IFRS 15: corporate issuers have their work cut out for them
Great efforts have been made by companies to implement IFRS 15 ("Revenue from Contracts with Customers") in their first set of annual financial statements. It's been a busy year especially for corporate sector issuers which were particularly impacted by the standard.
The road to the next financial report, however, won't necessarily be an easy one. Why not? Well, in light of ESMA's 2019 statement on enforcement priorities, there is still plenty of room for improvement in specific areas on the disclosure front.
No boilerplates, please!
With boilerplate descriptions out of the question, accounting policies must be detailed and entity-specific to enable users to understand revenue recognition policies and practices for each and every material revenue stream.
The application of IFRS 15 requires significant judgments and estimates, meaning exhaustive and adequate information should be provided (e.g. the identification of performance obligations and the timing of their satisfaction, the determination of the variable consideration of the transaction price and its allocation to the performance obligations identified).
Disaggregation of revenue & contract balances
Revenue should be disaggregated by taking into account both the company's activities and the needs of those using the financial statements. It should then be split into categories which illustrate how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
Additionally, sufficient information should be included in the notes to allow users to clearly depict the relationship between the disaggregated revenue and revenue for each reported segment.
Contract assets and liabilities must feature in the statement of financial position, as well as qualitative and quantitative disclosure of any significant changes in the contract balances.
What's the current state of play?
Discussions at the IFRS Interpretation Committee regarding the implementation and application of issues related to IFRS 15 are still ongoing. Topics include costs to fulfil a contract, over time transfer of constructed goods, and compensation for delays and cancellations in the airline industry. Impacted issuers are encouraged by the IASB to take into account those agenda decisions "on a timely basis – in other words, as soon and as quickly as possible".
Now that IFRS 15 has been effectively implemented in the annual financial statements, issuers are expected to provide the required level of detail and transparency in their disclosure, especially in industries in the corporate sector where revenue recognition is subject to significant assumptions and judgments.
With boilerplate disclosures no longer deemed acceptable by investors, the pressure is certainly on to provide entity-specific information and explanations of key issues revealing the entity's financial performance and position.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.