MAA716: AASB 15 and its Impact on Revenue Recognition in Australia

This report provides an analysis of the new accounting standard AASB 15 for revenue recognition from contracts with customers in Australia. It discusses the weaknesses of the old revenue standards and how the new standard addresses these weaknesses by providing more detailed revenue information, ensuring consistency in financial reporting, and improving planning and budgeting. The report further examines the impact of AASB 15 on the telecommunications and mining sectors, using Telstra and BHP Billiton as case studies, illustrating how these companies have adapted their revenue recognition practices to comply with the new standard, including the application of the five-step Revenue Recognition Model. The analysis is supported by references to annual reports and relevant accounting standards.

Solution 1(A):
The new accounting standard of AASB 15 for revenue recognition from contracts with
customers within Australia has caused the major changes in the ways of carrying out businesses
within Australian entities. The new revenue recognition model is introduced by AASB
(Australian Accounting Standards Board) for overcoming the inconsistencies that are present
across accounting practices for reporting contract revenues. This will ultimately help in attaining
high-quality accounting standards at a global level which is the major goal of IASB (Guidance
for AASB 15 Revenue from Contracts with Customers, 2017). As such, the major weakness
within the old revenue standards that the new accounting standards on revenue will help in
overcoming are discussed as follows:
 Inadequate Disclosure of Revenue Information: The old revenue standard was believed to
provide inadequate disclosure regarding the revenue information and also lacks
judgments and estimation. This has caused the need for developing new set of guidelines
for providing more detailed information in relation to the recognition of revenue. The
new standards have adopted the use of more judgments and estimation to sufficiently
disclose the information about the realization of revenue. The new standards have proved
to be useful in providing in-depth information about the nature, amount timing and
uncertainty of cash flow related to the contracts of the customer (IFRS 15 Revenue from
Contracts with Customers, 2014).
 Inconsistency in Financial Reporting of Revenue: The old revenue standards also suffer
from the weakness of having multiple accounting revenue-recognition standards. This is
because it is based on the Generally Accepted Accounting Principles that is estimated to
have about 180 articles on recognition of revenue. This has resulted in developing
inconsistencies in the financial reporting that has been overcome with the use of new
revenue standards. The new standards have provided a single set of frameworks to be
adopted for recognition of revenue and thus improving the comparability of financial
information across the entities.
 Lack of Planning and Budgeting: The old standards do not able in making forecast and
thus predicting the financial performance of an entity. However, the new standard
requires forecasts to be made adequately enable in stronger revenue and cash flow
budgeting (Almohashi, 2017).
Solution 1(B):
In order to explain the impact of new revenue recognition on any of two industrial sectors
it has been decided to take one company from telecommunication sector and other one mining
sector. Telstra is one of biggest telecommunication company in Australia and BHP Billiton is
largest mining company. Both of these companies are listed on the Australian Stock Exchange.
Telstra deals in providing telecom network across Australia and New Zealand and also
provides broadband, mobile and other services to their customers. As major operation of Telstra

is to provide bundle contracts to their customers that indicates that Telstra is significantly
impacted by the new revenue recognition requirements (Telstra Annual Report, 2017).
Previously revenue has been recognized in form of bundle contract and heavy discounts are
given to the customers but after the implication of new revenue recognition standard (AASB 15)
the contractual revenue from the customers have been recognized as distinct goods and service
provided under the bundle contract. This increases the accountability of Telstra as each telecom
services has to be separately shown irrespective of bundle service. As per AASB 15 “Revenue
from Contracts with customers” telecommunication companies have to apply five steps Revenue
Recognition Model to recognize the revenue. This model is explained in detail below:
 Identification of contract: Contract is defined as enforceable agreement between parties
where rights and obligations are defined either orally or in written. In this case Telstra has
binding contract with their customers. As in Telstra bundle contract there has been
consideration for services it qualifies for AASB 15.
 Identification of performance obligations: Telstra has to identify all the goods and
services that are being provide in a bundle contract. A good or service can be seen as
distinct when it is beneficial and identified separately.
 Determination of price: Price is defined as consideration received or to be received for
satisfying the contractual performance obligation. Here Telstra can apply most likely
method to calculate the consideration.
 Allocation of identified price: Through using the relative standalone basis formula Telstra
need to allocate the price to each performance obligation (IFRS in Telecommunication,
2015).
 Satisfaction of performance obligation: In order to recognize revenue there must be
satisfaction of each performance obligation.
The above method has been used by the Telstra as part of new revenue recognition
criteria set by AASB 15.

(Telstra has various incomes from bundle contract as sale of goods and sale of service)
(Source: Telstra Annual Report, 2017)

BHP Billiton belongs to mining sector and there has been great impact of new revenue
recognition standard on this company (BHP Billiton Annual Report, 2017). BHP Billiton have to
first evaluate whether their contracts falls under the AASB 15 or not. As all the contracts can
either with customer or collaborators, it is hard to determine in mining industry. It has been
found that many of contracts are with customers in case of BHP Billiton that forces them to
apply AASB 15 while recognizing the revenue from contract with customers. According to
AASB 15, revenue is recognised when control has been transferred to the customer in case of
mining business (IFRS 15, 2014).
(Source: BHP Billiton Annual Report, 2017)

References
Almohashi, A. 2017. Three Advantages of the New Revenue Recognition Standard IFRS15 and
ASC606. [Online]. Available at: http://www.alialmohashi.com/single-post/2017/08/27/Three-
Advantages-of-the-New-Revenue-Recognition-Standard-IFRS15-and-ASC606 [Accessed on: 30
August 2018].
BHP Billiton Annual Report. 2017. [Online]. Available on:
https://www.bhp.com/-/media/documents/investors/annual-reports/2017/
bhpannualreport2017.pdf [Accessed on: 30 August, 2018].
Guidance for AASB 15 Revenue from Contracts with Customers. 2017. [Online]. Available at:
https://www.treasury.nsw.gov.au/sites/default/files/2017-12/Guidance%20for%20AASB
%2015%20Revenue%20from%20contracts%20with%20customers.pdf [Accessed on: 30 August
2018].
IFRS 15 Revenue from Contracts with Customers. 2014. A closer look at the new revenue
recognition standard. [Online]. Available at:
https://www.ey.com/Publication/vwLUAssets/Applying_IFRS:_A_closer_look_at_the_new_rev
enue_recognition_standard_(June_2014)/$FILE/Applying-Rev-June2014.pdf [Accessed on: 30
August 2018].
IFRS 15. 2014. The new revenue recognition standard: Impact on mining and metals entities.
[Online]. Available on: https://www.ey.com/Publication/vwLUAssets/EY-Devel-MM-RevRec-
Sept2014/$FILE/EY-Devel-MM-RevRec-Sept2014.pdf [Accessed on: 30 August, 2018].
IFRS in Telecommunication. 2015. The new revenue recognition standard –
telecommunications. [Online]. Available on:
https://www.ey.com/Publication/vwLUAssets/Applying_IFRS_in_Telecommunications:_The_ne
w_revenue_recognition_standard_-_telecommunications./$File/Applying-Telcos-Mar2015.pdf
[Accessed on: 30 August, 2018].
Telstra Annual Report. 2017. [Online]. Available on:
https://www.telstra.com.au/content/dam/tcom/about-us/investors/pdf%20F/Annual-Report-
2017.PDF [Accessed on: 30 August, 2018].