engleski

Analysis of the Short- and Long-term Effects of the New Revenue Recognition Standard on Companies Providing Professional Services

As a joint venture of the two most important standard setters – International Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB) – a new revenue standard was introduced in 2014. Becoming effective for annual periods on or after 1 January 2018, the International Financial Reporting Standard 15 Revenue from Contracts with Customers has replaced the previous International Reporting Standard 18. The most important change is that the new standard creates a single five-step model for revenue recognition from contracts with customers, which is, according to the goals of standard setters, aimed at promoting greater consistency and comparability across industries and capital markets. The core principle of the model is to recognize revenue when control of the goods or services transfers to the customer, as opposed to recognizing revenue when the risks and rewards transfer to the customer. Since these changes will not affect all revenue recognition transactions, but will primarily be limited to contracts with customers, all industries will not be affected to the same extent. Given the characteristics of different activities and the nature of dealing with customers, it is expected that the industries that will be the most influenced are: telecommunication, media and entertainment, retail and consumer products, automotive, software, real estate and construction, power and utilities, travel, hospitality and leisure sector, as well as aerospace and defense sector. The complexity of revenue allocation, transaction price calculation and various industry specific factors (such as considering the effect of warranties, loyalty programs, contract modifications, rebates, discounts, etc.) have resulted in delaying the effective date of the new revenue standard to allow the most effected industries a reasonable time to comply to the new requirements. The purpose of this paper is to highlight the differences between the revenue and profit recognition under both IAS 18 and IFRS 15 by constructing a simplified model of a company providing professional services to customers. The aim is to analyze the short-term and long-term effects on the company’s financial position and performance by calculating selected liquidity, indebtedness, activity, economy and profitability ratios. The scientific methods used in this paper include the induction method, method of analysis, comparative methods and case study method. Given that the new methodology primarily results in a change in revenue recognition time, the effects in the long-term are less pronounced, as opposed to the short-term effects, which may further influence company’s dividend policy, creditworthiness and tax obligations in the current period.

revenue recognition, IAS 18, IFRS 15, contracts with customers, professional services

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