Again, the IFRS elected not to make a similar amendment. IFRS 15 has fewer disclosure requirements for interim financial reporting than ASC 606. However, we still see many companies without any proper preparation. 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. For companies involved in delivering complex and long-term projects, the impact of IFRS 15 or its US counterpart will be significant. IFRS 15 is the new standard on revenue to replace all existing revenue standards, including: The new Standard sets out a five-step model and is generally considered to be more detailed and prescriptive than existing guidance. To thrive in today's marketplace, one must never stop learning. No policy election. Revenue Recognition criteria as per Ind AS 18 are to … 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. All rights reserved. Roles have changed, new systems and processes have been implemented and a huge amount of data is now available. With Sage Intacct, you can automatically handle your ASC 606 and IFRS 15 compliance. A provision is recognized when the unavoidable costs of meeting the obligations under a contract exceed the economic benefits to be received. There’s a corresponding tweak to international accounting standards called IFRS 15. 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. 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. However, other dates (e.g. 606 is primarily principal-based, so how the rules apply to each business is not absolutely clear. For example, as seen above, the timing of the recognition of revenue could be impacted by the contractual terms, such as the right to be paid. when the consideration is received) are acceptable under IFRS 15, but are not permitted under US GAAP. IAS 18 was issued in December 1993, and IFRS 15 will be effective for accounting periods starting from January 2018. Annual periods beginning after December,2017 (public business entities and certain not-for-profis) or after December, 2018 (other entities). ASC 606 / IFRS 15 is nearly here! Completed contract for the purposes of transition is a contract for which all (or substantially all) of the revenue was recognized under legacy GAAP. Fair value can be measured at contract inception under both IFRS and US GAAP. –   meets the criteria to be allocated entirely to a wholly unsatisfied performance obligation, or to a wholly unsatisfied distinct good or service that is part of a single performance obligation under the series guidance. In practice, this right to be paid, evidenced by the contractual terms and/or the applicable legal framework, must cover the costs incurred up to the termination date, plus a reasonable margin. 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. Many variations of these processes have been implemented by our customers. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. What do IFRS 15 and ASC 606 mean for your business? In the situation where the customer obtains control of the goods before shipping, the shipping and handling activities may be a separate performance obligation. Currently, not all industries will use ASC 606 … 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). Under IFRS, an entity recognises a reversal of an impairment loss that has previously been recognised when the impairment conditions cease to exist. The upcoming changes to revenue recognition standards are more than just a headache for your finance department. Sales of a subsidiary or equity method investee continue to be accounted for under the deconsolidation guidance (IFRS 10 and IAS 28, respectively). A company’s tax position may be impacted by adopting ASC 606 or IFRS 15. The US standard setter (the Financial Accounting Standards Board; FASB) issued ASC 606 at the same time IFRS 15 was issued by the IASB. Non-cash consideration, such as shares or advertising, must be measured at fair value for inclusion in the transaction price. Find out what KPMG can do for your business. Corporate strategy insights for your industry, Explore Corporate strategy insights for your industry, Financial Services Regulatory Insights Center, Explore Financial Services Regulatory Insights Center, Explore Risk, Regulatory and Compliance Insights, Explore Corporate Strategy and Mergers & Acquisitions, Customer service transformation & technology. Agency relationship). For companies involved in delivering complex and long-term projects, the impact of IFRS 15 or its US counterpart will be significant. 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). The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. a performance obligation). industries. Sales of nonfinancial assets, such as property, plant and equipment (IAS 16), intangible assets (IAS 38) and investment property (IAS 40), are accounted for using the measurement and derecognition guidance of IFRS 15. For example, this criterion is likely to be relevant to many contracts for the construction of highly customised assets. Like ASC 606 and IFRS 15, India too has accounting standards that provide guidelines for standardized revenue recognition to simplify taxation in India’s burgeoning economy, and this standard is known as the Ind AS 18. 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. IFRS 15 and ASC 606 are the same with only minor differences. 