Find out what KPMG can do for your business. Disclosure relief in four situations. The new accounting standards under ASC 606/IFRS 15 support convergence between the International Standards Board (IASB) and Financial Accounting Standards Board (FASB) to create compliance with an international system. when the consideration is received) are acceptable under IFRS 15, but are not permitted under US GAAP. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. KPMG does not provide legal advice. Its requirements have driven organizations to track revenue at more detailed levels than they have previously. Our US GAAP/IFRS accounting differences identifier tool, which helps entities identify some of the more common accounting differences between US GAAP and IFRS that may affect an entity’s financial statements when converting from US GAAP to IFRS (or vice versa), has been updated. No policy election. IFRS 16 vs. ASC 842: Differences and Considerations The amendments in this Update clarify the scope and applicability of this guidance as follows: 1. Although most of these new developments brought US GAAP and IFRS closer together, some other … or. The company determines if shipping and handling activities are distinct from the shipped goods (i.e. What do IFRS 15 and ASC 606 mean for your business? 606 is primarily principal-based, so how the rules apply to each business is not absolutely clear. The impact of the implementation of ASC 606. Mandatory effective dates and early adoption provisions: Annual periods: For public business entities and certain not-for-profit entities* the effective date for annual periods is the fiscal years beginning after Dec. 15, 2017. Under IFRS, an entity recognises a reversal of an impairment loss that has previously been recognised when the impairment conditions cease to exist. Under IFRS, the deconsolidation guidance (IFRS 10) applies and the gain or loss is measured using the fair value of expected proceeds. Revenue: Top 10 Differences Between IFRS 15 and ASC 606, Step 2: Distinct goods and services:  Shipping and handling activities â FASB policy election, Step 3: Transaction price:  Measurement date for noncash consideration, Step 3: Transaction price:  Sales taxes â FASB policy election, Contract costs: Reversal of previously impaired contract acquisition and contract fulfillment costs, Sales outside ordinary activities: Sales of in-substance nonfinancial assets. of Professional Practice, KPMG US, Partner in Charge, US Germany Corridor, KPMG US. ESMA guidance on the disclosure objective includes their expectation for issuers to âprovide information about the accounting policy choices that are to be taken upon first application of IFRS 15â, âdisaggregate the expected impact depending on its nature (i.e. 13th February 2018 IFRS 15 & ASC 606 | revenue recognition The first issue our Project Manager faced at this growing company was around their manual high touch environment. The upcoming changes to revenue recognition standards are more than just a headache for your finance department. The difference, if any, between the amount of promised consideration and the cash selling price of the promised goods or services. Explore challenges and top-of-mind concerns of business leaders today. Fresh standards changes are approaching fast in the form of ASC 606 (and the jointly-developed IFRS 15), and now’s the perfect time to get compliant. In some cases revenue will be recognised over time and in others at completion, depending on the way control of the underlying good or service is transferred to the customer, or possibly, the nuances in the wording of the contract. Some or all of the services described herein may not be permissible for KPMG audit clients and their affiliates or related entities. It also has built-in reports that show … Communication of the impact of the transition to IFRS 15. This population of relevant SEC comment letters was determined and the filings were retrieved via searches within CompanyIQ™¹ Many offer CPE credit. a performance obligation). For all other entites the effective date for … government) on a jurisdiction-by-jurisdiction basis (i.e. Under ASC 606, there is a policy election to treat shipping and handling activities undertaken by the company after the customer has obtained control of the related goods as a fulfilment activity (i.e. Because the definition of a completed contract differs and US GAAP permits entities to apply the new standard either just to open contracts or to both open and completed contracts, the population of contracts to analyze may differ. “By establishing comprehensive principles, the boards hope that preparers around the globe will find revenue guidance easier to understand and apply.” 2014 joint standard statement from the FASB and IASB How Apttus Intelligent Quote-to-Cash solves compliance and automates … The main aim of IFRS 15/ASC 606 is to recognize revenue for transfer of goods/services promised to customers in an amount reflecting the expected consideration in return for those goods or services. The entityâs performance does not create an asset that the entity could use in any other way, and that throughout the duration of the contract the entity has an enforceable right to payment for performance completed to-date should the customer terminate the contract for its convenience before its termination date. 3 (formerly SOP 81-1. Time is running out! The US standard setter (the Financial Accounting Standards Board; FASB) issued ASC 606 at the same time IFRS 15 was issued by the IASB. Although substantially converged when originally published, subsequent amendments have resulted in a few areas of divergence between the two standards, which are important to identify for US GAAP preparers and UK subsidiaries of US groups. ASC 606 / IFRS 15 Implementation Insights. Although the first year of adoption is 2018, the judgements required in the transition approach and the disclosures required mean that finance teams who have not started contemplating the implications of the new Standard may find themselves under pressure in the forthcoming year. • This Revenue is a core element of the financial function and it is the prime identifier of your business' performance. We share how private companies can review revenue contracts and give examples of contract terms to watch out for. 