The objective of the Malaysian Financial Reporting Standards 15 (MFRS 15) is to provide a single, comprehensive revenue recognition model for all contracts with customers, improving comparability within industries, across industries, and across capital markets.
The answer to this is most likely, yes. However, the extent of the impact is dependent on revenue arrangements within your organisation. Existing revenue standards have limited revenue guidance that is often difficult to apply to complex transactions.
For example, revenue on extended services (such as warranties) that are promised in addition to the goods delivered have not always been recognised. There is also uncertainty whether for some construction contracts, revenue should be recognised as the construction occurs or upon its completion.
The new revenue standard prescribes a robust framework for recognising revenue, setting out a five-step approach.
The five steps might appear simple, but significant judgement will be needed to apply the underlying principles. Most entities should expect some level of change from their current practice.
Central to this approach is the concept that revenue is recognised when control is transferred to a customer, which will require judgement for many transactions.
Additionally, significantly enhanced disclosures are required surrounding specific accounting estimates and judgements such as determining the transaction price, allocating the transaction price to performance obligations and determining the satisfaction of performance obligations.
Implementation challenges and other considerations
The following should be considered as part of the implementation process of MFRS 15:
To successfully implement MFRS 15, early preparation is key. With less than a few months to the adoption date, it is important to understand the implications of applying the standard.
Recognising how MFRS 15 will impact your financials and how to implement it will help to minimise interruption to your business.
More importantly, it will result in a smoother implementation process with higher compliance post-implementation.
In the next few weeks, we will be sharing some of these issues across a number of industries here. Watch this space.
Coming up: MFRS 15 implementation challenges in the telecommunication industry