Revenue is a crucial financial performance indicator for companies and the new standard is expected to have pervasive impact due to the addition of significant new concepts on recognition, measurement and disclosure of revenue.
In this special session of Voices on Reporting, we focussed on the impact of Ind AS 115 on the following sectors:
- Pharmaceuticals: Arrangements in the pharmaceutical sector often include multiple promises such as licences, Research and Development (R&D) services, manufacturing arrangements, distribution arrangements, etc. The new standard introduces comprehensive guidance on identification of separate components in an arrangement which applies to all types of revenue-generating transactions. Therefore, companies in this sector would need to evaluate the impact of Ind AS 115 on revenue accounting of these multiple arrangements and timing of revenue recognition.
- Media: Companies in this sector have distinct and complex revenue arrangements such as barter arrangements, arrangements where careful evaluation is required on whether revenue is recognised at gross amount or net amount, free/discounted advertising and bonus spots, carriage fees, etc. Ind AS 115 provides a single model that establishes when to recognise revenue and at what amount. Therefore, companies in this sector need to consider the requirements of Ind AS 115 to identify the potential impact on revenue recognition from these arrangements.
- Contract manufacturing: Under the current accounting framework, contract manufacturing arrangements where goods are produced according to a customer’s specifications are treated as product sales and the revenue is recognised at the point in time at which the manufactured goods are shipped or delivered to the customer. With Ind AS 115, such types of arrangements could be recognised over the period of the contract. Therefore, companies in this sector should evaluate the impact of Ind AS 115 on their revenue recognition model.
Slide deck (989 KB, PDF)