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Archived recordings can be accessed anytime. The new revenue standards, IFRS 15 and ASC 606, originally published in May 2014, are substantially converged. For example, building improvements carried out on the customerâs land and buildings; or. The revenue recognition principle describes that revenue should be recognized on the income statement in the period when it is realized and earned, and not necessarily when money is received. The US standard setter (the Financial Accounting Standards Board; FASB) issued ASC 606 at the same time IFRS 15 was issued by the IASB. 2. Contract Revenue Management, a solution for ASC 606 and IFRS 15. Comparing the New Revenue Recognition Standards: IFRS 15 and ASC 606 (August 30, 2016) As originally issued, IFRS 15 and ASC 606 were very similar with very little difference between the two standards. By now, most companies have a plan to address ASC 606 and IFRS 15, however, not all of them are taking an integrated approach between sales, operations, and finance to implement the new rules. This model covers the following: The transition between the old and new rules will create several M&A challenges, explain experts from Berkeley Research Group, Effective data governance is reliant on data integrity and uniformity and with a raft of new regulation on data governance, organisations need to understand what is expected of them, IASB clarifies how to apply IFRS 15 revenue recognition standard. 2. by the IASB, outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes ASC 605-35. Overall, transition options are slightly different between the two GAAPs, so that opening numbers may not be similar under IFRS and US GAAP. Determine the obligating event for recognition of revenue for each performance obligation separately. Completed contract for the purposes of transition is a contract for which the company has transferred all of the goods or services identified under legacy IFRS, regardless of whether all of the revenue has been recognized. Annual periods beginning on or after January, 2018. Revenue recognition: IFRS 15 and ASC 606 were issued; Lease accounting: IFRS 16 and ASC 842 were issued; Financial instruments: IFRS 9 was completed and FASB issued many subtopics such as 815-10, 820-10, 825-10, 946-320; ASC 860); Insurance: IFRS 17 and ASC 944 were issued. IP is considered functional if it has significant standalone functionality The impact of the transition to IFRS 15 and ASC 606 depends on companiesâ current accounting and the nature of their contracts. ASC 606 and IFRS 15. Topic 606 includes implementation guidance on when to recognize revenue for a sales-based or usage-based royalty promised in exchange for a license of intellectual property. US GAAP vs IFRS: Key Similarities. For example, maintenance services which do not represent significant improvements to an asset; or, The entityâs performance creates or enhances an asset that the customer controls as the asset is created or enhanced. Join us for upcoming webcast events. In this article, we shall consider the implications of IFRS 15 and its US Generally Accepted Accounting Principles (GAAP) counterpart, ASC 606 Revenue from Contracts with Customers (âASC 606â). This includes partial sale transactions.Â, Sales of a subsidiary or group of assets that constitutes a business or not-for-profit activity continue to be accounted for under the deconsolidation guidance (ASC 810). Â, Onerous revenue contracts are accounted for under IAS 37, Provisions, Contingent Liabilities and Contingent Assets. Reversal of previously impaired contract acquisition and contract fulfilment costs. The entity then tracks the progress toward completion of the contract by measuring outputs to date relative to total estimate… In an effort to simplify the transition, both GAAPs permit not applying the new requirements to completed contracts. Â. Noncash consideration, such as shares or advertising, is measured at fair value for inclusion in the transaction price. The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) issued their new revenue recognition standards, Revenue from Contracts with Customers, way back in 2014 (ASC 606 and IFRS 15). ASC 606 and IFRS 15 compliance and automated revenue recognition. 18 Ease of reporting revenue may also … Identification of performance obligations. not a performance obligation). Similar to annual disclosures -- e.g. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. not a performance obligation). As explained above, ESMA has provided guidance on the disclosures required in the 2017 financial statements. The impact on Sales, Finance, and Legal teams. Peush Patel - Zuora. For companies involved in delivering complex and long-term projects, the impact of IFRS 15 or its US counterpart will be significant. This release reflects guidance effective in 2019 and guidance finalized by the FASB and the IASB generally as of … However, other dates (e.g. For example, if a subsidiary that has only a building and does not represent a business is sold for a fixed price plus a contingent fee: Onerous contracts:  Determination of provisions for loss-making and onerous contracts, Transition:  Effective date for nonpublic companies, Transition:  Definition of 'completed contract', Disclosures:  Remaining performance obligations. Therefore, those team members, such as procurement or sales teams should be aware that contractual terms that they negotiate and agree could have a direct impact on the recognition of revenue. In making the assessment of whether a significant financing component exists, ASC 606-10-32-16 provides the following factors that must be considered: 1. Amount of promised consideration and the cash selling price of the impact of most! 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