Changes in Reporting after Adoption of AASB 15: Revenue Recognition

This assignment aims to discuss briefly the changes occurred in reporting after the application of new accounting standard AASB 15: Revenue recognition of contracts with customers. This is provided along with a real-time example of an ASX Listed company to understand the effects of implementation of such standard in the financial reporting of the company. It also came to notice during the course of the assignment that the inventory ownership and its recognition be a little affected due to the change in the timing of recognition of such inventory in the name of the company. The other standards on accounting will have no impact or less impact with the introduction of this new accounting standard on revenue, that is AASB 15: revenue from contracts with customers.

Executive summary
This assignment aims to discuss briefly the changes occurred in reporting after the application of
new accounting standard AASB 15: Revenue recognition of contracts with customers. This is
provided along with a real time example of an ASX Listed company to understand the effects of
implementation of such standard in the financial reporting of the company. It also came to notice
during the course of the assignment that the inventory ownership and its recognition be a little
affected due to the change in the timing of recognition of such inventory in the name of the
company. The other standards on accounting will have no impact or less impact with the
introduction of this new accounting standard on revenue, that is AASB 15: revenue from contracts
with customers

Table of Contents
Introduction...........................................................................................................................................3
Part A.....................................................................................................................................................3
Revenue Recognition and Requirements as per AASB 15..................................................................3
Measurement of Revenue according to AASB 15..............................................................................4
Part B.....................................................................................................................................................4
Potential impact on adoption of AASB 15 in a Company...................................................................4
Conclusion.............................................................................................................................................6
References.............................................................................................................................................8

Introduction
As revenue recognition is vital for the performance of a company, it is important to have a separate
standard such as AASB 15 for dealing in the recognition of revenue by a company in its financial
statements. AASB 15, which, deal with revenue recognition of contracts with customers, requires a
company to record the revenue in its books of accounts only when the realisation of money from
such transaction is certain. The revenue from such transaction must be readily realisable with
certainty, this standard AASB 15 includes the recognition of only contracts related to customers, but
it does not deal with the recognition of leases, insurance contracts and financial instruments.
Part A
Revenue Recognition and Requirements as per AASB 15
Revenue recognition refers to recording of revenue from contracts or customers in the books of
accounts; this is in accordance with regulatory requirements in form of standards on accounting
issues by AASB. The applicable Accounting standard for recognition of revenue is AASB 15,
Recognition of revenue from contracts with customers (Alexander, 2016). There is a five-stage model
of recognising revenue as per this standard that is as follows:
 The contract with the customer must be identified
 The performance obligations identified in the contract
 The transaction price to be determined (Dichev, 2017)
 The transaction price should be allocated to the transaction price
 When the obligations related to performance of that contract is satisfied the revenue is
recognised.
The company should assess the customer’s ability and concern to pay for the contract before
recognising such revenue from the contract. The price at which the transaction takes place be
recorded on pro rate to their relative standalone prices; here standalone prices would mean those
prices at which, these products or services sold separately. The AASB 15 requires various disclosures
while reporting revenue in the financial statements of a company.
A company has to disclose all of its particulars with the customers along with any significant
judgements and changes in the judgements, made in incorporating this standard into the company’s
reporting procedures to those contracts. In addition, there is compulsory disclosure of any
capitalised cost that incurred for fulfilling a contract with the customer. This AASB 15 is compulsory
for all the ASX listed entities to incorporate in its accounting process for financial reporting beginning
on or after 1-01-2018 (Mun, 2018).
Measurement of Revenue according to AASB 15
The revenue measured is in accordance with the agreed transaction amount for the sale of such
goods or services to the customers, it excludes any agreed third party payments, which would
normally include tax, transportation cost, etc. Even the estimate of the transaction is changed based

