What is IFRS 15/US GAAP ? Revenue Accounting - Are you ready?

1. What is IFRS 15/ASC 606(US
GAAP)
How it will impact you?
Lets quickly take a look..

2. Who are impacted by this new
regulation? Public entities are required to adopt the revenue recognition standards for reporting periods beginning after
December 15, 2017, and interim and annual reporting periods thereafter (which equates to January 1, 2018
for public entities with a December 31 year-end). Earlier application would be permitted only as of annual
reporting periods beginning after December 15, 2016, including interim reporting periods within that
reporting period.
 A public entity is an entity that is any one of the following: --
a. A public business entity
 b. A not-for-profit entity that has issued, or is a conduit bond obligor for, securities that are traded, listed, or
quoted on an exchange or an over-the-counter market
 c. An employee benefit plan that files or furnishes financial statements to the SEC
 All other entities are required to apply the revenue recognition standard for annual reporting periods
beginning on or after December 15, 2018, and interim reporting periods within annual reporting periods
beginning after December 15, 2019. Application would be permitted earlier only as of an annual reporting
period beginning after December 15, 2016, including interim reporting periods within that reporting period,
or an annual reporting period beginning after December 15, 2016, and interim reporting aicpa.org/FRC

3. Scope- Who should apply the Guidance ?
 The revenue recognition standard affects all entities—public, private, and not-for-profit—
that either enters into contracts with customers to transfer goods or services or enters into
contracts for the transfer of nonfinancial assets unless those contracts are within the scope
of other standards (for example: leases and insurance contracts). Financial instruments,
guarantees (other than product or service warranties), and nonmonetary exchanges
between entities in the same line of business to facilitate sales to customers or potential
customers are also scoped out.
** FASB ASC 606-10-15-2 through 15-4

4. Difference Between IFRS and US GAAP
GAAP IFRS
Stands for Generally Accepted Accounting Principles International Financial Reporting Standards
Introduction
Standard guidelines and structure for typical financial accounting. Universal financial reporting method that allows international businesses to understand
each other and work together.
Used in United States Over 110 countries, including those in the European Union
Performance elements
Revenue or expenses, assets or liabilities, gains, losses, comprehensive income Revenue or expenses, assets or liabilities
Required documents in financial
statements
Balance sheet, income statement, statement of comprehensive income, changes in equity,
cash flow statement, footnotes
Balance sheet, income statement, changes in equity, cash flow statement, footnotes
Inventory Estimates Last-in, first-out; first-in, first-out; or weighted-average cost First-in, first-out or weighted-average cost
Inventory Reversal Prohibited Permitted under certain criteria
Purpose of the framework
US GAAP (or FASB) framework has no provision that expressly requires management to
consider the framework in the absence of a standard or interpretation for an issue.
Under IFRS, company management is expressly required to consider the framework if
there is no standard or interpretation for an issue.
Objectives of financial statements
In general, broad focus to provide relevant info to a wide range of stakeholders. GAAP provides
separate objectives for business and non-business entities.
In general, broad focus to provide relevant info to a wide range of stakeholders. IFRS
provides the same set of objectives for business and non-business entities.
Underlying assumptions
The "going concern" assumption is not well-developed in the US GAAP framework. IFRS gives prominence to underlying assumptions such as accrual and going concern.
Qualitative characteristics
Relevance, reliability, comparability and understandability. GAAP establishes a hierarchy of
these characteristics. Relevance and reliability are primary qualities. Comparability is
secondary. Understandability is treated as a user-specific quality.
Relevance, reliability, comparability and understandability. The IASB framework (IFRS)
states that its decision cannot be based upon specific circumstances of individual users.
Definition of an asset
The US GAAP framework defines an asset as a future economic benefit. The IFRS framework defines an asset as a resource from which future economic benefit
will flow to the company.

5. Process Difference between ASC 605 &606 - in Brief
 ASC 605-10-25 states that revenue is not recognized until it is realized or realizable and earned. This
is considered to be the case when all four of the following criteria within SAB(Staff accounting
bulletin) 104 are met:
Persuasive evidence of an arrangement exists;
Delivery has occurred or services have been rendered;
Seller’s price to the buyer is fixed or determinable; and
Collectability is reasonably assured.
ASC Topic 606 prescribes a new five-step model that entities should follow in order to recognize
revenue. These five steps are mention in slide 5.
Disclosure & Reporting:
Historically, revenue disclosures in financial statements have been quite minimal. ASC 606
seeks to change that by requiring robust disclosure for the users of the financial statements.