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. Similar to annual disclosures -- e.g. Webinette Series - Financial Management Toolbox: Complying with the new Revenue Recognition Standards ASC 606 and IFRS 15. There are some years in the life of a company where changes to the financial reporting environment are so extensive that the implications of change can seep into the financial management, decision making and costs of the company. The SAP Business ByDesign implementation has opted to derive the standalone selling price at sales order item level and aggregates the sales order item SSPs in case multiple sales order items form a single POB (see also case example: compound POB). Because the definition of a completed contract differs and US GAAP permits entities to apply the new standard either just to open contracts or to both open and completed contracts, the population of contracts to analyze may differ. From the IFRS Institute - February 2017. How Apttus Intelligent Quote-to-Cash solves compliance and automates across Contracts, Orders, Incentive Compensation Management and Revenue Recognition. The company evaluates whether sales and similar taxes are collected on behalf of a third party (e.g. 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. The issues here are significant because the identification of more than one performance obligation in a contract means entities must: The timing of the recognition of revenue depends on the timing of the transfer of the promised good or service to a customer. Fair value can be measured at contract inception under both IFRS and US GAAP. ASC 606 Subscription & IFRS 15: How the new Revenue Standards will impact Subscription Companies. The standard contains principles that an entity will apply to determine the measurement of revenue and timing of when it is recognised. Some of the key differences between IFRS 15 and ASC 606 are as follows: Identification of distinct goods and services. 12 The convergence of ASC 606 and IFRS 15 impact accounting and reporting standards at a global scale, affecting investors, accounting professionals, stock markets, corporate management, and more. The US GAAP practical expedient simplifies the presentation of sales taxes, in line with current US GAAP. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. This collaboration was created because multiple accounting revenue-recognition standards existed, so inconsistencies arose when accounting for contract revenues, and the other reason is to attain high-quality accounting standards globally which is the ultimate goal of ISAB. Under IFRS, the deconsolidation guidance (IFRS 10) applies and the gain or loss is measured using the fair value of expected proceeds. Onerous revenue contracts are accounted for under IAS 37, Provisions, Contingent Liabilities and Contingent Assets. The impact of the implementation of ASC 606. Thankfully, the new ASC 606 standards simplify and clarify a lot of accounting principles when it comes to SaaS, so read on for an overview of what that means for you, and guidance on how you can implement it. Tune in to KPMG Advisory podcasts to hear perspectives on today's business issues. The entity’s performance does not create an asset that the entity could use in any other way, and that throughout the duration of the contract the entity has an enforceable right to payment for performance completed to-date should the customer terminate the contract for its convenience before its termination date. when the consideration is received) are acceptable under IFRS 15, but are not permitted under US GAAP. IFRS 15 establishes a restrictive definition of the costs that shall be recognised as an asset when obtaining a contract. The new revenue standards, IFRS 15 and ASC 606, originally published in May 2014, are substantially converged. This is in addition to the differences that already existed in the original versions of the standards. 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. Any entity that enters into contracts with customers to transfer goods or services in exchange for payment will be affected by the new regulations. Some or all of the services described herein may not be permissible for KPMG audit clients and their affiliates or related entities. Except for the amendment to the principal vs. agent guidance (revenue being presented on a gross or net basis), these amendments may create differences in certain areas. of Professional Practice, KPMG LLP, Partner in Charge, US Germany Corridor, KPMG US. 1 ASC 606/IFRS 15: THE DEFINITIVE GUIDE TO NEW REVENUE RECOGNITION RULES ASC 606/IFRS 15: The Definitive Guide to New Revenue Recognition Rules In what has been described as one of the largest changes to GAAP in the past decade, 2014 marked a year in which the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) sought to bring consistency … Use simple configuration choices – and sidestep the need for scarce IT resources – to see your subscription business from numerous angles. 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. not a performance obligation). We have identified a few areas which could have a significant impact on the current accounting for revenue for companies. See this post for further discussion of the accounting for shipping and handling under ASC 606. In other words, the output method measures results achieved. Additional to the two exceptions under IFRS 15, ASC 606 permits not including variable consideration in the disclosure of remaining performance obligations when variable consideration: –   is a sales- or usage-based royalty for a license of intellectual property; or. 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