Question

the financial accounting and internal accounting standards boards created a new, converged revenue recognition standard the was required to be adopted by all public companies by 2017. briefly explain why the standards setters thought this change was warranted

Answer 1

IFRS 15 - Revenue from contracts with customers was introduced to replace IAS 18 Revenue and IAS 11 Construction Contracts.

It was made applicable from Jan 1, 2018 onwards.

Why was the new standard introduced??

Sales revenue usually constitutes a corporation's key financial information presenting its current results, financial standing but also future prospects. It is a Key performance indicator essential not only for the management and owners but also for potential investors.

Despite their importance and the increasing globalisation of financial markets, the already existing regulations of IFRS and US GAAP differed considerably, what caused inconsistencies and difficulties in comparing entities who prepared financial statements in the accordance with those standards.

IFRS were criticized for being overly general and lacking guidelines on important and problemetic issues, which caused difficulties when applying them.

US GAAP, on the other hand, were broad and approached the issues in a fragmented manner, which complicated their use. Neither standard was adjusted to the new reality.

Therefore IFRS came up with new standard to bring more transparibility and adaptability.