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Industry issue:

IFRS Industry Issues

31 May 2017

The introduction of IFRS 15, which offers prescriptive guidance that will substitute existing requirements for accounting for revenue from 1 January 2018, poses significant issues for sectors including media, telecommunications and software. Changes to the pattern of revenue recognition prompted by the publication of such specific requirements may give rise to the need for careful planning.. The potentially serious commercial consequences of IFRS 15 require businesses to calculate the impacts as early as possible. In addition, a detailed review of existing terms and conditions will be needed, as well as updating and/or renewing internal processes in order to obtain the information required by the new disclosures in IFRS 15. 

BDO’s accounting experts can provide an independent impact assessment on the likely effects on your business.



The adoption of IFRS 15 suggests careful consideration will be needed for a wide range of commercial issues in the media sector, including compliance with bank covenants, internal budgeting processes and corporate tax obligations. Questions arise as to whether revenue is recognised at a point in time or over a period of time, and if the latter is true, how should progress towards completion be measured? Media businesses often recognise revenue at a point in time, but IFRS 15 guidance points towards three criteria resulting in ‘over time’ recognition. The new regulations advise that if recognised over time, revenue is recognised to the extent that the vendor’s performance obligations have been satisfied. 



For entities in the telecommunications sector, several clarifications to IFRS 15 were made in 2016, including the addition of transitional provisions relating to both completed and modified contracts. An analysis of IFRS 15 has questioned whether a single contract would need to be ‘unbundled’ into separate components, and how should contracts which involve a right of return be handled? Unlike before, IFRS 15 provides detailed guidance for ‘unbundling’ contracts that means many companies will need to adjust current accounting policies. To the extent that the vendor expects customers to exercise their right of return, revenue is not recognised for these goods and services, despite the fact they may have already been transferred to the customer. 



Areas of particular importance for the software sector exposed by BDO’s analysis of IFRS 15 include the way in which licenses will be dealt with under the new requirements, and what adjustments are required for the effects of the time value of money. Software sales are often in the form of a license to use the software, and IFRS 15 gives explicit guidance on a key consideration: whether a license gives the customer the right to use the software as it exists when purchased, or access to software which will be updated during the license period. Software contracts can involve cash receipts from customers which do not match the timing of revenue recognition. If significant, IFRS 15 requires an adjustment to be made for the effect of implicit financing.

If you would like to find out more about how these changes could impact you, please do not hesitate to get in touch.