In May 2014, the IASB and the US national standard-setter, the FASB, jointly issued a new revenue Standard – IFRS 15 Revenue from Contracts with Customers and Topic 606 Revenue from Contracts with Customers. IFRS 15 provides a comprehensive framework for recognising revenue from contracts with customers.
Reasons for issuing the IFRS
Revenue is an important number to users of financial statements in assessing an entity’s financial performance and position. However, previous revenue recognition requirements in IFRS differed from those in US GAAP and both sets of requirements were in need of improvement. Previous revenue recognition requirements in IFRS provided limited guidance, and, consequently, the two main revenue recognition Standards, IAS 18 Revenue and IAS 11 Construction Contracts, could be difficult to apply to complex transactions. In addition, IAS 18 provided limited guidance on many important revenue topics such as accounting for multiple-element arrangements. In contrast, US GAAP comprised broad revenue recognition concepts together with numerous revenue requirements for particular industries or transactions, which sometimes resulted in different accounting for economically similar transactions.
Accordingly, the IASB and the US national standard-setter, the FASB initiated a joint project to clarify the principles for recognising revenue and to develop a common revenue standard for IFRS and US GAAP that would :
- remove inconsistencies and weaknesses in previous revenue requirements;
- provide a more robust framework for addressing revenue issues;
- improve comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets;
- provide more useful information to users of financial statements through improved disclosure requirements; and
- simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer.
IFRS 15, together with Topic 606 that was introduced into the FASB Accounting Standards Codification by Accounting Standards Update 2014-09 Revenue from Contracts with Customers (Topic 606), completes the joint effort by the IASB and the FASB to meet those objectives and improve financial reporting by creating a common revenue recognition standard for IFRS and US GAAP.
IFRS 15 will be effective for annual reporting periods beginning on or after 1 January 2017. Earlier application is permitted. If an entity applies this Standard earlier, it shall disclose the fact.
IFRS 15 supersedes the following Standards :
- IAS 11 Construction Contracts;
- IAS 18 Revenue;
- IFRIC 13 Customer Loyalty Programmes;
- IFRIC 15 Agreements for the Construction of Real Estate;
- IFRIC 18 Transfer of Assets from Customers; and
- SIC-31 Revenue-Barter Transactions Involving Advertising Services
Latest, on 22 July 2015 the IASB issued a press release letter which confirmed a one-year deferral of effective date of IFRS 15 to 1 January 2018.
The revenue Standard was issued jointly by the IASB and the US Financial Accounting Standards Board (FASB) in May 2014 with an effective date of 1 January 2017. Both Boards have now confirmed a one-year deferral of the effective date. Companies applying IFRS continue to have the option to apply the Standard earlier if they wish to do so.