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IFRS 15: Revenue from customer contracts

After more than five years in development the IASB and FASB have at last published their new, converged Standard on revenue recognition – IFRS 15 ‘Revenue from Contracts with Customers’. IFRS 15 replaces IAS 18 and IAS 11 and will affect almost every revenue-generating entity that applies IFRSs. We applaud the two Boards for delivering a converged Standard in this critical area. Convergence has been challenging and sometimes controversial.

Against that background, we see this Standard as a landmark achievement that will provide a major boost for investors looking to compare company performance across borders. IFRS 15will apply to most revenue contracts, including construction contracts. Among other things, it changes the criteria for determining whether revenue is recognised at a point in time or overtime. IFRS 15 also has more guidance in areas where current IFRSs are lacking – such as multiple element arrangements, variable pricing, rights of return, warranties and licensing.

The actual impact on each company’ stop line will depend on their specific customer contracts and how they have applied existing Standards. For some it will be a significant shift, and systems changes will be required, while others may see only minor changes. Although IFRS 15 only takes effect in 2017, management should begin their impact assessment much sooner.

Andrew Watchman, Global Head – IFRS, +44 (0)20 7391 9510