The Principles Of Ifrs 15 Essay

In the major international market, there are currently only four countries do not require IFRS rules, and they are China, Japan, India, and the US. Pacter (2015) explained that presently there are one hundred and forty

An entity recognizes revenue when goods or services that are transferred to customers for the amount the entity is expected to be entitled to receive in exchange for goods or services and there are five steps used to apply the principle. (FASB ASC 606-1-SUMMARY-2).

The boards proposed a standard by which revenue would be recognized entirely based on the firm’s contract with the customer. Any remaining rights or obligations in the contract would give rise to net contract assets or net contract liabilities. Under the proposal, revenue would be recognized based on the changes in rights and obligations under a contract entered into with a customer. Rights (assets) arise from a customer’s promise of cash or other compensation while obligations (liabilities) arise from the firm’s promise to transfer assets to the customer. Revenue is recognized whenever there is an increase in contractual assets or a decrease in contractual liabilities or a combination of both. Remaining rights under the contract are measured, the balance of which will create a net contract asset or a net contract liability.

A contract is simply an agreement which has legal value so that it is binding on both the parties, and each of the party can enforce it lawfully in case of any contravention of the terms of agreement. For an agreement to take the form of a contract, it is necessary for it to contain four essential components of a legally binding contract . These include,

In November 14, 2011, IASB and FASB issued for public comment a revised draft standard to improve and converge the financial reporting requirements of IFRS and GAAP for revenue and some related cost from contracts with customers.

Background. Revenue is a financial statement item. Accounting for revenue contains standards and principles for revenue recognition. Revenue recognition rules and statutory requirements significantly evolved over the years. It became more detailed for the purpose so financial statement users can understand true company performance and projections.

Collectability of revenues must be explicitly assessed in a contract before applying the revenue recognition model. An entity must take into account the credit risks and probability of revenue collection as the amount of consideration for the transfer of goods or services based on the customer’s capacity and intention to make due payments. This is one essential difference from the previous standards (Wilson and Sobolewski).

Another critical requirement for users of financial statements is information, this is addressed through the disclosure of certain principles, policies and procedures to facilitate decision making, which current standards don’t adequately address, hence the issuing of AASB 15. (AASB,2014) Accordingly, a new standard is required to rectify the inconsistencies of revenue recognition and address the lack of consistent and useful information.

A contract is an arrangement between two or more parties that creates rights and obligations to each party. The essential parts of a contract are as follows:

What is a contract?- promise or set of promises, for breach of which the law gives a remedy or the performance of which the law recognizes as a duty.

The new revenue recognition standard changes transaction and industry-specific guidance to a principle-based approach. The main point is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchanging for those goods or services [2]. This new standard has five steps need to be followed. The first one is to identify the contract(s) with a customer. Then entity should identify the performance obligations in the contract. After that, an entity needs to make a decision about the transaction price and to allocate this price to the performance obligations in the contract. At last, the entity recognizes revenue when it satisfies a performance obligation. For the first step, there are some requirements the contract has to meet, like identify the right of parties and payment terms. But the old rule only provides limited disclosure information about revenue contract [3]. In some cases, an entity will combine several contracts as one contract. Also, FASB issued the guidance that helps an entity to modify its contract. Here is a concept for the second step. A good or service can be recognized

The introduction of the AASB 15 alters the existing accounting framework in regards to revenue recognition in contractual transactions. The new accounting standards require revenue to be recognised at the value that best represents the value that an entity would be entitled to, after it satisfying its contractual obligations. A 5-step model has been introduced to streamline the revenue reporting process.

Still in flux: Future of IFRS in U.S. remains unclear after SEC report. (n.d.). Retrieved January 16, 2015, from http://www.journalofaccountancy.com/Issues/2012/Sep/20126059.htm

A contract is an agreement made with an intention of legal rights and obligations which the law will enforce. It contains the agreement, consideration and intention. It also have some other things to consider, like capacity of parties, genuine consent or legality of object.

On February 24, the SEC unanimously agreed to publish a statement of continued support for a single set of high-quality global accounting standards. The SEC acknowledged that IFRS is best positioned to be the global standard. Even without a set conversion timeline from the SEC, IFRS has been affecting