AASB 15: Analysis of Changes and Implications for Financial Reporting

This report provides a detailed analysis of the impact of AASB 15, the new revenue recognition standard that replaced AASB 18, effective from January 1, 2018, for entities with a December year-end. The report highlights the major differences between the two standards, including the aggregation of guidance, the shift from a risk-based to a control-based model, specific criteria for performance obligation satisfaction, measurement of consideration, identification of performance obligations, enhanced disclosure requirements, capitalization of contract acquisition costs, bundling of contracts, and the introduction of the reversal constraint concept. Furthermore, the new standard excludes dividend and interest income, shifting these to AASB 9. The report concludes that AASB 15 is more elaborate and requires changes in business practices and IT systems.

AUDIT
2018

1
By student name
Professor
Date: 5th Sep, 2018.
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CONTENTS:
Introduction...........…………………………………………………......................…………..3
Analysis...........……………………….………………………………......................………….3
Conclusion…............…………………………………………………......................………….6
References......................……………….....................................................................................7
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Introduction:
The erstwhile AASB 18 got replaced by a newer version containing modifications by AASB 15. The new
standard came into effect starting January 1 2018. So it becomes applicable for those entities that have a December
year end. For those entities that have a year end of June, they will have this standard into effect from July 1, 2018.
Analysis:
The major differences between the new and old versions of the same standard are as follows:
S.no AASB 18 AASB 15
1) Under the old standard the guidance pertaining
to revenue were spread across multiple standards
and several number of interpretations (Abdullah
& Said, 2017).
In the new standard all the guidance, definitions are all
aggregated at one place only, i.e., the standard itself.
The standard provides a single integrated point of
information.
2) The earlier standard revolved more around a
model which was based on risks and its
consequent rewards pertaining to a transaction.
The new standard is more inclined towards a model
that is control based. Here risks and the associated
rewards are treated more as an indicator of transfer of
control which relate to performance obligations that
are satisfied at a point of time.
3) AAs 18 acted more like a guidance book for
revenue recognition and its applications in
varied circumstances such as revenue from
service arrangements or revenue from
construction contracts.
The new standard lays down criteria that are very
specific and they determine the point of time when a
performance obligation is satisfied (Wellmer, 2018).
4) The earlier standard used the fair value concept
for measuring the revenue that has been received
Unlike the previous version, here the measurement of
consideration is taken as the amount which the
company expects to receive or is entitled to upon
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as well as for the one that was receivable. completion of the task.
5) There was only a limited guidance that was
available for the identification of performance
obligations pertaining to a contract.
For the identification of performance obligation
pertaining to a contract, specific guidance has been
provided.
6) In the earlier version, the disclosures related to
revenue recognition were limited to discussion
on policies (Bouret, 2017).
The new version contains extensive and detailed
disclosures on revenue recognition. Quite a few of
those disclosures are new. i.e., included for the first
time.
7) When dealing with capitalization, the costs
related to acquiring a contract, may or may not
be capitalized.
However, the new standard makes it mandatory to
capitalize the cost related to relating to contract
acquisition upon meeting certain criteria that are stated
in the standard.
8) In this version, contracts which were similar and
were undertaken for a same client or customer
were dealt with separately to one another. There
was no bundling concept involved in the older
version.
The new standard follows the bundling of contracts
concept. Under this concept, multiple but similar
contracts undertaken for a same customer are bundled
together and the conditions relating to the performance
are being assessed as whole. It even follows an un-
bundling concept particularly in situation where
companies undertake both sale of the bundled lot as
separate items and as a bundle as whole (Wang, et al.,
2018).
9) AASB 18 was only concerned about the
completion or degree of completion of the
contract. There was no deferral of revenue
permitted even for contracts which were
subjected to return clauses or penalties for not
AASB 15, unlike its predecessor talks about the
concept of reversal constraint. The concept states that
revenue will be recognized only if it is highly probable
that there will be no reversal of revenue. This will
ultimately result in deferral of revenue for those
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meeting deadlines or standards. contracts which have clauses related to return of goods
or penalties (Durtschi, 2004).
10) The earlier standard dealt with income received
as dividend from corporates and other entities as
well. I also included income earned as interest in
its scope.
However, in the new standard both dividend income as
well as interest income are excluded from the scope of
AASB 15. Instead, issues related to both have been
shifted to AASB 9 which deals with Financial
Instruments.
Conclusion:
The new standard is far more elaborate when compare to its predecessor. It will require a few changes in
the way the business is being carried out. In addition to this, the new standard will also require modifications to the
IT systems of the company to some extent.
References
Abdullah, W. & Said, R., 2017. Religious, Educational Background and Corporate Crime Tolerance by
Accounting Professionals. State-of-the-Art Theories and Empirical Evidence, pp. 129-149.
Bouret, I., 2017. Benefits of higher education in mid-life: A life course agency perspective. Journal of
Adult and Continuing Education, 23(1), pp. 15-31.
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Durtschi, C. H. W. C., 2004. The Effective Use of Benford’s Law to Assist in Detecting Fraud in Accounting
Data. Journal of Forensic Accounting, pp. 17-34.
Wang, Z., Chiu, Y., li, Y. & Hsiao, L., 2018. Performance appraisal for the operation and management of
listed and OTC Taiwanese companies with DEA benchmarking models.
Wellmer, A., 2018. The Persistence of Modernity: Aesthetics, Ethics and Postmodernism. fourth ed. UK:
Polity Press.
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