Impact of IFRS 15 on BAE Systems plc

Strategic accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Review of IFRS 15 and its predecessor..................................................................................3
Impact on BAE Systems plc...................................................................................................4
Impact of users with the new standards..................................................................................5
Critical analysis......................................................................................................................6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8
APPENDIX......................................................................................................................................9

INTRODUCTION
IFRS is the financial reporting standard which is used for the purpose of making the
financial statements more transparent and comparable across the globe. It is issued by the
International Accounting Standards Board (IASB) which states the way in which the company
must present and report its accounts and transactions which helps in making the financial
statements more consistent and reliable. This essay provides a detailed analysis of the impact of
IFRS 15 on the financial statement preparation of the BAE Systems plc and its users, which is
the largest British multinational aerospace company which is headquartered in London, UK.
MAIN BODY
Review of IFRS 15 and its predecessor
The IFRS 15 is an international standard which provides more detailed and prescriptive
requirements which were earlier not included in the previous IFRS standards. This standard will
bring significant changes in respect to the revenue recognition policies which includes
substantial judgement in key areas (Oyedokun, 2016). In comparison to the other previous
standards such as IAS 18 which provides the separate revenue recognition in respect to goods
and services and this creates a point of distinction which has been removed in IFRS 15. this new
standard focuses on the determination of the performance based obligations and also
differentiates these obligations as satisfied “at a point in time” and those satisfied “over time”
which is determined in a way in which control over products and services is transferred to the
customers. This new standard states that the revenue should be recognized over time in respect to
certain deliverables which are accounted for under IAS 18 as goods such as manufacturing
contracts whereas other deliverables will be accounted for in IAS 18 as services, for instance
some construction contracts.
Other relevant changes that it includes are:
 The scope of IFRS 15 is being enlarged which includes costs in relation to the contracts
and also differentiating the cost of getting and fulfilling a contract. It also provides
guidance in respect to when it is right to capitalize the cost (Haggenmüller, 2019).
 In case of IAS 11, it provides specific and mandatory needs for accounting for
construction contracts which are accounted for as per the principles of IFRS 15.