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International Accounting Standards Board (IASB) has recently notified new accounting standards IFRS 15 – Revenue from contracts with customers and IFRS 16 - Leases, mandatorily applicable from 1 January 2018 and 1 January 2019, respectively. Corresponding standards have also been issued under US GAAP. These standards represent culmination of years of research and deliberation among IASB and FASB.
IFRS 15 will apply to most revenue arrangements, including constructions contracts. Among other things, it changes the criteria for determining whether revenue is recognised at a point in time or over time and provides more guidance in areas where current IFRSs are lacking including multiple element arrangements, variable pricing, rights of return, warranties and licensing. The actual impact on each company’s top line will depend on the industry, specific customer contracts and how they have applied existing standards.
IFRS 16 represents the first overhaul of lease accounting for over three decades. The IASB has long considered the existing split between operating and finance leases as problematic as it has resulted in too much structuring and off-balance sheet financing. Therefore, IFRS 16 has done away with the operating versus finance lease distinction and requires accounting for all leases to be ‘on-balance sheet’ for lessees.