Companies in Nigeria have to brace up for the adoption of a new revenue recognition model. On 28 May 2014, International Accounting Standard Board (IASB) issued a new standard on revenue recognition that replaces all existing revenue recognition models. All IFRS reporting entities must fully comply with the prescribed revenue model by 1 January, 2018.
What this means is that Companies have less than one year to assess the impact the adoption of the new revenue model will have on their current accounting systems, IT Systems, Accounting Policies, Internal Processes and Controls.
In comparison to the existing revenue standards that give room for judgments in devising and applying revenue recognition principles, IFRS 15 is more prescriptive in many aspects and as such applying the new rules will have a significant impact on the revenue profile and in some cases cost profile of companies. This is not merely a financial reporting issue, entities need to consider wider implications including: changes to key performance indicators, changes to the profile of tax cash payments, availability of profits for distribution, compensation and bonus plans (the impact on timing of targets being achieved and the likelihood of targets being met) and potential noncompliance with loan covenants.
The impact of the new standard has varying impact on industries. In our 5 days series, we intend to provide an overview of the application of IFRS 15 within given sectors. The guidance provided is not intended to be exhaustive but aims to highlight some of the potential issues to consider and to indicate how those issues might be approached.