on the nature of such transaction by taking into consideration the timing involved and the amount
agreed for based on that (Arnott, et al., 2017). The consideration can be in any form, such as cash or
kind; the estimate of such revenue is inclusive of all such types of consideration. It may be variable
consideration depending on the product or service, or a fixed consideration irrespective of a certain
aspects of contracts, everything of these are involved in the measurement of revenue from contracts
with customers. If the consideration is a variable type, then the company will further analyse and
assess the amount that gained from such transaction and accordingly the amount recorded. Any
discounts, penalties, etc. considered while making an estimate of such revenue, including the
contingency of any event that is collateral to the happening of this transaction with the customer.
A company will determine a transaction in such a way that the agreed goods or services delivered to
the customer in a way, as it should be in according to the contract with customer. If there are any
changes in the transaction price due to its variable nature, then it is as and when it comes to the
knowledge of company updated regarding such event. If there is any finance component in the
consideration based on the contract then even that is considered while measurement of such
revenue (Smith, 2015). If there is any non-cash consideration from a customer for a contract, then
such consideration recorded at its fair value based on its receipt timing and nature (Jefferson, 2017).
The non-cash consideration recorded only when the right and possession of such non-cash element
transferred in company’s name. Similarly, if there is any consideration payable to a customer then
such amount will recorded as per the consideration measured in accordance with this standard on
accounting AASB 15.
Part B
Potential impact on adoption of AASB 15 in a Company
For purpose of this analysis, and to understand the impact of AASB 15, I have considered an ASX
Listed company “ARB CORPORATION LIMITED “in the latest annual report of this company. In the
annual report of the company, it mentioned at the beginning of disclosure for financial statements
that the financial reports are prepared in accordance with the requirements of Australian
Accounting Standards Board laid AASB standards on financial reporting Framework. Thus complying
with the applicable new accounting standard AASB 15 that deals with recognition of revenue from
contracts with customers (Sithole, et al., 2017). This mentioned under the notes to the financial
statements column that the adoption of AASB 15 on consolidated financial statements of the entity
will have no effect on the revenue recognition of any contracts with customers and there is no
significant change identified from application of this standard AASB 15.
With the adoption of AASB 15, there will be an enhanced disclosures relating to its revenue, provides
guidelines for those that were dealt in the earlier standard including guidelines for multiple level
arrangements. The revenue from sales for this company has grown at an average of 9.5 % over 10
years, based on this view; the adoption of AASB 15 did not affect the change in the average revenue
from sales of this company (Dumay & Baard, 2017). In addition, when we look at the average of 10
years of profit after tax, we can see that it has grown at a constant rate of 10.6 %, even here in this
case, there is no much deviation in the growth of profits that is derived after tax with adoption of
AASB 15. There may be a change in disclosure requirement as the company has mentioned in its
annual report under notes to financial statements but there is no much change in terms of its
revenue nor in terms of its profit after tax comparing last 10 years of operations of the company.

When comparing the two financial periods sales and profits, that is profitability ratio which, is sales
in 2018 is $423,975, profit after tax in 2018 is $50,969 where as sales in 2017 was $379,593, and
profit after tax in 2017 was $49,152 (Heminway, 2017).
Based on above figures, the profit to sales ratio in 2018 is 8.3182 and the profit to sales ratio in 2017
was 7.7228, there is no much change in the ratio through which we can say that the effect of
adoption of AASB 15 on revenue of sales of ARB Corporation Ltd is not much significant (Goldmann,
2016).
On analysing the disclosure requirements of the revenue from sales by the company in the annual
report 2018 comparing with annual report 2017, we can say that the key changes are that the
disclosure related to various revenue elements were made in the new annual report that is done in
accordance with AASB 15 (Gooley, 2016).
Where the old annual report that made prior to the adoption of new accounting standard AASB 15 is
having fewer disclosure items in the notes to the financial statements of the company. In the annual
report of the company relating to the notes to financial statements, that contains revenue from
operations. We can see that the income other than sales has significantly changed as in the year
2017 it was $1,613 where as in the year 2018 the income other than sales is $2,469. Here the % of
change of income other than sales for the company between 2017 to the current year 2018 in the
annual report is 153.06 % that is a change to be considered due to adoption of new accounting
standard AASB 15 that deals with revenue from operations (Knechel & Salterio, 2016).
AASB 15 has an inclusion definition of revenue recognition that is goods sold which produced by the
entity, goods resold by the entity, which was earlier purchased, rights on goods resold by the
company that were earlier purchased. In addition, it includes agreed upon task to perform for a
customer based on the contract, service provided of arranging for another party to transfer goods or
services to a customer, rights granted to services or also to goods provided in the future that a
customer can resell or provide to its customer (Kew & Stredwick, 2017).
Constructing of buildings by the company including renting of such construction contracts,
manufacturing or developing an asset based on the customer requirements or on the patents
present with the company on behalf of a customer and granting licences for various process, Options
granted for purchase of additional goods or services.
The company has indeed followed the restatement provisions applicable to a listed company as per
the AASB standards that deals with financial reporting framework. When there is a change in the
standard of accounting then both the periods that mentioned in the annual report’s financial
statements changed such that to look like there was no change happened in accounting standard
(Fay & Negangard, 2017). However, in case company use cumulative approach of reporting its
financial statements then it has to show the comparison in the disclosure of the effects of change if
the changes were made.
With the introduction of AASB 15, there is also an impact on inventory recognition where, as per
AASB 101 Inventories there is no guidance for the time of recognition of such purchased inventory,
which previously followed as per AASB 118 Revenue to determine that point in time. Well as per the
new accounting standard, the recognition of inventory would be when the significant risk and

reward of such inventory transferred to the name of the company. Thus, this change in the timing of
recognition of inventory could influence the inventory management metrics and working capital
ratios of the company (Hepp, 2018).
Conclusion
Based on all the detailed above analysis of the changes caused to a listed company on adoption of a
new standard on accounting, which is AASB 15, there is no much changes in terms of numbers in
revenue from operations as well as income other than revenue. We have seen even the profit after
tax has not changed even after implementation of this standard on accounting,
it is thus noted as per the observation that the change in financial reporting to the company is
basically was in the change of disclosures which is enhanced with further detail on those revenues
that was earlier not part of the notes to the accounts and key changes that happen when reporting
interim financial statements during the period of 2018 – 2019 as the new standard on accounting
came into force only in between of the financial year but not at the beginning of the financial year
(Lavassani & Movahedi, 2017).
The evidences for the above explanation is as below:

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