The International Accounting Standards Board (IASB) and US Financial Accounting Standards Board (FASB) have announced the rollout plan for the revised global accounting standard for revenue recognition, reports Harris & Co Chartered Accountants Northampton.
At a video conference board meeting on 20 February, the boards continued their joint negotiations on the revised Exposure Draft, Revenue from Contracts with Customers.
Reflecting the complexity of the proposed changes, the boards agreed a four-year transition period for entities to apply the revenue standard. The full standard will be mandatory for reporting periods beginning on or after 1 January 2017, allowing companies a longer than usual period to assess the implications of the new standard and apply the accounting standard.
The construction and telecoms sectors have both expressed concerns about plans to change the reporting requirements for revenue recognition, particularly on new builds and mobile phone contracts. Richard Cameron, CFO of BT’s retail division, the proposals ‘will increase complexity, cause a disconnect between revenue and cash receipts, therefore driving volatility and increasing costs. Additionally, the users of financial statements say it will provide less information. If we report in the way the proposal currently stands, it’ll be hard to see which group will benefit as a result of this.’
It is hoped that the final drafting of the standard will iron out discrepancies for most affected sectors, although there is a balance to strike so that the new revenue recognition standard meets the needs of wider business.
It was also agreed that an entity could apply the new revenue standard retrospectively. In cases, where organisations wanted to adopt a transitional move to the new standard, entities would have to apply the new revenue standard only to contracts that are not completed under legacy International Financial Reporting Standards (IFRS) or US GAAP at the date of initial application (for example, 1 January 2017, for an entity with a 31 December year-end.
Under early transition to the new revenue standard, entities would also have to recognise the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings in the year of initial application (that is, comparative years would not be restated); and provide a number of additional disclosures on financial statements, including an explanation of the significant changes between the reported results under the new revenue standard and legacy IFRS/US GAAP.
Staff at the boards will now start drafting the final revenue standard. Any outstanding and new ‘sweep’ issues will be raised at future board meetings.
Further details are available from the FASB.