IASB and FASB announced a joint proposal for converged accounting
standards following a decade of revenue recognition problems, but
research from Grant Thornton's recent international business report
shows only 38% of businesses around the world believe changes are
TORONTO, Feb. 3, 2012 /CNW/ - A global survey of 2,800 businesses
conducted by Grant Thornton International finds only 35% of Canadian
businesses are aware of pending global changes to the way companies
using International Financial Reporting Standards recognize and report
revenue—the same as the global average but significantly less than in
the US, where reported awareness sits at 61%.
Slightly more than one-third (38%) of businesses around the world
believe that existing accounting standards on revenue recognition need
to be improved or replaced, despite a documented history of
high-profile corporate revenue recognition problems. In the U.S.,
revenue recognition issues resulted in 10% of reported restatements in
2010 and the United Kingdom's accounting regulator has challenged
several companies' revenue recognition policies and disclosures.
More than two-thirds (70%) of businesses around the world thought that
the latest joint proposals would lead to increased costs and more
Underlying the global findings, there are some significant regional
variations. Support for change was lowest in the U.S. (where only 30%
believe improvement is needed), South Africa (32%), and the U.K. (33%).
Support was greatest in India (59% believe improvement is needed), the
ASEAN countries (56%) and Latin America (48%). In Canada, 38% of
businesses surveyed believe improvement is needed, but 70% believe it
will lead to increased complexity.
Ed Nusbaum, CEO of Grant Thornton International, said: "Revenue is a key
performance measure for every business and a single, global accounting
standard in this area is critical. Although some argue that the current
standards aren't broken, we do think there are serious problems. The
two main IASB standards are based on different principles and lack
guidance in important areas such as multiple element arrangements. The
U.S. literature suffers from the opposite problem of excessive
guidance—much of which is specific to particular industries. The
regional variations in attitude to the Boards' proposals are no doubt
affected by these different starting points."
The IASB and FASB have amended their proposals to simplify application
and reduce unnecessary disruption to established accounting practices.
For example, the latest exposure draft is expected to result in most
construction and services sector businesses continuing to recognise
revenue as they perform under a contract, much more in line with
current practice. The Boards have added practical expedients to
simplify application in some areas, including contracts with embedded
financing and onerous obligations.
"There is understandable concern about increased cost and complexity,"
continues Nusbaum, "but we believe that the IASB and FASB are moving in
the right direction, and we're pleased they're moving together. The
Boards and their staff have been doing a great job of engaging with
their constituents in their outreach, and the results are evident in
the new proposals. The decision to re-expose is also very positive."
"We see revisions to specific proposals such as variable consideration,
credit losses and product warranties that will reduce the extent of
change faced by businesses," adds Greg Gallant, Partner, Grant Thornton
LLP in Canada. "Despite these revisions, though, the proposals will
change the amount or timing or revenue in some cases, although the
impact will differ for companies applying IFRS and Canadian GAAP. In
Canada, some areas that may be affected include multiple element
arrangements, sales incentives, contingent pricing arrangements and
contracts with a significant financing element. In some cases, Canadian
companies and investors may see significant changes."
Many of the proposed revisions represent a trade-off between a purely
principles-based approach and a pragmatic assessment of costs and
benefits. The IASB and FASB's joint latest proposal was published in
November 2011, following a previous Exposure Draft in June 2010 and a
Preliminary Views document in 2008. The comment deadline is 13 March
Grant Thornton International will submit a global comment letter on the
proposal, and advises businesses around the world to ensure they're
aware of these and other pending changes, such as the proposed change
to lease accounting, which could significantly impact the bottom line
of balance sheets.
About Grant Thornton in Canada
Grant Thornton LLP is a leading Canadian accounting and advisory firm
providing audit, tax and advisory services to private and public
organizations. Together with the Quebec firm Raymond Chabot Grant
Thornton LLP, Grant Thornton in Canada has approximately 4,000 people
in offices across Canada. Grant Thornton LLP is a Canadian member of
Grant Thornton International Ltd, whose member firms operate in close
to 100 countries worldwide.
Greg Gallant, FCA, Partner, Grant Thornton LLP in Canada is available
for comment and analysis.
Notes to editors
The Grant Thornton International Business Report (IBR) For more
information, please visit: www.internationalbusinessreport.com. Data collection is managed by Grant Thornton International's core
research partner - Experian. IBR is a survey of both listed and
privately held businesses. The data for this release are drawn from
interviews with 2,800 businesses across the globe conducted in
Any and all references to Grant Thornton International are to Grant
Thornton International Ltd.
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SOURCE Grant Thornton LLP
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