IFRS 15 was issued by International Accounting Standards Board (IASB) in May 2014. It replaces IAS 18, IAS 11, and all other IASB and FASB rules on reporting of consideration in transactions, and is intended to more directly link the recognition of revenues with the actual consumption of goods and services to increase consistency and visibility into how, and when revenue is carried on the books.
It is an international rule, is consistent with US GAAP guidance, and all organizations must be in compliance with the new standards by January 2017. It is important to note that IFRS 15 is likely to have significant impact on the financial reporting, ratios, and tax liability for many companies as they change their reporting of revenues.
The IASB has issued a five-step process plan for compliance which includes the following:
- Identify the contract(s) with a customer
- Identify the performance obligations in the contract
- Determine the transaction price
- Allocate the transaction price to the performance obligations in the contract
- Recognize revenue when the entity satisfies a performance obligation
The first two steps are the heavy lifting of IFRS 15. This means organizations must find all customer contracts and extract all the information pertaining to performance obligations and consideration (payment). This could be many thousands of contracts, and performance obligations can be in bits and pieces throughout each contract.
Seal and our partners can be of huge value in IFRS compliance. We can find all customer contracts, extract all the salient information on payment and performance, and have that feed into the remaining steps for compliance. This saves organizations significant time and money, and is far more accurate than manual reviews.
Seal’s service partners can also help by setting up project plans and providing resources, but more importantly, run models to assess the impact of IFRS 15 on financial reporting before the deadline, so key commercial decisions can be made to determine the best ways to comply with the mandate.