Deutsches Rechnungslegungs Standards ®
German Accounting Standards Committee e. V.
Re-thinking Revenue Recognition
Liesel Knorr, DRSC e.V.
Brussels, 18 October 2006
-1- 18 October 2006
Deutsches Rechnungslegungs Standards ®
German Accounting Standards Committee e. V.
IFRSs on Revenue Recognition
IAS 18 Revenue
IAS 11 Construction Contracts
IAS 17 Leases
IAS 39 Financial Instruments: Recognition and Measurement
IAS 41 Agriculture
+ recourse to US GAAP
-2- 18 October 2006
Deutsches Rechnungslegungs Standards ®
German Accounting Standards Committee e. V.
IAS 18 Revenue – Underlying Principle
Definition
Gross inflow of economic benefits during the period arising in the
course of the ordinary activities (IAS 18.7)
Recognition
- Probable that economic benefits will flow to the entity
- Amount of revenue can be measured reliably
Measurement
Fair value of the consideration received or receivable (IAS 18.9)
-3- 18 October 2006
Deutsches Rechnungslegungs Standards ®
German Accounting Standards Committee e. V.
IAS 18 Revenue – Underlying Principles (cont.)
Critical Events for the Recognition of Revenue
Sale of goods
- Transfer of the significant risks and rewards to the buyer
- Entity retains neither continuing managerial involvement nor effective
control
- Costs incurred can be measured reliably
Rendering of services
- Stage of completion can be measured reliably
- Costs incurred can be measured reliably
-4- 18 October 2006
Deutsches Rechnungslegungs Standards ®
German Accounting Standards Committee e. V.
General Problems arising
- From a conceptual perspective
- Recourse to the realization principle in IAS 18 is said to be contradictory
to the definition of revenues in the framework (income = measurable
changes of assets and liabilities)
- Application of IAS 18 can lead to recognition of deferred assets and
deferred liabilities which do not meet the definition of assets and
liabilities
- From a practical perspective
- Content of the realization principle often unclear (as evidenced by the
need for extensive additional explanations in the appendix of IAS 18)
- How to account for multiple element arrangements?
-5- 18 October 2006
Deutsches Rechnungslegungs Standards ®
German Accounting Standards Committee e. V.
Current Developments
Joint Project IASB and FASB (since 2002)
Purpose:
IASB: (Conceptual) Revision of IAS 18 & IAS 11
FASB: Development of one single Statement on Revenue Recognition
together: Convergence!
Discussion Paper end of 2007 (?)
-6- 18 October 2006
Deutsches Rechnungslegungs Standards ®
German Accounting Standards Committee e. V.
- IASB addresses the issue of revenue recognition starting from the
Framework definition of income
- That is: “Income is measurable changes in assets and liabilities”
(= Assets and Liabilities Approach)
- This approach shall not be overridden by notions of realization and
completion of the earnings process.
- New approach will also cover issues currently addressed by IAS 11
-7- 18 October 2006
Deutsches Rechnungslegungs Standards
German Accounting Standards Committee
Deutsches Rechnungslegungs Standards Committee e.V. ®
Accounting Standards Committee of Germany
Zimmerstr. 30
10969 Berlin
Tel. 030 20 64 12 0
Fax 030 20 64 12 15
www.drsc.de
[email protected]
-8- Dr. Mareike Kühne – 24.11.2005
