Download New revenue rules Is your business impacted?

New revenue rules
Is your business impacted?
November 2016
AASB 15 Revenue from contracts with customers was issued on 28 May 2014. The new rules
will cause significant systems issues for companies that offer bundled products and services,
provide warranties or rebates, or have contracts where the amount of consideration varies.
While some companies can afford to wait until closer to the 2018 implementation date,
those who are affected will need to start now to get the necessary systems changes up and
running in time.
A new regime for revenue
The core principle of the new revenue recognition
standard is that revenue must be recognised when
the goods or services are transferred to the
customer, at the transaction price.
The most significant changes that flow from that
principle are:
•
any bundled goods or services that are distinct
must be separately recognised, and any
discounts or rebates on the contract price
must generally be allocated to the separate
elements
•
revenue may be recognised earlier than under
current standards if the consideration varies
for any reasons (such as for incentives,
rebates, performance fees, royalties, success
of an outcome etc) – minimum amounts must
be recognised if they are not at significant risk
of reversal
•
the point at which revenue is able to be
recognised may shift: some revenue which is
currently recognised at a point in time at the
end of a contract may now be recognised over
the contract term and vice versa.
The systems impact:
billings ≠ revenue
Most systems are set up to draw
revenue numbers directly from the
billings system. Under the new
standard, information from the
contracts that lie behind the billings
will need to be analysed in order to
determine the separable elements of
the contracts and the revenue to be
recognised from those elements.
Interfaces between customer
relationship management, sales and
distribution and the general ledger
may be impacted, and previously
automated processes may now
require intervention.
New revenue rules
Is your business impacted?
November 2016
The knock-on effect
The changes have the potential to trigger changes across the business.
Systems: Likely to be the most significantly impacted, and take the longest lead time to change.
Your systems may need to capture and analyse new information in a more disaggregated way (see
box).
Controls and processes: The standard requires companies to make more estimates and disclosures,
calling for new controls and processes.
Compensation and bonus plans: Revenue recognition can trigger payments like bonuses or
commission. Companies will need to consider how timing changes for revenue recognition affect
these and other internal arrangements.
Contracts: Existing terms could take on new meaning under the new standard, and changes to the
amount and timing of revenue recognition may trigger contingent consideration or other provisions
based on revenue measures. You may need to re-negotiate debt covenants or other contracts prior
to transition to the new standard, to maintain the original intent. You may also want to rethink how
you structure customer agreements in future, for example if you want to achieve recognition over
time rather than at a point in time.
Tax: The timing of cash tax payments could be affected if, for example, clients recognise revenue
sooner than in the past.
Investor relations: Stakeholders may want to know how revenue recognition will change and how
the new standard affects a company’s financial picture. The changes have the potential to trigger
dependencies across the business.
Preparing for impact
Your business can’t change its strategy and practices overnight. You’ll need to consider the changes
well in advance of the deadline for adopting the new standard, and determine the level of impact on
your business. In particular, companies with large numbers of customer contracts, diverse or
constantly changing contract terms, or complex and heavily dependent systems, should assess their
position now.
An integrated approach
PwC is already working with a number of large companies around the world to manage their
transition to the new standard. We have developed an approach that draws on our expertise in
accounting, systems implementation and transaction structuring to deliver an integrated solution,
and can help you to manage the implementation project from start to finish.
To find out more, contact your usual PwC representative or
visit http://www.pwc.com.au/ifrs
This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
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