Revenues from Contracts: Analysis on IFRS 15 and evaluation of potential effects of future adoption to Italian Listed Companies’ Financial Statements

Abstract

Revenue is one of the most important financial statement measures to both prepares and users of financial statements and it is used to measure and assess aspects on an entity’s past financial performance, future prospects and financial health. Revenue recognition is therefore one of the accounting topics most scrutinized by investors and regulators. Despite its significance and the increasing globalization of the world’s financial market, revenue recognition requirements prior to issuance of a new guidance in 2014 differed in US Generally Accepted Accounting Principles (“US GAAP”) from those in International Financial Reporting Standards (“IFRS”), at times resulting in different accounting for similar transactions. The FASB issued ASC 606, Revenue from Contracts with Customers, and ASC340-40 Other assets and Deferred Costs - Contracts with Customers, and the IAS issued IFRS 15, Revenue from Contracts with Customers (collectively, the “revenue standard”) in May 2014 along with consequential amendments to existing standards. With the exception of a few discrete areas, the revenue standard is converged, eliminating most differences between US GAAP and IFRS in accounting for revenue from contracts with customers. Most entities will see some level of change as a result of the implementation of that new standard: at the end of the day, in a nutshell, the new standard creates a single model for revenue recognition from contracts with customers and this single revenue recognition model will promote greater consistency and comparability across industries and capital markets Scope of work of this dissertation will be twofold. Firstly, providing you the background with a high level overview of the new requirements regarding recognition and timing of revenue, highlighting the big picture underlying the changing coming up with the introduction of the new revenue recognition standard IFRS 15, with a deep cross reference and analysis on the main topics embedded in the new standard and providing you some illustrative examples on how you can apply it. The principles in the standard will be applied using a five step model: 1. Identify the contract(s) with a customer 2. Identify the separate performance obligations (PO) in the contract 3. Determine the transaction price 4. Allocate the transaction price to the separate Pos 5. Recognise revenue when the entity satisfies a PO Lastly, the standard’s implications could be wide ranging, affecting business strategies, processes, systems, controls, financial statement recognition, and disclosures. The dissertation will provide you even an analysis of potential impacts of the new standard on Italian Listed Companies’ Financial Statements. To do that the dissertation provide you an overview on what are the main impacts by topics and sectors that will affect the financial statements of the companies listed in the Italian Stock Exchange