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 needed
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 complexity.
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 2012.
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 November/December 2011.
Any and all references to Grant Thornton International are to Grant Thornton International Ltd.
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