Question

What are the new reporting and disclosure requirements for revenue recognition? Why is revenue recognition a Big Deal?

Answer 1

What are the new reporting and disclosure requirements for revenue recognition?

1. Revenue recognized from contracts with customers, should be disclosed separately from other sources of revenue.

2. Opening and closing balances of receivables, contract assets, and contract liabilities.

3. Any impairment loss recognized on receivables or contract assets arising from an entity's contract with customers, should be disclosed separately from other impairment losses.

4. Revenue recognized, that was included in the contract liability balance at the beginning of the period.

5. Revenue recognized in this reporting period from performance obligation satisfied in the previous financial year.

Other information should be provided in notes.

1. An explanation of significant changes in the contract asset and liability during the reporting period.

2. Assets recognized from the cost to obtain or fulfill a contract with a customer. Eg: pre-contract cost and set-up cost.

3. Judgments, and the changes in judgments made in applying the new standard that significantly affect the determination of amount and timing of revenue from the contract with a customer.

Why is revenue recognition a Big Deal?

Revenue is usually the largest amount in a statement of profit or loss, so it is very important that it is correctly stated. Studies have shown that most of the financial statement frauds involved revenue manipulation. Revenue is a key element that determines the performance of an organization in a financial year, so it is very essential to recognize revenue reliably and accurately.