6. The five steps(ASC 606) revenue recognition process
Identify the
contract
with a
customer
(Step 1)
Identify the
performance
obligations
in the
contract
(Step 2)
Determine
the
transaction
price
(Step 3)
Allocate the
transaction
price to
performance
obligations
(Step 4)
Recognize
revenue when
(or as) the
entity satisfies
a performance
obligation
(Step 5)
Core principle: Recognize revenue to depict the transfer of
promised goods or services to customers in an amount that reflects
the consideration the entity expects to be entitled in exchange for
those goods or services
This revenue recognition model is based on a control approach
which differs from the risks and rewards approach applied under
current U.S. GAAP.

7. Step 1: Identify the contract(s) with a customer (FASB ASC 606-10-25-1 through 25-8)
 The revenue recognition standard prescribes that an entity should account for a contract with a
customer that is within its scope only when all of the following criteria are met:
a. The parties to the contract have approved the contract (in writing, orally, or in accordance
with other customary business practices) and are committed to perform their respective
obligations.
b. The entity can identify each party’s rights regarding the goods or services to be
transferred.
c. The entity can identify the payment terms for the goods or services to be transferred.
d. The contract has commercial substance (that is, the risk, timing, or amount of the entity’s
future cash flows is expected to change as a result of the contract).
e. It is probable that the entity will collect substantially all of the consideration to which it will
be entitled in exchange for the goods or services that will be transferred to the customer
(collectability threshold). In evaluating whether collectability of an amount of consideration is
probable, an entity should consider only the customer’s ability and intention to pay that
amount of consideration when it is due. The amount of consideration to which the entity will
be entitled may be less than the price stated in the contract if the consideration is variable

8. Contd..
 Contract Modifications :-A contract modification is a change in the scope or price of
a contract (or both) that is approved by the parties. An entity should account for a
contract modification as a separate contract if both of the following conditions are
present:
a. The scope of the contract increases because the addition of promised goods or services
that are distinct.
b. The price of the contracts increases by an amount of consideration that reflects the
entity’s standalone selling prices of the additional promised goods or services and any
appropriate adjustments to that price to reflect the circumstances of the particular contract.
-Refer FASB for more contract modification information :--
Modification of a Contract for Goods in FASB ASC 606-10-55-111 through 55-116,
Change in the Transaction Price after a Contract Modification in FASB ASC 606-10-
55- 117 through 55- 124,
Modification of a Services Contract in FASB ASC 606-10-55-125 through 55-128,
Modification Resulting in a Cumulative Catch-Up Adjustment to Revenue in FASB
ASC 606-10-55-129 through 55-133, and
Unapproved Change in Scope and Price in FASB ASC 606-10-55-134 through 55-
135.

9. Step 2: Identify the Separate Performance Obligations in the Contract
(FASB ASC 606-10-25-14 through 25-22)
 The revenue recognition standard defines a performance obligation as a promise in a
contract with a customer to transfer a good or service to the customer.
 At contract inception, an entity should assess the goods or services promised in a contract
with a customer and should identify as a performance obligation (could be multiple
performance obligations) each promise to transfer to the customer either:
a. A good or service (or bundle of goods or services) that is distinct
b. A series of distinct goods or services that are substantially the same and that have the
same pattern of transfer to the customer.
 A good or service that is not distinct should be combined with other promised goods or
services until the entity identifies a bundle of goods or services that is distinct. In some
cases, that would result in the entity accounting for all the goods or services promised in a
contract as a single performance obligation.

10. Contd..
Depending on the contract, promised goods or services may include, but are not limited to, the following:
a. Sale of goods produced by an entity (for example, inventory of a manufacturer)
b. Resale of goods purchased by an entity (for example, merchandise of a retailer)
c. Resale of rights to goods or services purchased by an entity (for example, a ticket resold by an entity acting as
a principal, as described in FASB ASC 606-10-55-36 through 55-40)
d. Performing a contractually agreed-upon task (or tasks) for a customer
e. Providing a service of standing ready to provide goods or services (for example, unspecified updates to
software that are provided on a when-and-if-available basis) or of making goods or services available for a customer
to use as and when the customer decides
f. Providing a service of arranging for another party to transfer goods or services to a customer (for example,
acting as an agent of another party, as described in FASB ASC 606-10-55-36 through 55-40)
g. Granting rights to goods or services to be provided in the future that a customer can resell or provide to its
customer (for example, an entity selling a product to a retailer promises to transfer an additional good or service
to an individual who purchases the product from the retailer)
h. Constructing, manufacturing, or developing an asset on behalf of a customer
i. Granting licenses (see FASB ASC 606-10-55-54 through 55-65)
j. Granting options to purchase additional goods or services (when those options provide a customer with a
material right, as described in FASB ASC 606-10-55-41 through 55-45)

