1. Understand the Core Principles
Familiarize yourself with the fundamental principles of IFRS 15 and ASC 606. These standards aim to provide a more consistent framework for recognizing revenue and include the five-step model for revenue recognition:
– Identify the contract with a customer.
– Identify the performance obligations in the contract.
– Determine the transaction price.
– Allocate the transaction price to the performance obligations.
– Recognize revenue when (or as) the entity satisfies a performance obligation.
2. Conduct a Comprehensive Impact Assessment
Evaluate how the new standards will impact your current revenue recognition processes:
– Review Contracts: Examine all existing customer contracts and identify changes in the timing and amount of revenue recognized.
– Analyze Revenue Streams: Determine how different revenue streams will be affected and document your findings.
3. Update Accounting Policies and Procedures
Revise your accounting policies to align with the new standards:
– Develop New Policies: Create detailed policies that outline how your company will apply the five-step model.
– Document Procedures: Clearly document the procedures for recognizing revenue, including the identification of performance obligations and allocation of transaction prices.
4. Train Your Staff
Ensure that all relevant employees are knowledgeable about the new standards:
– Provide Training: Conduct comprehensive training sessions for your accounting, finance, sales, and legal teams.
– Offer Resources: Supply training materials, such as guides, case studies, and examples, to help staff understand and apply the new rules.
5. Review and Revise Contracts
Ensure that customer contracts comply with the new standards:
– Standardize Contracts: Develop standardized contract templates that align with the new revenue recognition rules.
– Legal Review: Work with legal advisors to revise existing contracts where necessary and ensure new contracts comply with the standards.
6. Implement Technology Solutions
Leverage technology to manage the complexities of the new standards:
– Upgrade Systems: Invest in accounting software that supports the new revenue recognition rules and automates calculations.
– Real-Time Reporting: Implement systems that provide real-time visibility into revenue recognition and ensure compliance.
7. Strengthen Internal Controls
Enhance your internal controls to support compliance:
– Control Environment: Update your control environment to include checks and balances specifically for revenue recognition.
– Regular Audits: Conduct regular internal audits to ensure controls are effective and adhered to.
– Monitor Compliance: Establish a process for ongoing compliance monitoring and address any discrepancies promptly.
8. Enhance Financial Reporting
Update your financial statements and disclosures to reflect the new standards:
– Clear Reporting: Ensure financial statements are clear, accurate, and provide detailed explanations of revenue recognition practices.
– Detailed Disclosures: Include detailed notes explaining how the new standards impact your financial results and the methods used to recognize revenue.
9. Communicate with Stakeholders
Maintain transparency and keep stakeholders informed about the changes:
– Transparent Communication: Clearly communicate the impact of the new standards to investors, auditors, and other stakeholders.
– Regular Updates: Provide regular updates on how the company is implementing and complying with the new standards.
– Engage Stakeholders: Encourage questions and provide thorough responses to ensure all concerns are addressed.
10. Seek Professional Guidance
Consult with external experts to navigate complex issues:
– External Auditors: Work with external auditors to review your revenue recognition practices and ensure compliance.
– Accounting Experts: Leverage the expertise of accounting professionals who specialize in revenue recognition for guidance on specific issues.
– Stay Informed: Keep up to date with any changes or updates to the standards from regulatory bodies like IFRS and FASB.
