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IFRS 15: The New Revenue Framework: What Corporates Need To Know

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The financial reporting landscape will witness significant changes in 2018 as the two major standards on Revenue and Financial instruments (IFRS 15 Revenue from contracts with customers and IFRS 9 Financial Instruments) become effective.

For many reporting entities, the new revenue accounting principles is a paradigm shift that require care in implementation.

The investment community including auditors, regulators, financial analysts, financial reporters and the investing public at large need to be aware of the changes the new standard brings and its impact on the financial statements of reporting entities otherwise there may be a systemic wave of miscommunication, misinterpretation and analysis of company’s financial performance and position if the knowledge gap is not filled.

IFRS 15- Revenue from contracts with customers was issued on May 28, 2014 as a result of the joint effort of the International Accounting standard Board (IASB) and the Financial Accounting Standard Board (FASB)’s response to the concern in the investment community on the differences in accounting for similar revenue transactions using the different reporting framework.

Before the convergence of the revenue accounting, a huge deal of reconciliation effort went into attempting to make a meaningful comparison of financial information for most multinational companies operating in different jurisdictions and applying different GAAPs.

 Revenue is a crucial metric in performance reporting and there was need to achieve a level of comparability and enhance the quality and consistency of how it is being measured.

Notwithstanding the convergence that has been achieved in reporting revenues by the new standard, all reporting entities have to deal with managing the changes that results from the adoption of the new standard.

The changes have impacts on the nature of financial information that will be produced (in terms of disclosures, measurements, and presentations) and the processes, controls, systems that will generate the financial information.

One of the critical areas to highlight is the degree of managerial judgment that is required in complying with the standard. For instance, IFRS 15 requires companies to include in the measurement of revenue, variable considerations that it will be entitled to so far there will not be significant future reversals (constraining revenue).

A significant degree of judgment is required in determining the timing, the amount, the estimation method in arriving at the revenue to be recognized.

The principle of unbundling transactions to determine the performance obligations within each contract is another area where judgement is required.

Companies are now required to allocate the transaction price to each performance obligation provided on a relative standalone basis. There are a number of obligations within a contract that may not have a standalone transaction price or selling price or a comparable price for a similar transaction.

The application of the standard will requires a degree of judgment in the allocation process and the determination of revenue to be recognized.

In addition to the degree of judgements required in the application of the standard, there is the introduction of some new and unique assets lines in the balance sheet that will require accounting policies and process set up. The nature of these assets have to be carefully understood and interpreted.

IFRS 15: 91 requires the incremental costs of obtaining a contract with a customer to be recognized as an asset if the entity expects to recover those costs. The incremental costs are costs incurred to obtain a contract with a customer that would not have been incurred if the contract had not been obtained.

For instance, sales commissions can be capitalized as assets. This new class of assets need to be carefully understood and interpreted as they are subject to specific principles on amortization and impairments.

For SEC regulated entities with December reporting period, the first time adoption of IFRS 15 will be reported in their first quarter financial statements in March, corporates have to brace up for the decisions that need to be made especially in term of measurement, presentation and disclosure requirements of revenue transactions.

The new standard gives room for alternative approaches and options for transitioning and the impact of each transition approach has a huge impact on the financial information provided in those first set of accounts.

For instance a company that chooses to apply the full retrospective approach and no practical expedients will be required to assess the impact of the adoption of the new standard on revenue contracts that dates back to as far as possible and to adjust the impact of the changes in principles to financial statements presented for the affected periods while companies that choose the modified approach will only be required to adjust the effect of the adoption on the opening balances of their current reporting period with no restatement of the comparatives.

This invariably implies that the companies that choose to apply the retrospective approach without any practical expedient will present a minimum of three (3) statement of financial position on transition and will have more elaborate notes and disclosures than those who choose not to.

Although the financial results of the companies that choose to adopt the retrospective approach will show less volatility in the revenue profile overtime and will have more comparable results than those who do not.

Although IFRS 15 gives room for judgments and subjectivity, the standard, however, requires companies to make more elaborate disclosures than the existing guidance. Companies will be required to provide both qualitative and quantitative information about its contracts with customers, the significant judgements, and changes in the judgements made in applying [IFRS 15] to those contracts and any assets recognized from the costs to obtain or fulfil a contract with a customer in accordance with [IFRS 15:91] in addition to other more elaborate requirements on disclosures that explain the impact that new accounting standards are expected to have on an entity’s financial statements .

