2. Disclaimer This communication does not necessarily reflects views of my past or present employers. Views presented here are solely personal to me and only for academic discussion purposes. This material not meant to be professional advise, and no liability is assumed due to any use of this material.
3. Introduction <ul><li>Yash Batra </li></ul><ul><li>Education: Chartered Accountant & Masters in Commerce </li></ul><ul><li>Member of The Institute of Chartered Accountants of India </li></ul><ul><li>Internal audit leadership role with a Fortune 200 company. </li></ul><ul><li>More than Eight years of experience in Internal Auditing across Asia Pacific and EMEA Region </li></ul><ul><li>Email at YashBatra78 at yahoo dot com for power point version </li></ul>
4. Objectives <ul><li>Applicable standards on interpretations on revenue recognition IFRS (IAS 18, IAS 11 and IAS 20), USGAAP and India GAAP. </li></ul><ul><li>Comparison among IFRS, USGAAP & India GAAP </li></ul><ul><li>Other </li></ul>
5. Standards and Interpretations (IFRS ) <ul><li>Standards IFRS has mainly two standard and four interpretations on revenue recognition. Applicable standards on interpretations on revenue recognition (IAS 18 - Revenue, IAS 11 – Construction Contracts). Also, IAS 20 describes the accounting of ‘Government Grants’. </li></ul><ul><li>Interpretations Following four interpretations are available: </li></ul><ul><li>IFIRC 13 - Customer Loyalty Programmes </li></ul><ul><li>IFIRC 15 - Agreements for the Construction of Real Estate </li></ul><ul><li>IFIRC 18 - Transfers of Assets from Customers </li></ul><ul><li>SIC 31 - Barter Transactions Involving Advertising Services </li></ul>
6. Standards and Interpretations (USGAAP) <ul><li>Guidance on Revenue recognition in USGAAP is extensive and includes significant numbers of standards (more than 100 in numbers) issued by Financial Accounting Board, Emerging Issues Task Force (EITF), the American Institute of Certified Accountants (AICPA) and US Security and Exchange Commission (SEC). </li></ul><ul><li>Many of standards on revenue and gain recognition are industry-specific and some of which can produce conflicting results for economically similar transactions. That is mainly due to the notion of an earnings process is not precisely defined and people often disagree on how it applies to a particular situations. </li></ul>
7. Standards and Interpretations India GAAP Accounting Standard and related guidance notes issued by The Chartered Accountants on revenue recognition. (AS -9 ‘Revenue Recognition). Guidance Note on Recognition of Revenue by Real Estate Developers
8. Comparison in IFRS, USGAAP & India GAAP Principally similar to IFRS although several difference in detail even in the criteria defined for revenue recognition. (AS-9) Principally more or less similar to IFRS. USGAAP has more than 100 standards on revenue and are industry specific and some of which can produce conflicting results for economically similar transactions. Revenue is recognized based on various criteria such as when risk, rewards and control have been transferred to buyers and revenue can be measured reliably. ( IAS 11 and IAS 18) Revenue Recognition Revenue related to contingency can not be recognized un till the contingency is resolved. Revenue related to contingency can not be recognized un till the contingency is resolved. One of the criteria in IFRS is that it is probable that the economic benefits of the transaction will flow to seller. Recognition should be postponed un till the above criteria is met and revenue is reliably measurable. Conditions / Contingencies involved in the sale agreement with customers. India GAAP USGAAP IFRS Subject
9. Comparison in IFRS, USGAAP & India GAAP Similar to the IFRS except that if the cost is uncertain then it may influence the timing of the revenue recognition. Sales price is fixed or determinable & reliably collectable. It is evident that an arrangement exist and delivery has occurred. <ul><li>It is probable that economic benefits will flow to the entity. </li></ul><ul><li>Amount of revenue can be measured reliably. </li></ul><ul><li>Significant risk & rewards has been transferred to buyer. </li></ul><ul><li>Seller does not continue any managerial involvement (ownership) or effective controls on the goods. </li></ul><ul><li>Cost of the transaction can be measured reliably. </li></ul>Sale of Goods India GAAP USGAAP IFRS Subject
