International Accounting Standards Board
(IASB) indicate that the way in which some companies are currently accounting
for revenue in their financial statements will need to be re-examine.
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
“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
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
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 preparers must refer.
standard will require that where more than one good or service is bundled
together in a single contract, companies will be required to recognise 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
The benefit in introducing a new standard
is that it will heighten levels of transparency and make revenue streams more
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
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