11. Step 3: Determine the Transaction Price (FASB ASC 606-10-32-2 through 32-27)
 The revenue recognition standard states that the transaction price is the amount of consideration (for
example, payment) to which an entity expects to be entitled in exchange for transferring promised goods or
services to a customer, excluding amounts collected on behalf of third parties (for example, some sales
taxes). To determine the transaction price, an entity should consider the effects of
a. variable consideration,
b. constraining estimates of variable consideration,
c. the existence of a significant financing component,
d. noncash considerations, and
e. consideration payable to the customer.
 An entity should consider the terms of the contract and its customary business practices to determine the
transaction price.
 But consideration can vary because of discounts, rebates, refunds, right of return,credits, price
concessions, incentives, performance bonuses, penalties, or other similar items. The promised
consideration also can vary if an entity’s entitlement to the consideration is contingent on the occurrence or
nonoccurrence of a future event. For example, an amount of consideration would be variable if either a
product was sold with a right of return or a fixed amount is promised as a performance bonus on
achievement of a specified milestone

12. Step 4: Allocate the Transaction Price to the Performance Obligations (FASB ASC
606-10-32-28 through 32-41)
 The revenue recognition standard states that if a contract has more than one POB, an entity should
allocate the transaction price to each separate POB in an amount that depicts the amount of consideration
to which the entity expects to be entitled in exchange for satisfying each separate POB.
 To allocate an appropriate amount of consideration to each POB, an entity should determine the stand-
alone selling price at contract inception of the distinct goods or services underlying each performance
obligation. Sometimes, the transaction price includes a discount or variable consideration that relates
entirely to one of the POB in a contract. The requirements specify when an entity should allocate the
discount or variable consideration to one (or some) POB ‘s rather than to all POB in the contract.
 An entity should allocate to the POB in the contract any subsequent changes in the transaction price on the
same basis as at contract inception. Amounts allocated to a satisfied POB should be recognized as
revenue, or as a reduction of revenue, in the period in which the transaction price changes.
 The standalone selling(SSP) price is the price at which an entity would sell a promised good or service
separately to a customer. The best evidence of a standalone selling price is the observable price of a good
or service when the entity
 sells that good or service separately in similar circumstances and to similar customers.

13. Contd..
The standard includes a list of suitable methods for estimating the standalone selling price of a good or service include, but are not
limited to, the following:
a. Adjusted market assessment approach—An entity could evaluate the market in which it sells goods or services and estimate
the price that a customer in that market would be willing to pay for those goods or services. That approach also might include
referring to prices from the entity’s competitors for similar goods or services and adjusting those prices as necessary to reflect the
entity’s costs and margins.
b. Expected cost plus a margin approach—An entity could forecast its expected costs of satisfying a performance obligation and
then add an appropriate margin for that good or service.
c. Residual approach—An entity may estimate the standalone selling price by reference to the total transaction price less the
sum of the observable standalone selling prices of other goods or services promised in the contract. However, an entity may use
a residual approach to estimate the standalone selling price of a good or service only if one of the following criteria is met:
 1. The entity sells the same good or service to different customers (at or near the same time) for a broad range of amounts (that
is, the selling price is highly variable because a representative standalone selling price is not discernible from past transactions or
other observable evidence).
 2. The entity has not yet established a price for that good or service, and the good or service has not previously been sold on a
standalone basis (that is, the selling price is uncertain).
A combination of methods may need to be used to estimate the standalone selling prices of the goods or services promised in the
contract if two or more of those goods or services have highly variable or uncertain standalone selling prices.
Allocating Discount -If a discount is allocated entirely to one or more performance obligations in the contract, an entity should allocate
the discount before using the residual approach to estimate the standalone selling price of a good or service
Allocation of Variable Consideration , Change in the transaction price can also impact the allocation of transaction price to POBS

