Comparing Australian Accounting Standards: AASB 15 vs. AASB 118 Report

This report analyzes the impact of the new Australian Accounting Standard AASB 15, Revenue from Contracts with Customers, in comparison to the older standard AASB 118. Utilizing the AREA framework (Anticipate/Analysis, Reflect/Research, Engage/Evaluate, and Act/Answer), the report examines the implications of AASB 15 on financial reporting. It details the analysis of the new standard's effects on companies and financial statement users, the potential implications on financial position and performance, an evaluation of the benefits of adoption, and the conclusion that AASB 15 should be adopted. The report highlights the key changes in revenue recognition methods, the advantages of a single, comprehensive standard, and the guidance provided for performance obligations. The new standard allows for three methods: retrospective, retrospective with practicality, and cumulative. The report concludes that adopting AASB 15 in its entirety from January 2018 is the correct approach for companies.

ANSWER
In the given case, the AREA framework is required to be used for the purpose of understanding
the effects of the introduction of new Australian accounting standard number 15 as compared to
the old Australian accounting standard number 118. AREA framework includes four parts which
includes anticipate, reflect, engage and act. These four parts are also known by the name –
analysis, research, evaluate and answer respectively (EPSRC, 2017). These have been explained
below:
 Anticipate / Analysis – This part includes the analysis of the effects and the impacts of
the introduction of new accounting standard – revenue from contracts with the customers
on the companies and the users of the financial statements. The accounting standard is
made effective from the 1st of January 2018 and thereafter. The issue under consideration
is the introduction of the new accounting standard. The new accounting standard has
made available the different idea and technique for accounting of revenue in the books of
accounts. Three techniques or methods have been given – retrospective method,
retrospective method with practicality of the nature of the business and last is the
cumulative method. Before adoption of the new accounting standard the entities shall
most likely analyze the impact that each method will have on their reported financial
position and the financial performance of the company (KPMG, 2015).
 Reflect / Research – Under this part, the potential implications of the new accounting
standard on the financial position and the financial performance of the company has been
detailed. In the new accounting standard number 15, the entities will be recognizing
their revenue at the amount which is equivalent to the amount that the company is
entitled to rather than at the fair value of the consideration of the time when it will be
received or receivable as done in the earlier accounting standard 118 (AASB, 2014).
Through this practice, the revenue as reported in the financial statements will increase in
future on one hand and on other hand the operation of the cash will be less.

 Engage / Evaluate – Under this part, the issue is evaluated whether it is beneficial to
introduce and adopt the new accounting standard. The first main advantage that the new
accounting standard has given is that all the guidance relating to the adoption,
measurement, accounting treatment and other related issues has been mentioned at one
place that is in the same accounting standard whereas in the earlier accounting standard
there have been numerous of guidance notes and interpretations which are available at
different place either clubbed with another accounting standard or given in separate
guidance note (AASB, 2010). Another benefit that the new accounting standard has
given is the inclusion of the particular guidance note for specifying the performance
obligations in the particular contract. Whereas in the earlier standard, the guidance was
very limited due to which the users of the financial statements have not found the easily
understandable results.
 Act / Answer- Under this part the answer to the issue is given and accordingly new
AASB 15 shall be adopted in true spirit from the calendar year beginning from January
2018.
REFERENCES
AASB,(2010),“Revenue”, available on
http://www.aasb.gov.au/admin/file/content105/c9/AASB118_07
-04_COMPoct10_01 -11.pdf accessed on 09/10/2017.
AASB, (2014), “Revenue From Contracts with Customers” available on
http://www.aasb.gov.au/admin/file/content105/c9/AASB15_12-14.pdf
accessed on 09/10/2017.
EPSRC, (2017), “AREA Framework”, available
on https://www.epsrc.ac.uk/research/framework/area/ accessed on 09/10/2017.

KPMG, (2015), “Implementing the new revenue recognition standard AASB 15” available on
https://assets.kpmg.com/content/dam/kpmg/pdf/2015/09/implementing-revenue
-standard-aasb15-15-sep-2015.pdf accessed on 09/10/2017.