New Revenue Standard predicts changes in industry

International Accounting Standards Board (IASB) indicates that the way in which some companies are currently accounting for revenue in their financial statements will need to be re-examined.

The new, converged revenue recognition standard that’s in the final stages of development by the IASB is expected to lead to at least some changes in financial reporting for virtually all entities that use US GAAP or IFRS.

“Revenue is an important aspect for investors to assess how well companies are doing financially. The way that businesses account for revenue will now change,” says Saica chartered accountant Sue Ludolph.

The standard has been developed due to dissatisfaction expressed by investors over possible manipulation of figures, which resulted in investors not really knowing where they stand. Therefore, at the heart of the standard is the question: what comprises revenue?

“What investors are looking for is a better yardstick of what makes the company tick and how sustainable it truly is. They want to make decisions for the long term, in terms of what makes a company stand out as an investment opportunity. They also want more information that is comparable. In that way, they are better informed and ultimately better protected” according to David Reuben, Partner and Head of Audit at Grant Thornton.

Further, the proposed standard aims to provide a single revenue recognition model that will improve comparability over a range of industries, companies, and geographical boundaries and to simplify the preparation of financial statements by reducing the number of requirements to which prepares must refer.

The new standard will require that where more than one good or service is bundled together in a single contract, companies will be required to recognize revenue on the transfer of each distinct good or service, resulting in a smaller loss at the beginning of the contract, and a smaller margin over the remaining term of the contract. This requirement could therefore have a significant impact on current practice.

The benefit of introducing a new standard is that it will heighten levels of transparency and make revenue streams more understood.

A final standard is expected towards the middle of 2014 and would be effective for annual periods beginning on or after 15 December 2016 (FASB) or 1 January 2017 (IASB). 

 The coming months, and most likely years, are going to be keeping accounting and auditing professionals on their toes as they get to grips with the new standards. Whether they like it or not.

The importance of having qualified and skilled individuals in your accounting department to navigate the changes due in this industry is vitally important for any company’s growth. If you require additional staff, then we can assist. Communicate Recruitment is a specialist recruitment agency, with the very best recruiters. We specialize in the sourcing of top candidates including Financial Managers, Cost Accountants, Auditors, Management Accountants, and more. Contact us today.

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