3 MAJOR DIFFERENCES BETWEEN IFRS 15 AND THE OLD REVENUE RECOGNITION STANDARDSBY: ALI ALMOHASHI

21/2/2017

BY: ALI ALMOHASHI

INTRODUCTION

• A collaboration between the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) issued IFRS 15 and ASC 606, Revenue From Contracts With Customers.

• IFRS 15 and ASC 606 should be implemented beginning in early 2018.

BY: ALI ALMOHASHI

1.ONE FRAMEWORK WITH MANY JUDGMENTS AND ESTIMATIONS

• The US Generally Accepted Accounting Principles (GAAP) issued by FASB has over 180 papers regarding revenue recognition which include specific industry guidance, while the IFRS issued by IASB has further differing standards for contract revenues from customers including IAS 11, IAS 18, and IFRIC 13.

BY: ALI ALMOHASHI

1.ONE FRAMEWORK WITH MANY JUDGMENTS AND ESTIMATIONS

• However, IFRS 15/ASC 606 is an objective-based standard, meaning that reporting entities have the flexibility to choose various methods based on the standard’s principles and objectives.

• The reporting entity shall determine which methods provide the most relevant and useful information for its business and the external users of their financial statements.

BY: ALI ALMOHASHI

2.DETAILED DISCLOSURE

• The IFRS 15/ASC 606 standard’s detailed disclosure requirements arose in part because regulators and the board members believed that existing financial statements inadequately disclosed revenue information and because of the nature of the new revenue recognition standard which requires more judgments and estimation.

BY: ALI ALMOHASHI

2.DETAILED DISCLOSURE

• So, the new standard specifies that financial statements disclose sufficiently detailed information to enable the user to understand the nature, amount, timing, and uncertainty of cash flow and revenue related to customer contracts.

• Contract details, significant judgments, any changes to judgments, as well as assets related to the contract cost, must now be clearly disclosed.

BY: ALI ALMOHASHI

3.FROM INCOME STATEMENT TO BALANCE SHEET

• Under the existing GAAP, the entity recognizes revenue when it is both realized (or realizable) and is earned.

• This approach centers on the income statement.

BY: ALI ALMOHASHI

3.FROM INCOME STATEMENT TO BALANCE SHEET

• As the entity, your revenue would be realized when you receive the consideration (payment); if you are entitled and guaranteed to receive the consideration in the future, your revenue would be realizable.

• And, revenue is earned when the customer owes you, and you can increase your account-receivable balance; the earning process is complete when you deliver the goods or render the service.

BY: ALI ALMOHASHI

3.FROM INCOME STATEMENT TO BALANCE SHEET

• However, the core principle of IFRS 15/ASC 606 is to “ . . . recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.”

• Thus, under the new recognition standard, the focus shifts from the income statement to the balance sheet.

• the revenue should depict the transfer of goods or services.

BY: ALI ALMOHASHI

THANK YOU

• Name; Ali Almohashi• Email ; almohashi@yahoo.com• Website; www.alialmohashi.com• Twitter:

https://twitter.com/AliAlmohashi• Linkedin:

https://sa.linkedin.com/in/alialmohashi