Ifrs15 Analysis

Does the IFRS 15 model pose a difficulty for users of the financial statements?

Revenue is one of the most important measure to both preparers and users of the financial statements. Information about revenue is used to assess a company’s financial performance and position. As a result, revenue recognition is one of the accounting topics most scrutinized by investors and regulators.

There were several concerns with existing requirements for revenue recognition under both International Financial Reporting Standard (IFRS) and US General Accepted Accounting Principles (GAAP) and as such revenue recognition under both framework needed improvement. The disclosures required by U.S. GAAP and IFRS often did not provide the level of detail investors and other users needed to understand an entity’s revenue-generating activities and the key judgments and estimates that had been made in its recognition.

In order to correct the inconsistencies and weaknesses of the current Standards and to cater for the emerging complex revenue transactions, the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB) initiated a joint project to develop a single revenue standard containing comprehensive principles for recognizing revenue that would: (a) remove inconsistencies and weaknesses in existing revenue recognition frameworks; (b) provide a more robust framework for addressing revenue issues; (c) simplify financial statement preparation by streamlining and reducing the volume of guidance; and (d) provide more useful information to financial statement users through enhanced disclosures. While it has been collectively formulated and embodies identical principles & guidance, the two agencies have issued individual standards – IFRS15 by IASB and ASC606 by FASB.

International Financial Reporting Standard 15 Revenue from Contract with Customers (IFRS 15) establishes principles for reporting useful information to users of financial statements...