Investment managers should not underestimate the potential impact of the new revenue standard that's effective from 1 January 2018.
We look at how IFRS 15 Revenue from Contracts with Customers will affect investment managers, and how KPMG can help.
Some revenue may be recognised earlier than today, whilst some costs may be deferred. And the new disclosure requirements are extensive.
However, the impacts will be felt far beyond accounting change. A number of sector-specific arrangements will be affected, including:
Performance-based incentive fees are often paid for investment management services. These are subject to the variable consideration guidance of the new revenue standard.
If you receive such fees, you will need to estimate the amount of variable consideration using either the ‘expected value’ or ‘most likely amount’ method and include it in the transaction price to the extent it is highly probable that a significant revenue reversal will not subsequently occur. This may require new models or processes to arrive at estimates.
You will need to assess the impact on the timing of revenue recognition for any non-refundable up-front and back-end fees.
The accounting for these fees will depend on whether they relate to a specific good or service transferred to the customer, or they are advance payments for future goods or services.
You will also need to determine whether such fees create a significant financing component in a contract, bearing in mind that this would require that new processes be implemented to measure the time value of money.
It may not be straightforward to develop an implementation plan that addresses IFRS 15 as well as the requirements of IFRS 9 Financial Instruments and IFRS 16 Leases.
You will find it beneficial to develop an overall strategy for transition that incorporates all accounting changes expected in the near future and capitalises on any available synergies.
Read Accounting for revenue is changing: Impact on investment management companies for more information on how IFRS 15 will affect investment managers, and how KPMG can help.
It gives examples of how our cross-functional team of experts has helped clients across various sectors – including investment management – with the accounting and operational challenges of the new revenue standard.
Please speak to your usual KPMG contact if you would like to find out more about how KPMG can help your business.
For KPMG’s most recent publications on the new standard, visit our IFRS – Revenue hot topics page.
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