The frenzy that has been going on for years now around this Standard, IFRS 15, is not abating. As the mysteries surrounding him grow, so does the amount of panic and fear among the entity's leadership.
In our circles, the question has been repeated for some time by once experienced and confident accountants and CFOs:
- How am I going to do that? I don't understand anything.-
And indeed:
Is this implementation of the Standard onerous?
Answer: Very much.
Is it impossible?
Answer: Of course not, a lot of understanding and timely creation of a plan and activities for its implementation are necessary.
The effort required to implement this IFRS is indeed significant, as companies try to fully understand the different types of contracts with customers. Whether the benefits of improved reporting – greater clarity and consistency and better disclosure – are sufficient to provide adequate satisfaction for the effort involved, only time will tell. It is more likely that the potential benefits will become apparent only in the following period, when the new accounting standard is fully incorporated into corporate reporting.
IFRS 15 assumes a five-step approach:
- Identifying contracts with customers
- Determination of the obligation to perform
- Transaction pricing
- Allocation of transaction prices to contracted performance obligations
- Revenue recognition when or how the performance obligation is fulfilled
Although it enters into force on December 31, 2020, earlier implementation is allowed, but due to the significant time and complexity of implementation, our recommendation is to start implementation in a timely manner. You will see, as you start working on it, the level of stress around the application will decrease proportionally.
The new disclosure requirements have an impact on all entities, and the Standard itself, apart from the impact on accounting and finance, also has an impact on other entity functions such as: tax issues, investor relations, bonuses, processes and systems, etc.
Large entities, aware of the impact of IFRS 15 on their reporting, have started taking relevant steps regarding the timely application of this Standard. The activities in which these entities are engaged are: technology, software products, pharmacy, real estate, automotive industry and others.
As we mentioned, the complex approach and the fact that this Standard has an impact on absolutely all companies, requires that both small and medium-sized companies, as well as companies from other industries, devote themselves to this issue and its solution as soon as possible.
So, aware of the fact how important this IFRS is, what should we do?
The most important thing is to start and face the fact that the Standard is your present and your future, and that by prolonging it you are only wasting considerable time and energy for its implementation. When you have processed it and already solved half the problem, try to follow the following recommendations:
- Get the necessary knowledge about the Standard
- Understand the distinction from past practice
- Try doing a practical example of the 5-step model
- Ask yourself questions and if you have doubts, seek advice from experts.
Managers of the finance sector, accounting, reporting and controlling departments, accountants, financial analysts and consultants, as well as everyone else who is aware of the significant changes that this Standard brings to key business indicators, including gross profits, must know the answers to the above-mentioned questions.
Revenues are key business parameters and affect other indicators (eg gross profit, EBITDA) that may change due to changes in the timing of revenue recognition and the presentation of revenues and expenses.
This Standard requires from companies a higher level of evaluation and judgment than was the practice until now. Employees, investors and other stakeholders must fully understand how the changes brought by this new model will affect their companies and how this will affect budgeting, tax planning and transfer pricing and other issues.
Don't panic, arm yourself with patience, act proactively, and bring yourself the necessary understanding of meaningful judgments and judgments.
Fear and ignorance are so closely related. Ignorance holds us back and makes us stagnate. Let's get rid of it and we will have greater opportunities. In this way, we all influence those potential benefits, mentioned at the beginning, for better reporting and a healthier economy.
Majkic Ruzica
Certified auditor
By clicking on IFRS 15 you can download a short presentation of this standard