This will aid the understanding of the financial statement impact of the adoption of the new revenue standard.

The investment community needs to continue to re-orientate itself to understand the intricacies and peculiarities of the application of the new revenue standard; it is quite obvious that areas that will potentially require more attention will be the application of judgement and the use of significant model estimates, the peculiarities of the new assets lines created and for first time reporters, the impact of transition decisions on trend analysis.

The post IFRS 15: The new revenue framework – What corporates need to know appeared first on Deloitte Nigeria Blog.

 


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E-Financial

Lagos State Appoints MoneyMaster as Payment Partner for “Ounje Eko” Programme

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“Ounje Eko”, the food price discount initiative of the Lagos State Government, has appointed leading payment service bank, MoneyMaster Payment Service Bank Limited (MMPSB), as its collaborator in the bid to ensure ease of payments at the market.

MoneyMaster is one of the Central Bank of Nigeria-licensed Payment Service Banks (PSBs) to promote financial inclusion across Nigeria.

Under the partnership, MMPSB will apply its cutting-edge payment solution to engender easy payment and reconciliation in order to make   the experiences of Lagosians who will be getting their food supplies from the markets pleasurable. Its payment solution is also all-encompassing and ensures real time value to payment destinations.

The mobile bank was appointed as the collection and payment partner for “Ounje Eko” Food Markets programme which is a government initiative serving the five divisions of Lagos State. Consequent on this, MoneyMaster Payment Service Bank will collect payments in 57 LCDAs in the state.

The partnership gives credence to the quality of payment solutions that MoneyMaster is reputed for in its services to its growing business clientele in private and public sectors.

 


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CBN, EFCC Probe Banks, Firms over Alleged Forex Racketeering

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Central Bank of Nigeria (CBN), is investigating irregular foreign exchange transactions and forward contracts valued at approximately $2.4 billion.

CBN, EFCC Probe Banks, Firms over Alleged Forex Racketeering

The  inquiry follows an extensive audit by Deloitte, which scrutinized $7 billion in dollar debts accumulated under the bank’s previous leadership.

In the aftermath of the 294th Monetary Policy Committee meeting in Abuja, Yemi Cardoso, governor of CBN,  disclosed to journalists that the investigation, supported by the Economic and Financial Crimes Commission, among other security bodies, aims to clarify the legitimacy of these FX allocations identified as problematic by the audit.

“It was determined that a number of these transactions did not qualify…they were outright illegal. The law enforcement agencies are now looking into those transactions that as far as we are concerned, are not valid to be paid,” Cardoso detailed, emphasizing the unlawful nature of these forex deals.

The crux of the investigation lies in the audit findings that a significant portion of the scrutinized transactions lacked proper documentation and, in many instances, were deemed outright illegal.

However, the unfolding investigation has raised concerns within the organized private sector, with some entities contemplating legal action against commercial banks for unresolved forex bids.

Despite these tensions, Governor Cardoso reassures that the foreign exchange market remains open and transparent, inviting stakeholders to address their forex needs through the official channels.

Furthermore, Cardoso clarified the distribution of fertilizers to farmers as a one-off measure and not indicative of a shift back to direct interventions by the CBN, underscoring a commitment to strategic, regulatory governance rather than direct market involvement.

 

 

 

 

 

 

 

 


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CBN Urges Banks to Expedite Action on Recapitalisation

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Central Bank of Nigeria (CBN) has directed deposit money banks in the country to expedite action to increase their capital base from the current ₦25bn.

CBN Urges Banks to Expedite Action on Recapitalisation

Olayemi Cardoso, governor of CBN

Olayemi Cardoso, governor of CBN, stated this during the apex bank’s 294th meeting of the Monetary Policy Committee (MPC) on Tuesday in Abuja, when the MPC hiked the interest rate by 22.75% to 24.75%.

The apex bank chief said the MPC examined developments in the banking sector and expressed satisfaction that the industry remained stable. The committee, however, said to guard against risk, commercial banks in the country should accelerate their recapitalisation efforts.

Cardoso said, “The MPC also reviewed developments in the banking system and noted that the industry remains safe, sound, and stable. The committee thus called on the bank to sustain its surveillance and ensure compliance of banks with existing regulatory and macro-potential guidelines.

“The MPC also enjoined the banks to expedite actions on the recapitalisation of banks to strengthen the system against potential risks in an increasingly globalised world.”

 

 

 

 


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