However, four ASUs later, the standards are moving further apart. Under IFRS 15, revenue will be recognised over time if it can be shown that either: Capitalisation of costs of obtaining a contract. A performance obligation is a promise to transfer to the customer either ‘a good or service (or a bundle of goods or services) that is distinct’ or ‘a series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer’. This may result in some taxes being presented on a net basis and others on a gross basis under IFRS, with a different presentation under US GAAP when the policy is elected. ASC Topic 606 and ASC Subtopic 340-40 (ASU 2014-09, ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-11, ASU 2016-12, ASU 2016-20, ASU 2017-13, ASU 2017-14, ASU 2018-07, ASU 2018-08, ASU 2018-18) 1. 1 ASC 606/IFRS 15: THE DEFINITIVE GUIDE TO NEW REVENUE RECOGNITION RULES ASC 606/IFRS 15: The Definitive Guide to … IP is considered functional if it has significant standalone functionality Gone are the days of thinking of a contract as a singular transaction; the performance obligation is now the new unit of account in revenue recognition. IFRS. Any reversal of the impairment loss is limited to the carrying amount, net of amortization, that would have been determined if no impairment loss had been recognized. But did you know that there is a difference in the principal-versus-agent indicators under the new revenue standard because of the standard’s shift from a risks-and-rewards model to a control model? Effective date. 12 The convergence of ASC 606 and IFRS 15 impact … The ASC 606 5 Step Model. IFRS 15 and ASC 606 are the same with only minor differences. Reversal of previously impaired contract acquisition and contract fulfilment costs. This is in addition to the differences that already existed in the original versions of the standards. The underlying principle is that an entity will recognise revenue to depict the transfer of goods or services to Connor Group has reviewed SEC comment letters issued to date as of March 31, 2018 regarding the adoption or implementation of ASC 606 Revenue from Contracts with Customers (or its IFRS equivalent, IFRS 15). Current guidance is unchanged except for losses on long-term construction- and production-type contracts, where an entity is allowed to determine the provision for losses at either the contract level or the performance obligation level. Sales of a subsidiary or group of assets that constitutes a business or not-for-profit activity continue to be accounted for under the deconsolidation guidance (ASC 810). Any entity that enters into contracts with customers to transfer goods or services in exchange for payment will be affected by the new regulations. Here we offer our latest thinking and top-of-mind resources. IFRS 15 has fewer disclosure requirements for interim financial reporting than ASC 606. IAS 18 was issued in December 1993, and IFRS 15 will be effective for accounting periods starting from January 2018. However, businesses should also consider engaging with their shareholders through other means if they are aware of a significant impact on transition to the new Standard. Noncash consideration, such as shares or advertising, is measured at fair value for inclusion in the transaction price. Sales of a subsidiary that only has nonfinancial assets and/or in-substance nonfinancial assets and is not a business are scoped into ASC 610-20. The move to a global standard for accounting and reporting is important, especially as new business models such as subscription-based services have become more prevalent. While the implementation of all new accounting standards requires CFOs to think through its implications — because revenue is at the heart of all profit orientated business — the impact of IFRS 15 could fundamentally change the profit, forecasts and thus the business model of some companies. In March 2016, the FASB issued ASU 2016-08,4which amended the principal-versus-agent imple… In this article, we shall consider the implications of IFRS 15 and its US Generally Accepted Accounting Principles (GAAP) counterpart, ASC 606 Revenue from Contracts with Customers (“ASC 606”). However, in 2016 the IASB and the FASB issued separate amendments to clarify their respective guidance and… not a performance obligation). 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Determine the obligating event for recognition of revenue for each performance obligation separately. © 2020 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. The expected length of time between when the entity … Although substantially converged when originally published, subsequent amendments have resulted in a few areas of divergence between the two standards, which are important to identify for US GAAP preparers and UK subsidiaries of US groups. For example, maintenance services which do not represent significant improvements to an asset; or, The entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced. The difference, if any, between the amount of promised consideration and the cash selling price of the promised goods or services. New guidance Current US GAAP Current IFRS US GAAP Under ASC 606, IP that is licensed to a customer is classified as either “functional IP” (e.g., music, film, software or completed media content) or “symbolic IP” (e.g., brand names or logos). Components of a Contract (IFRS-15/ASC (606-10-25-2) b) … What’s changing with ASC 606/IFRS 15 and why. Foreign Private Issuers that file IFRS financial statements will face a more subtle issue. Entities determine the significance of a financing component at an individual contract level rather than at a portfolio level. The US GAAP policy election simplifies the accounting and may accelerate recognition of the revenue and costs relating to the shipping and handling activities in comparison to IFRS, which is silent on the issue. However, it is expected that all companies should be determining the impacts through an internal transition project, so that this can be communicated externally, if required. Annual periods beginning after December,2017 (public business entities and certain not-for-profis) or after December, 2018 (other entities). Transition to ASC 606 / IFRS 15: Revenue from Contracts with Customers summarizes the way the new revenue recognition rules require change to current practice and the critical insights that will facilitate … Onerous revenue contracts are accounted for under IAS 37, Provisions, Contingent Liabilities and Contingent Assets. This model covers the following: The transition between the old and new rules will create several M&A challenges, explain experts from Berkeley Research Group, Effective data governance is reliant on data integrity and uniformity and with a raft of new regulation on data governance, organisations need to understand what is expected of them, IASB clarifies how to apply IFRS 15 revenue recognition standard. Thankfully, the new ASC 606 standards simplify and … To meet this disclosure objective, the European Securities Markets Authority (ESMA) has issued what can only be interpreted as a warning shot to companies, as well as further guidance on the matter. