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Dear Mohammad,
Thank you for asking this question on accelerated revenue recognition.
I guess you are speaking about FASB update on "Revenue from contracts with customers related to transfer of non-financial assets". It is quite an important question, as most of the companies will have to start preparing now to implement the controls and modify their SOPs to incorporate this update within their financials. The effective date for public company is Dec,2016 and early implementation is not allowed. While for others, it is Dec,2017.
As per my understanding, the update is an attempt to standardize revenue recognition for contracts with customers for transfer of non-financial assets, across different industries and geographic location. Currently, different industries follow different pattern for recognizing revenue from contracts due to timing difference and performance of contract. With this update, most of the industries will have to record revenue earlier under the new guidance. So, it is called as Accelerated revenue recognition.
Core principle that drives this new update: “Recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for the goods or services.”
For example, Etisalat Plc offers a24 month Samsung Galaxy S5 mobile contract. They provide with a new brand mobile as well as a network service plan. Currently, Etisalat recognises revenue only to the extent they have actually received cash. But, when they prepare Interim financial reports/full financial report after Dec,2016, they will have to follow accelerated revenue recognition.
Possible implications of this update:
- Some industries will have to record revenue earlier. Specific industries will be impacted more.
- Enhanced disclosure requirements so that investors can have more detailed information
Which IFRS standards?
The update states that the the concept of "Contracts" include insurance contracts, leases, financial instruments, guarantees and non-monetary exchanges between entities in the same line of business to facilitate sales. So, ideally the IFRS/IAS relating to these FASB topics including revenue recognition will get updated.
Hope this helps!
Ganesh