10. Comparison in IFRS, USGAAP & India GAAP AS-9 has prescribed the Completed Service Contract Method and Proportionate Completion Method in respect of service contracts. Proportional performance method or Completion performance method can be applied. Revenue is deferred if outcome is not measureable. Revenue is recognized on the basis stage of completion (by using percentage of completion method) of the transaction at the balance sheet date can be measured reliably. Straight line method is used in percentage completion method can be used. Zero profit method is used when outcome of the transaction can not be measured reliably. Rendering of Services India GAAP USGAAP IFRS Subject
11. Comparison in IFRS, USGAAP & India GAAP There are no specific guidelines mentioned in AS 9. Multiple deliverables are divided into separate units in line with the criteria mentioned in EITF 21. There are separate Different guidance are Under IFRS, the substance of the transaction need to be considered to determine whether the various components should be treated as a single deliverable or accounted for separately (multiple element accounting). Accordingly, the general IFRS revenue recognition criteria are then applied to each component of a contract. Multiple element agreement Similar to IFRS. Similar to IFRS. Completed contract method is allowed in certain case. Percentage completion method is used. Completed contract method is prohibited. Construction Contracts. India GAAP USGAAP IFRS Subject
12. Comparison in IFRS, USGAAP & India GAAP Interest income is recognized using the time proportion basis considering the outstanding balance and applicable interest rate. (There will be no difference between India GAAP and IFRS after implementation of AS 30). Interest income is recognized on the basis of contractual cash flows, with certain exceptions dependent on the specific characteristics of a debt instrument such as whether it (a) is part of a group of pre-payable debt securities, (b) is a beneficial interest in securitized financial assets, or (c) has been other-than-temporarily impaired, or (d) was purchased with evidence of credit deterioration. Interest Income is recognized using the effective interest method. Interest Income India GAAP USGAAP IFRS Subject
13. Comparison in IFRS, USGAAP & India GAAP No specific guidance available. Such revenue should deferred and recognized on straight line method over the period of warranty. Also, revenue of extended warranty is determined on the basis of selling price of such warranty contract if sold separately. Hence, no fair value is considered. Revenue of the sale of the extended warranty should be deferred and recognized over the period covered in warranty. If such warranty is integral part of sale, a fair value of warranty should be deferred. Sale of Extended Warranties No specific guidelines available in AS 9. However, guidance note on accounting on dot-com companies is similar to IFRS on advertising barter transactions. Fair Value of the goods or services surrendered. Fair value of goods or services can be used if the fair value of item surrendered is not available. Fair value of the goods or services received. Where fair value of the goods or services received is not reliable measurable, the fair value of the goods or services surrendered can be considered. Barter Transactions India GAAP USGAAP IFRS Subject
14. Comparison in IFRS, USGAAP & India GAAP Revenue grants (recurring) are recognized in the P&L on systematic basis over the period with related cost. Capital grants are either recorded as shareholders fund or as deferred income in the B/sheet. Grants against specific assets are reduced from cost of assets. Grants are not recognized un till the condition if any are met. Remaining is same as IFRS. Recognized based on the reasonable assurance that condition of the grant will be met and grant will be received. Grants are deferred. For revenue grants, portion of grant is move to P&L to match the related expenses. For capital grants, matched with depreciation for the related assets. Grants for specific assets are presented as deferred income or deducted from the carrying amount of the assets. Government Grants India GAAP USGAAP IFRS Subject
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16. Bibliography <ul><li>IAS and IFRS published by Standard setting body responsible for the development of International Financial Reporting Standards (IFRS) </li></ul><ul><li>http://www.iasb.org/Home.htm </li></ul><ul><li>FASB published by standards setting body AICPA, US. </li></ul><ul><li>Accounting standards published by The ICAI, India. </li></ul><ul><li>Releases published by Big4 firms on revenue recognition. </li></ul>