• Accounting Alert

    June 2017

Happy birthday NZ IFRS 15

The new revenue standard, NZ IFRS 15 Revenue from Contracts with Customers celebrated its third birthday last month, being issued by the International Accounting Standards Board in May 2014.

Because application was delayed by one year from 1 January 2017 to 1 January 2018, many Tier 1 and Tier 2 for profit preparers have put off their transition assignments because they think there is plenty of time, or because they mistakenly believe that the new standard will not impact them in a material way.

The new revenue standard isn’t just about accounting – The whole business needs to be on board

Application of the new revenue standard is not just about accounting. The biggest challenge in application is in respect of the changes to systems and processes that will be required, and in many cases, revenue recognised will not equate to the invoiced/billed amounts.

Wayne Basford, BDO IFRS Leader Asia Pacific, and Judith Leung, BDO Senior Manager, recently authored an article for the Chartered Accountants Australia and New Zealand on why the new revenue standard, NZ IFRS 15 is about more than just accounting.

The article highlights how systems changes may be required at every stage of the new five step revenue recognition model. In a large number of cases NZ IFRS 15 will change the pattern or amount of revenue recognition. For these types of transactions, revenue will no longer be able to be recorded in the accounting systems based on invoiced amounts. This means that significant process and systems changes will be required to be able to properly account for revenue under NZ IFRS 15.

The article explains how NZ IFRS 15 (AASB 15 is the equivalent Australian accounting standard) revenue recognition requirements may change current practice, and why systems and process changes would be required, including:

  • Step 1: Combining contracts
  • Step 1: Modifying contracts
  • Step 2: Identifying different performance obligations
  • Step 3: Variable consideration and constraining estimates
  • Step3: Variable consideration and financing components
  • Step 5: Recognising revenue when each performance obligation is satisfied.

 

For more on the above, please contact your local BDO representative.