IFRS 15 Revenue from Contracts with Customers represents the culmination of more than five years of cooperation between the International Accounting Standards Board (IASB) and the U.S. Financial Accounting Standards Board (FASB), and will affect almost every revenue-generating business that applies International Financial Reporting Standards (IFRS). While achieving convergence has been challenging and sometimes controversial, we believe the new standard will provide a major boost for investors looking to compare company performance across borders.
IFRS 15 will apply to most revenue arrangements, including construction contracts. Among other things, it changes the criteria for determining whether revenue is recognized at a point in time or over time. IFRS 15 also has more guidance in areas where current IFRS are lacking – such as multiple element arrangements, variable pricing, rights of return, warranties and licensing.
The actual impact on each company’s top line will depend on their specific customer contracts and how they have applied existing standards. For some it will be a significant shift, and systems changes will be required, while others may see only minor changes. With IFRS 15 taking effect in 2018, management should begin their impact assessment now.
