This paper describes the development of the project to update the financial reporting of revenue from contracts with customers, which has now resulted in the issue of a new International Financial Reporting Standard (IFRS), and the views that ACCA has expressed during the various stages of this project.
The aims of the joint project carried out by the Financial Accounting Standards Board (FASB) in the US and the International Accounting Standards Board (IASB), were to establish common revenue reporting principles across industries, provide greater guidance on revenue recognition, improve the disclosures in financial statements, update international Standards, and simplify US Generally Accepted Accounting Practice. ACCA has been involved in the part of the consultation process led by the IASB, developing our views through the ACCA Global Forum for Corporate Reporting (and its predecessor, the ACCA Financial Reporting Committee).
The IASB and the FASB have sought to establish standard accounting practice for the types of contract where questions have arisen over the amount and timing of the revenue recognised. These uncertainties are due to factors such as the length of the contract, the number of separable components (distinct goods or services) in the contract, and the extent to which the contract product becomes tailored to the customer’s specific requirements over time. In addition, there is a need to reflect the risk of not receiving payment (‘credit risk’).
On the international side, the IFRS that has now been issued (IFRS 15 – entitled: Revenue from Contracts with Customers) will replace International Accounting Standard (IAS) 11 Construction Contracts, and IAS 18 Revenue, along with four related Interpretations. The FASB will issue its own Standard for use in the US.
ACCA has mainly supported the project, both its technical content and its aim of achieving further progress towards the global convergence of Accounting Standards. ACCA agrees that IFRS 15 should represent further progress to greater convergence between jurisdictions, by tackling the previous areas of uncertainty that inevitably risked creating diversity in practice.
The content of the IASB’s IFRS 15 is converged with the equivalent new US Standard issued by the FASB. In future, identical output from the two Boards may well be the exception. The IASB and the FASB have abandoned the principle of seeking to produce converged Standards in all cases, and although they still do not entirely disagree on all key accounting matters, their preparedness to ‘agree to differ’ is evident in recent developments in other accounting areas.