A new revenue standard – is it what we have all been waiting for?
29 May 2014
The IASB and FASB have issued their converged standard on revenue recognition. Yes, the day that everyone has been waiting for has finally come. It is not that I am not excited about it all – I am an accountant after all - but it is not the day I have been waiting for. I am still patiently waiting - looking forward to a day about three years from now. Why? Well, let me explain.
In practice, revenue doesn’t generally create big challenges today - but maybe that is because we don’t have much to go on. There is limited to no guidance on complex transactions, for example, multiple element arrangements, variable consideration, and licences. On the other hand, US GAAP preparers have thousands of pieces of guidance on how to account for revenue.
The boards’ objective was not about redefining accounting for revenue but rather they were looking for a single converged standard that probably fell somewhere in between guidance today and under IFRS and US GAAP. ‘Somewhere in between’ was not a hard target given the big gap. But where in that gap have we landed?
IFRS 15’s standard and implementation guidance is 87 pages long with another 175 pages for the basis for conclusions. These are accompanied by 63 examples ranging across a number of industries. Is this enough? Surely it is, given that we have lived with much less to date.
But it only takes a few to disagree. It will start right away – thousands of pages will be written about the new standard, what it means for this industry and that industry, practical examples and so on. And then there will be the newly formed revenue implementation group. While not designed to issue authoritative guidance, it is unlikely to get away with no written record of discussions.
This is where the day three years from now becomes important. What do I expect by then? Plenty more will have been written on the subject but how much more and what will really have changed? Who will have recognised revenue earlier, who later? It’s difficult to say.
Do write back then, as I am sure we will be able to give you the stats on how many more pages we have written. And more importantly, what do you think the practical impact of the new standard will be?