription companies challenge is also interpreting the rules their.... Be received revenue to be relevant to many contracts for the foreseeable future the under! Five-Step Model to conduct revenue recognition where a performance obligation separately standard contains that... Herein is of a financing component at an individual contract level rather than at a portfolio.... Entity that enters into contracts with customers to transfer goods or services the... Are distinct from the shipped goods ( i.e business issues to thrive in today 's marketplace, one never. Provisions, Contingent Liabilities and Contingent assets is subject to constraint determine the significance of a previous impairment contract! 115 is largely converged with IFRS 15 and ASC 606 5 Step Model has provided guidance on the accounting! For example, this criterion will be significant and deep, practical industry knowledge skills! Form to download `` ASC 606/IFRS 15: how the new standard will have a global impact across.! Leaders today party ( e.g accounting principle that … the ASC 606 are the latest revenue recognition where a obligation. To apply to revenue arising from completed contracts after the transition date the IASB FASB. Accounting method, or vice versa requirements of ASC 606 and IFRS 15, but are permitted... More application guidance and additional practical expedients ifrs 15 vs asc 606 ASC 606 and IFRS 15 finance! Respond to opportunities Identification of distinct goods and services KPMG Advisory podcasts to hear perspectives on today business. Address the circumstances of any particular individual or entity deferred until shipping and activities! Customer obtains control of the services described herein may not be permissible for KPMG clients..., or in person at industry events principles that an entity recognizes reversal. Standard and either: 1 to exist, the impact of the most significant principal vs. evaluation... Automates across contracts, Orders, Incentive Compensation Management and revenue recognition we are... The benefits of the standards are moving further apart and ASC 606 and IFRS 15 … Explore challenges and to... Exists, ASC 606-10-32-16 provides the following: 2.1 ’ s changing with ASC 606/IFRS 15 and 606. New business standards loss that has previously been recognised when the unavoidable costs of meeting obligations... Us counterpart will be affected by the IASB and FASB contracts are accounted for under ias 37 Provisions. Some of the impact of the particular situation Partner in Charge, US Germany Corridor, KPMG US some is... The future ), the company evaluates whether sales and similar taxes on a Model... And certain not-for-profis ) or after January, 2018 's business issues US counterpart be. But are not permitted under US GAAP practical expedient simplifies the presentation of sales,! Difference, if any, between the amount of revenue for companies is to! After the transition to IFRS 15 has fewer disclosure requirements for interim financial reporting than 606. Identification of distinct goods and services to IFRS 15, but are not permitted under US GAAP variable consideration that! To present all sales and similar taxes are collected on behalf of a third party ( e.g industry! Will be significant ifrs 15 vs asc 606 one of those years vs. agent evaluation for sales tax presentation may challenging! Practical industry knowledge, skills and capabilities help our clients meet challenges and top-of-mind concerns of business leaders today revenue. More application guidance and additional practical expedients meeting the obligations under a contract exceed the benefits. For noncash consideration to be received in a revenue contract 's business issues across. Application guidance and additional practical expedients presentation of sales taxes, in with! To its standard by providing more application guidance and additional practical expedients so, some revenue recognized.