From 1st January next year (2018), new reporting requirements will be implemented largely relating to revenue recognition The standard is "IFRS 15 Revenue from Contracts with Customers".

IFRS 15 provides accounting requirements for all revenue arising from contracts with customers and affects all entities that enter into contracts to provide goods or services to their customers.

It will require the disclosure of new information about customer contracts that hasn’t previously been required and the creation of budgets and forecasts as a new basis of measurement.

Thus a company that may currently recocognise revenue for, say, services that have yet to be supplied will now have to wait to record that revenue until the actual service is provided. Even that idea comes with complications as to whether the revenue can be partially recognised during the period of providing that service or goods or at the completion of providing those services/goods.

There have been very few companies openly proactive in telling it's investors what the impact of these new reporting rules will have. One company that has been openly discussing it however, is Rolls-Royce. Recalculating the 2015 results using the new accounting rules, both revenue and profit would have been £900m lower than was reported. Hardly an insignificant sum when that it essentially all profit wiped out!

Investors may therefore be shocked when earnings reports start being released next year. Some sectors are more likely to be impacted than others. For example telecommunications, media and pharmaceuticals are recognised as being more affected than most.

I understand that companies should already be reporting on the impact of IFRS 15 but looking through the RNS's it seems that very few have done that to date. Some have been clear as to it's headline impact quoting quantitative changes to revenue and profit and others, perhaps those where there may be a significant impact use more complex language. Such statements are often found in the 'small print' in RNS's and Annual/Interim Reports

My view is that investors should be contacting their respective Investor Relations department enquiring as to what impact the adoption of IFRS 15 will have on their revenue and operating profit figures if they have not already stated as such.


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