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For tax purposes, a company would need to analyze the new standard and either: 1. Written by: JJ Xia - Zuora. Transition to ASC 606 / IFRS 15: Revenue from Contracts with Customers summarizes the way the new revenue recognition rules require change to current practice and the critical insights that will facilitate a successful transition to the new world of accounting and financial reporting for revenue. ASC 606 Subscription & IFRS 15: How the new Revenue Standards will impact Subscription Companies. The International Accounting Standards Board (IASB) has issued two major accounting standards, which will be effective in 2018: IFRS 15 Revenue from Contracts with Customers (IFRS 15, or the “Standard”) and IFRS 9 Financial Instruments. Early adoption is permitted, although the level of update from early adopters has not been extensive. Connect with us via webcast, podcast, or in person at industry events. All revenue and costs are then recognised on transferring control of the goods to the customer. ASC 606/IFRS 15 In ASC 606 and IFRS 15, Revenue recognition criteria are applied separately for each Performance Obligation (POB). Legacy IFRS revenue guidance continues to apply to revenue or adjustments to revenue arising from completed contracts after the transition date. The combined effect of both of the following: 2.1. Sales of nonfinancial assets and in-substance nonfinancial assets scoped in ASC 610-20 are accounted for using the contract existence, separation, measurement and derecognition guidance in ASC 606. Comparing the New Revenue Recognition Standards: IFRS 15 and ASC 606 (August 30, 2016) As originally issued, IFRS 15 and ASC 606 were very similar with very little difference between … An entity needs to disclose the aggregate amount of the transaction price allocated to unsatisfied or partially satisfied performance obligations and when it expects to recognize this amount as revenue, unless: – the entity qualifies for the practical expedient to recognize revenue in the amount that is has the right to invoice. However, in 2016 the IASB and the FASB issued separate amendments to clarify their respective guidance and, in the case of the FASB, to provide some practical expedients to the requirements. Fresh standards changes are approaching fast in the form of ASC 606 (and the jointly-developed IFRS 15), and now’s the perfect time to get compliant. These steps define the contract established with the customer, what the company is providing, and what each party is receiving in the exchange. Peush Patel - Zuora. IFRS 15 (as with current IFRS) does not specify a measurement date for noncash consideration to be received in a revenue contract. ESMA highlights the fact that while they have ‘identified a number of informative qualitative disclosures on the implementation of the new standards, practice has varied concerning the specificity of the information provided’, they ‘expected a higher level of disclosure of the quantitative impact of the new standards’. If the new financial accounting method is not acceptable for tax, create a new book-tax adjustment Complications … Under IFRS, the deconsolidation guidance (IFRS 10) applies and the gain or loss is measured using the fair value of expected proceeds. If so, some revenue is allocated to the shipping activity and deferred until shipping and handling occurs. Private companies face significant changes from ASC 606 or IFRS 15. In some cases revenue will be recognised over time and in others at completion, depending on the way control of the underlying good or service is transferred to the customer, or possibly, the nuances in the wording of the contract. The US GAAP policy election simplifies the accounting and accelerates recognition of the revenue and costs relating to the shipping and handling activities in comparison to IFRS. If the new financial accounting method is not acceptable for tax, create a new book-tax adjustment Complications … Again, the IFRS elected not to make a similar amendment. The goal of this standard is to smooth over how contracted revenue is recognized across industries and around the world. Each performance obligation is considered and accounted for separately. Request a tax accounting method change to conform to the new financial accounting method, or 2. Sales of a subsidiary or equity method investee continue to be accounted for under the deconsolidation guidance (IFRS 10 and IAS 28, respectively). Archived recordings can be accessed anytime. Delivered to you weekly, straight to your inbox. US GAAP has no general guidance for recognizing a provision for onerous contracts, but instead focuses either on types of contracts or on industry-specific arrangements. The US standard setter (the Financial Accounting Standards Board; FASB) issued ASC 606 at the same time IFRS 15 was issued by the IASB. A provision is recognized when the unavoidable costs of meeting the obligations under a contract exceed the economic benefits to be received. Contract Revenue Management, a solution for ASC 606 and IFRS 15. Any entity that enters into contracts with customers to transfer goods or services in exchange for payment will be affected by the new regulations. What are ASC 606 and IFRS 15? Explore challenges and top-of-mind concerns of business leaders today. Looking at the new standard, Wipfli LLP seeks to provide readers with some perspective on the changes and some of the best practices to prepare for FASB ASC 606 and IASB IFRS 15. Identification of performance obligations. What do IFRS 15 and ASC 606 mean for your business? It was designed to help businesses make the transition with peace of mind that they’re managing their data and reporting with both accuracy and visibility, both today and after all the reporting changes take effect in 2018. Policy election to treat shipping and handling activities undertaken by the company after the customer has obtained control of the related goods as a fulfillment activity (i.e. Yes, that’s after the Financial Accounting Standard Board's (FASB's) Accounting Standard Codification (ASC) 606 and the International Accounting Standards Board's (IASB's) International Financial Reporting Standard (IFRS) 15, take effect for public companies, but these new guidelines bring with them significant shifts and concepts that don’t exist under the current revenue recognition model. We have identified the 10 key differences between IFRS 15 and ASC 606 that we believe are the most significant. 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