No need for existing accounting standards on revenue recognition to be replaced: Survey

IASB and FASB are developing a joint proposal for converged revenue recognition standard

According to a study by audit and consultancy firm Grant Thornton, less than half of Indian businesses feel the need for existing accounting standards on revenue recognition to be improved or replaced.

The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) are developing a joint proposal for converged revenue recognition standard.

A final standard is now expected in September 2013 and would be effective for annual periods beginning on or after January 1, 2017 (IASB).

The report released on 13 August also said, "A majority of the India respondents also thought that the latest joint proposals would lead to increased costs (42% v 38%) and more complexity (44% v 33%), and only 38% were aware of the upcoming revenue recognition changes."

Yogesh Sharma, Partner, Assurance, Grant Thornton India LLP said that the new standard shifts the underlying principle for revenue recognition from transfer of risks and rewards to transfer of control. “The new standard provides more specific guidance in areas like multiple element arrangements, segmenting contracts, contract modifications, contract costs, licensing arrangements and time value considerations." He added that the standard could have a pervasive impact across sectors and considering that there is very limited guidance under Indian GAAP, upon convergence this could result in significant changes for Indian companies from current practices and may require extensive efforts to comply.

Some of the Indian industries that will be most affected by revenue recognition changes include telecoms and IT, Real estate and sectors where performance-based or contingent fees are commonplace, such as asset management and some legal and professional services and Retail.

The survey was conducted during the month of May 2013 across 3,200 businesses in 44 countries.