Carl Joshua Mirafuentes

Arvin Cleofe
John Adrian Giles Racca

Transition from IAS 18 to IFRS 15

The new standard creates wide and very significant effects on the timing and profile of revenue and
profit recognition in comparison with current guidance and requires significant enhancements to
disclosure requirements. Careful consideration and planning will be needed for a wide range of issues,
including the effect on: Compliance with bank covenants, performance based compensation (including
share- based payments), internal budgeting processes, corporate tax obligations, and market and
investor communications, including compliance with regulatory requirements (which might arise from
significant expected future changes to an entity’s reported financial position or performance)

The timing of revenue and profit recognition may be significantly affected by the new Standard Whereas
previously IFRSs allowed significant room for judgement in devising and applying revenue recognition
policies and practices, IFRS 15 is more prescriptive in many areas relevant to the retail, wholesale and
distribution sector.

Applying these new rules may result in significant changes to the profile of revenue and, in some cases,
cost recognition. This is not merely a financial reporting issue. As well as preparing the market and
educating analysts on the impact of the new Standard, entities will need to consider wider implications.

The serious commercial implications of this standard, and the fact that it affects current contracts and
their revenue reporting, require most businesses to assess the impacts at an early stage. A review of the
terms and conditions of existing contracts will be needed (in particular long term contracts which extend
into periods covered by financial statements affected by the adoption of IFRS 15) as well as those which
are to be entered into in future. In some cases, entities may wish to consider whether changes should
be made to contracts. It is also imperative that the sales departments need to liaise more closely with
the accounting department, in order that the effects of any proposed contractual terms on the related
financial statements can be understood in advance.