The FRC has published a thematic review to help companies with their IFRS 15 disclosures. The thematic review is based on a sample of interim statements and highlights issues as well as providing examples of good practice. Companies are expected to have regard to these when preparing their annual report and accounts.
Summary of FRC expectations
Users of the accounts need to clearly see how the new standard has changed the business’s revenue recognition and with sufficient detail to allow them to understand what impact this has had on their financial performance.
Sufficient degree of information about transition adjustments should be provided. This could include explaining the transition method; disaggregating the adjustment into impact categories; and linking these to the impact of any changes to accounting policies and practices. The impact of transition on the balance sheet should be explained, including disclosures of accounting policies for new items such as contract assets and contract liabilities. Changes to the accounting for costs incurred in obtaining contracts and fulfilling contract obligations recognised on transition should also be covered in the transition disclosures.
Changes made to accounting policies should be explained, including the reasons for these changes; a comparison to the old policies; and an explanation of any judgements and estimates made by management. Contract asset and liability accounting policies should also be provided when the balances are material including the requirement to provide for expected credit losses in accordance with IFRS 9.
Sufficient Information should be included about the judgements made in determining performance obligations and when they are satisfied. This information should also be consistent with business model disclosures in the strategic report. For performance obligations satisfied at a point in time, the disclosure should be clear in terms of when control is passes to the customer and why, rather than using boilerplate language. For performance obligations recognised over time, it should be clear which criteria under IFRS 15 is being used to recognise revenue over time. In addition, there should be clear disclosure on the method used to measure progress of revenue recognised over time (input or output), with sufficient detail on how this has been applied in practice.
Disclosure of disaggregated revenue should provide useful information about how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. The disclosure should be consistent with information commonly disclosed outside of the financial statements such as the strategic report and in categories that are meaningful to the business.
Modified retrospective model
Companies using the modified retrospective model should acknowledge the issue of comparability eg clarifying the different measurement bases used and how this impacts the ability to compare current and prior year figures. Companies should consider extending the IFRS 15 disclosures requirements to include disclosure of current year measures (including Alternative Performance Measures) in the strategic report on both an IAS 18 and IFRS 15 basis.
Regard should be given to requirements of IAS 8 ‘Accounting Policies, Changes in Accounting Estimates and Errors’ for example, disclosing the impact of transition on earnings per share when the full retrospective method is applied.
Finally, even if the impact of IFRS 15 is immaterial and many of the transition disclosures are not required, companies are expected to disclose any significant judgements made in coming to this conclusion.
For further information and advice on IFRS 15, please speak to Louise Ward.