E-Financial
IFRS 15: The New Revenue Framework: What Corporates Need To Know
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.
Central Bank of Nigeria (CBN) has awarded the country’s second Payment Terminal Service Aggregator (PTSA) license to Unified Payments, Nigeria’s premier financial technology company, following a rigorous and transparent process,
The move is targeted at enforcing existing requirement that all transactions from point-of-sale channels in Nigeria must go through a licensed Payment Terminal Service Aggregator (PTSA).
The CBN is enforcing the laws to clamp down on financial crimes and other market misconducts and it aligns with the CBN’s objectives to fully track all electronic transactions in Nigeria, given the propensity of using such transactions to fund insecurity, violent crimes, banditry, kidnapping as well as other vices.
According to one analyst, “By awarding a second PTSA license, the apex bank has proactively responded to industry operators who had expressed serious concerns about channelling all transactions through a single aggregator, the Nigeria Interbank Settlement System PLC (NIBBS), as has been the case for some years.
“With the new policy direction, payments service providers would henceforth route all transactions through either of the two licensed Companies.”
Other financial analysts and industry players have commended the Central Bank, affirming that “the move can be a massive step in the right direction. They also commended the open, transparent, and inclusive manner via which the selection process was managed, and the license awarded.
“The selection process, which lasted for months, began with an invitation for qualified organisations within the payment industry to submit an Expression of Interest document, alongside other requisite documentation and additional capital requirement of N1 billion.”
The new management of CBN decided not to give the license out without going through an open process – and for the first time in licensing a payment service provider – the apex bank went through a public bid process outlined in its publication of Friday, January 5, 2024, in different national newspapers. At the end of the process, Unified Payments emerged as the most preferred service provider.
Unified Payment Services Limited, also called Unified Payments or UP, is a shared service provider within Nigeria’s financial technology sector owned by a consortium of Nigerian banks. For over 26 years, the firm has provided payment technology to banks and other industry operators. The first and only non-bank entity that is a principal member and licensed acquirer of all of American Express, Mastercard, Visa, UnionPay and Payattitude. Unified Payments facilitates both local and international transactions.
Formerly known as ValuCard Nigeria Plc, Unified Payments led the way to introduce POS payments in Nigeria under its card scheme known as ValuCard which is the first payment card to be issued in Nigeria. The company later transformed into a scheme-neutral and option-neutral service provider enabling transactions under different schemes.
The company has continued to provide leading payment technologies and services, enabling different operators to leverage its capabilities and licenses, enabling prompt and seamless transactions.
Among the shareholders of Unified Payments are First Bank, Access Bank, United Bank for Africa (UBA), Guaranty Trust Bank Plc, Zenith Bank and Fidelity Bank. Other shareholders are Citibank Nigeria Limited, Ecobank of Nigeria Plc, First City Monument Bank Plc, Keystone Bank Ltd, Polaris Bank Ltd, Stanbic IBTC Bank Plc, Sterling Bank Plc and Wema Bank Plc.
Chartered Institute of Bankers of Nigeria, CIBN, has expressed support for the ongoing banking recapitalization exercise saying it will empower banks to lend more to the economy.
CIBN President, Dr. Ken Opara stated this yesterday while speaking at the annual lecture of the institute in Lagos, with the theme “Improving Availability of Credit in the Nigerian Real Economy: The Critical Importance of Liquidity.”
Okpara noted that the volume of credit to the real sector activities namely agriculture, manufacturing and services is low compared to their critical role in driving economic growth.
Consequently, he called for more credit to the real sector, saying, “I propose that we consider offering more credit to these key sectors and particularly the agriculture sector. It is for this reason that the Recapitalization exercise is a welcome development.
“The recently announced upward review of the Minimum Capital Requirements of Nigeria by the Central Bank of Nigeria would further empower banks to extend more credit to the economy’s productive sectors.”
To address these factors impeding credit to the real sector, Okpara suggested that, “The government needs to improve further the ease of doing business and infrastructural development, such as power, roads, rail networks, etc.
“Setting up industrial centres where these companies can co-habit and share common infrastructure. Harmonize and reduce the various taxes and levies, including locating them in a single hub.
“Banks need to be deliberate in de-risking these companies via Capacity building programmes, and Advisory services.
Specialised Financial Institutions can be created in addition to the Bank of Industry (BOI), especially credit guarantee agencies and risk-sharing institutions, to further facilitate the deepening of credit as practiced in countries such as China which significantly transformed its economy.
A new report claims that 20 per cent of Nigerians are using Bitcoin to carry out financial transactions every day.
According to the open-source blockchain website, Elastos, the research was compiled from online interviews conducted with 1,407 self-defined ‘tech savvy’ respondents in Brazil, Germany, Nigeria, South Korea, UAE, the UK, and the US.
The interviews were completed by a third party, a registered market research company and completed between 30 March and 04 April ’24.
The report further revealed that 67 per cent of Nigerians would have more trust in Bitcoin to put their life savings than banks and local governments.
The report reads; “The inaugural BIT Index (Bitcoin; Innovation & Trust) – compiled from over 1,400 self-defined ‘tech savvy’ respondents from 7 countries across the globe – sheds light on the actual perception and use of Bitcoin in people’s daily lives, irrespective of its current valuation. Elastos’ BIT Index is part of ongoing research to better track the ‘real world’ use of Bitcoin together with users’ motivations, expectations and barriers around the same.
“In particular, the data reveals the role being played by emerging markets in terms of understanding, usage and confidence around Bitcoin. Nigerian respondents’ levels of usage and trust compare starkly with those expressed from so-called ‘established’ markets such as Germany and the UK and Germany where daily usage levels are just 8% (for German respondents) and (9% for their UK counterparts).
“In terms of the trust – in addition to Nigeria – significant proportions of respondents from Brazil (35 per cent) and the UAE (32 per cent) would have more confidence in Bitcoin-based services to protect their life savings compared to those from markets such as the UK (20 per cent) and Germany (22 per cent).
“When it comes to ensuring the integrity of online transactions, emerging market respondents also revealed their relative confidence in Bitcoin, compared to alternatives. According to the data, 66 per cent of Nigerian respondents and 35 per cent from Brazil have more confidence in Bitcoin-based systems than alternatives such as banks, or national Governments, compared to figures of just 16 per cent (Germany) and 21 per cent (UK) who feel the same.
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