14. Step 5: Recognize Revenue When (or as) the Entity Satisfies a Performance
Obligation
(FASB ASC 606-10-25-23 through 25-37) The revenue recognition standard states that an entity should recognize revenue when (or as) the entity satisfies a performance
obligation by transferring a promised good or service to a customer. An asset is transferred when (or as) the customer obtains
control of that asset.
 Control of an asset refers to the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset.
Control includes the ability to prevent other entities from directing the use of, and obtaining the benefits from, an asset.
 Goods and services are assets, even if only momentarily, when they are received and used (as in the case of many services). The
benefits of an asset are the potential cash flows (inflows or savings in outflows) that can be obtained directly or indirectly in many
ways, such as by
a. using the asset to produce goods or provide services (including public services),
b. using the asset to enhance the value of other assets,
c. using the asset to settle liabilities or reduce expenses,
d. selling or exchanging the asset,
e. pledging the asset to secure a loan, and
f. holding the asset.
 For each performance obligation, an entity would determine whether the entity satisfies the performance obligation over time by
transferring control of a promised good or service over time. If the entity does not satisfy a performance obligation over time, the
performance obligation is satisfied at a point in time.
 When evaluating whether a customer obtains control of an asset, any agreement to repurchase the asset should be considered.

15. Transition: The Rev Reg standard should be applied using one of the following two
methods: 1. Retrospectively to each prior reporting period presented (by applying the requirements on accounting changes in FASB
ASC 250-10-45-5 through 45-10) and the entity may elect any of the following practical expedients:
a. For completed contracts, an entity need not restate contracts that begin and end within the same annual reporting
period.
b. For completed contracts that have variable consideration, an entity may use the transaction price at the date the
contract was completed rather than estimating variable consideration amounts in the comparative reporting periods.
c. For all reporting periods presented before the date of initial application, an entity need not disclose the amount of the
transaction price allocated to remaining performance obligations and an explanation of when the entity expects to
recognize that amount as revenue.
 2. Retrospectively with the cumulative effect of initially applying the revenue recognition standard recognized at the date
of initial application. If an entity elects this transition method it also should provide the additional disclosures in reporting
periods that include the date of initial application of:
a. The amount by which each financial statement line item is affected in the current reporting period by the application of
the revenue recognition standard as compared to the guidance that was in effect before the change.
b. An explanation of the reasons for significant changes.

16. Contd..
 How an entity chooses to either apply full retrospective adoption of the revenue recognition standard, or a
combination of the allowable practical expedients, dictates the years that contracts will need to be restated and the
date of the cumulative effect adjustment. The following is a summary of transition options for public entities with a
calendar fiscal year:
 Full retrospective adoption
— January 1, 2018 apply the revenue recognition standard to all contracts
— 2016 and 2017 restate all contracts
— Date of Cumulative Adjustment: January 1, 2016
 Retrospective adoption using one or more practical expedient
— January 1, 2018 apply the revenue recognition standard to all contracts
— 2016 and 2017 restate for all contracts under the revenue recognition standard except for contracts under
the practical expedients elected (as discussed in FASB ASC 606-10-65-1)
— Date of Cumulative Adjustment: January 1, 2016
 Cumulative effect at the date of adoption
— January 1, 2018 apply the revenue recognition standard to all contracts and disclose the effect of
applying the new revenue recognition standard (each financial statement line item impact)
— 2016 and 2017 no contracts restated, continue to report on legacy accounting
— Date of Cumulative Adjustment: January 1, 2018
* Info has been shared in accordance with AICPA

17. Important definition -
 SSP – Stand Alone Selling Price – Entity would sell the goods or service to customer.
 POB- Performance obligation(Time , Event,% of complete, manual)
 BRF+- Define Rule and maintain values in the decision table
 Revenue Contract creation (IAS and GAAP)(via RAI Monitor)
 Multiple system transactions are diverted through RAR module. If SD order management system is not present then data can be
uploaded to RAR directly.
 RAR have 3 stages for data to processed- Order,Delivery,Billing ( Raw, Processable and processed.)
 Allocation Price / Allocation Effect
 Posting --Time based –every period/monthly ( trigger )
Event based –event trigger – shipment/good issue /POD
Contract Asset/Liability
 GLAccount for RAR:
Recognized Revenue (P&L)- Sales Revenue , Billed Revenue , etc.
Receivable Adjustment (B/S)
Revenue Adjustment (P&L)
Deferred Revenue (B/S)
Unbilled Receivable (B/S)
Contract Liability (B/S)
Contract Asset (B/S)

18. Stay tuned for more critical info and what steps are needed to implement Revenue Accounting & Reporting with data migration:-
For any information please contact on my page- https://www.linkedin.com/in/skverma1/
With Best Compliments:-
Sanjay Verma