Deutsches Rechnungslegungs Standards German Accounting Standards Committee e

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Deutsches Rechnungslegungs Standards German Accounting Standards Committee e. V. ® Re-thinking Revenue Recognition Liesel

Deutsches Rechnungslegungs Standards German Accounting Standards Committee e. V. ® Re-thinking Revenue Recognition Liesel Knorr, DRSC e. V. Brussels, 18 October 2006 -1 - 18 October 2006

Deutsches Rechnungslegungs Standards German Accounting Standards Committee e. V. ® IFRSs on Revenue Recognition

Deutsches Rechnungslegungs Standards German Accounting Standards Committee e. V. ® IFRSs on Revenue Recognition IAS 18 Revenue IAS 11 Construction Contracts IAS 17 Leases IAS 39 Financial Instruments: Recognition and Measurement IAS 41 Agriculture + recourse to US GAAP -2 - 18 October 2006

Deutsches Rechnungslegungs Standards German Accounting Standards Committee e. V. ® IAS 18 Revenue –

Deutsches Rechnungslegungs Standards German Accounting Standards Committee e. V. ® IAS 18 Revenue – Underlying Principle Definition Gross inflow of economic benefits during the period arising in the course of the ordinary activities (IAS 18. 7) Recognition - Probable that economic benefits will flow to the entity - Amount of revenue can be measured reliably Measurement Fair value of the consideration received or receivable (IAS 18. 9) -3 - 18 October 2006

Deutsches Rechnungslegungs Standards German Accounting Standards Committee e. V. ® IAS 18 Revenue –

Deutsches Rechnungslegungs Standards German Accounting Standards Committee e. V. ® IAS 18 Revenue – Underlying Principles (cont. ) Critical Events for the Recognition of Revenue Sale of goods - Transfer of the significant risks and rewards to the buyer - Entity retains neither continuing managerial involvement nor effective control - Costs incurred can be measured reliably Rendering of services - Stage of completion can be measured reliably - Costs incurred can be measured reliably -4 - 18 October 2006

Deutsches Rechnungslegungs Standards German Accounting Standards Committee e. V. ® General Problems arising -

Deutsches Rechnungslegungs Standards German Accounting Standards Committee e. V. ® General Problems arising - - From a conceptual perspective - Recourse to the realization principle in IAS 18 is said to be contradictory to the definition of revenues in the framework (income = measurable changes of assets and liabilities) - Application of IAS 18 can lead to recognition of deferred assets and deferred liabilities which do not meet the definition of assets and liabilities From a practical perspective - Content of the realization principle often unclear (as evidenced by the need for extensive additional explanations in the appendix of IAS 18) - How to account for multiple element arrangements? -5 - 18 October 2006

Deutsches Rechnungslegungs Standards German Accounting Standards Committee e. V. ® Current Developments Joint Project

Deutsches Rechnungslegungs Standards German Accounting Standards Committee e. V. ® Current Developments Joint Project IASB and FASB (since 2002) Purpose: IASB: (Conceptual) Revision of IAS 18 & IAS 11 FASB: Development of one single Statement on Revenue Recognition together: Convergence! Discussion Paper end of 2007 (? ) -6 - 18 October 2006

Deutsches Rechnungslegungs Standards German Accounting Standards Committee e. V. ® - IASB addresses the

Deutsches Rechnungslegungs Standards German Accounting Standards Committee e. V. ® - IASB addresses the issue of revenue recognition starting from the Framework definition of income - That is: “Income is measurable changes in assets and liabilities” (= Assets and Liabilities Approach) - This approach shall not be overridden by notions of realization and completion of the earnings process. - New approach will also cover issues currently addressed by IAS 11 -7 - 18 October 2006

Deutsches Rechnungslegungs Standards German Accounting Standards Committee Deutsches Rechnungslegungs Standards Committee e. V. Accounting

Deutsches Rechnungslegungs Standards German Accounting Standards Committee Deutsches Rechnungslegungs Standards Committee e. V. Accounting Standards Committee of Germany ® Zimmerstr. 30 10969 Berlin Tel. 030 20 64 12 0 Fax 030 20 64 12 15 www. drsc. de info@drsc. de -8 - Dr. Mareike Kühne – 24. 11. 2005