The IFRS 15 approach may result in some taxes being presented on a net basis and others on a gross basis.
The US GAAP policy election simplifies the accounting for sales taxes compared to IFRS Standards, but may yield a different presentation and transaction price when elected.
Sales of nonfinancial assets, such as property, plant and equipment (IAS 16), intangible assets (IAS 38) and investment property (IAS 40), are accounted for using the measurement and derecognition guidance of IFRS 15.
Sales of a subsidiary or equity method investee are outside the scope of IFRS 15 and in scope of the deconsolidation guidance (IFRS 10 and IAS 28, respectively).
Sales of nonfinancial assets and in-substance nonfinancial assets scoped into Subtopic 610-20 are accounted for using the contract existence, separation, measurement and derecognition guidance in Topic 606.
Sales of a subsidiary that only has nonfinancial assets and/or in-substance nonfinancial assets and is not a business are scoped into Subtopic 610-20. This includes partial sale transactions.
Sales of a subsidiary or group of assets that constitutes a business or not-for-profit activity continue to be accounted for under thedeconsolidation guidance (Topic 810).
- Under IFRS Standards, applying the deconsolidation guidance (IFRS 10) results in the gain or loss being measured using the fair value of expected proceeds. It however is unclear if IFRS 10 would always apply. The IFRS Interpretation Committee discussed a similar issue in 2020 but did not finalize itsAgenda Decision.
- Under US GAAP (Subtopic 610-20), the company estimates the transaction price following the variable consideration guidance in Topic 606.
Onerous revenue contracts are accounted for under IAS 371. A provision is recognized when the unavoidable costs of meeting the obligations under a contract exceed the economic benefits to be received.The unavoidable costs are the lower of the costs of fulfilling the contract and any compensation or penalties from the failure to fulfill it.
Amendmentsto IAS 37 effective for annual reporting periods beginning on or after January 1, 2022 clarify which costs should be used to identify onerous contracts. The cost of fulfilling a contract comprises costs that relate directly to the contract, and include (1) the incremental costs of fulfilling that contract – e.g. direct labor and materials; and (2) an allocation of other costs that relate directly to fulfilling contracts – e.g. an allocation of the depreciation charge for an item of property, plant and equipment used in fulfilling that contract.
US GAAP has no general guidance for recognizing a provision for onerous contracts, but instead the specific recognition and measurement requirements of the relevant Codification Topics/ Subtopics apply.
For example, for long-term construction- and production-type contracts2, a company is allowed to determine the provision for losses at either the contract level (like IFRS Standards) or the performance obligation level (unlike IFRS standards).
- the renewal is agreed, on the basis that the renewal is regarded as a modification of an existing contract in which the license has already been delivered; or
- the renewal period starts, on the basis that this is the date from which the customer can use and benefit from the renewal.
ASU 2021-08creates an exception to the general business combination guidance (Topic 805). An acquirer applies Topic 606, instead of fair value, to recognize and measure contract assets and contract liabilities arising from revenue contracts with customers.
The amendments in the ASU are effective for fiscal years beginning after December 15, 2022 for public business entities and December 15, 2023 for all other entities. Early adoption is permitted.
- the contract term is one year or less; or
- the company qualifies for the practical expedient to recognize revenue in theamount that it has the right to invoice.
- is a sales- or usage-based royalty for a license of intellectual property; or
- meets the criteria to be allocated entirely to a wholly unsatisfiedperformance obligation, or to a wholly unsatisfied distinct good or service that is part of a single performance obligation under the series guidance.
All entities are required to disclose:
- a disaggregation into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors; and
- sufficient information about the relationship between the disclosure of disaggregated revenue and revenue information that is disclosed for each reportable segment (if the company applies the standard on operating segments).
Other annual disclosures about revenue are typically not required for interim financial reporting.
Public entities are required to disclose:
- a disaggregation of revenue for the period;
- opening and closing balances of contract assets, contract liabilities and receivables;
- revenue recognized in the current period that was included in the opening contract liability balance;
- revenue from performance obligations satisfied (or partially satisfied) in previous periods; and
- information about the company's remaining performance obligations.
Non-public entities may elect not to provide certain disclosures required for public entities.
As stated3by the Chair of the International Accounting Standards Board: “Now, it is one thing getting to converged Standards. It is yet another to keep converged Standards converged.” While IFRS 15 and Topic 606 were substantially converged when issued, the FASB and the IASB have since responded to their stakeholders’ needs differently, thereby opening the door to new GAAP differences. For example, the IASB has recently refined its guidance on onerous contracts in IAS 37 which may affect certain loss-making revenue contracts, while the FASB has developed further guidance on license renewals (and extensions) and customer contracts in business combinations.
These GAAP differences, combined with the various accounting judgments that often affect the recognition of revenue, mean that revenue and performance from customer contracts may be reported differently across peer companies. Dual preparers and users of financial statements should carefully assess the effect of key differences between IFRS Standards and US GAAP in this area.