On May 28, 2014, FASB and IASB issued respectively accounting standards on revenue recognition namely IFRS 15 and ASC 606 Revenue from Contracts with Customers. With their coordinated efforts, it provided a harmonized and converged standards pertinent to all types of transactions, industries and capital markets, however these standards still rendered a few minor differences. The following is a summary of the difference between IFRS 15 and ASC 606, which facilitates relevant stakeholders to have a better understanding of financial statements and audit practices in compliance with IFRS and US GAAP.

IFRS 15  ASC 606 Consideration for preparers
Step 2: Distinct goods and services:  Shipping and handling activities – FASB policy election
No policy election. The company determines if shipping and handling activities are distinct from the shipped goods (i.e. a performance obligation). If so, some revenue is allocated to the shipping activity and deferred until shipping and handling occurs. Policy election to treat shipping and handling activities undertaken by the company after the customer has obtained control of the related goods as a fulfilment activity (i.e. not a performance obligation). All revenue and costs are then recognized upon transferring control of the goods to the customer. When the customer obtains control of the goods before shipping, the shipping and handling activities may be a separate performance obligation. The US GAAP policy election simplifies the accounting and accelerates recognition of the revenue and costs relating to the shipping and handling activities in comparison to IFRS.
Step 3: Transaction price:  Measurement date for noncash consideration
IFRS 15 (as with current IFRS) does not specify a measurement date for noncash consideration to be received in a revenue contract. Noncash consideration is measured at contract inception.   Noncash consideration, such as shares or advertising, is measured at fair value for inclusion in the transaction price. Fair value can be measured at contract inception under both IFRS and US GAAP. Other dates (e.g. when the consideration is received) are acceptable under IFRS 15, but are not permitted under US GAAP.
Step 3: Transaction price:  Sales taxes – FASB policy election
No policy election. The company evaluates whether sales and similar taxes are collected on behalf of a third party (e.g. government) on a jurisdiction-by-jurisdiction basis (i.e. a principal vs. agent evaluation). Policy election to present all sales and similar taxes on a net basis. The US GAAP practical expedient simplifies the presentation of sales taxes, in line with current US GAAP. Current IFRS (IAS 18) already requires a principal vs. agent evaluation for sales tax presentation. This may result in some taxes being presented on a net basis and others on a gross basis under IFRS, with a different presentation under US GAAP when the policy is elected.
Contract costs:  Reversal of previously impaired contract acquisition and contract fulfilment costs
Required Prohibited Under IFRS, an entity recognizes a reversal of an impairment loss that has previously been recognized when the impairment conditions cease to exist. Any reversal of the impairment loss is limited to the carrying amount, net of amortization, that would have been determined if no impairment loss had been recognized.
Sales outside ordinary activities:  Sales of in-substance nonfinancial assets
Sales of nonfinancial assets, such as property, plant and equipment (IAS 16), intangible assets (IAS 38) and investment property (IAS 40), are accounted for using the measurement and derecognition guidance of IFRS 15.

Sales of a subsidiary or equity method investee continue to be accounted for under the deconsolidation guidance (IFRS 10 and IAS 28, respectively).
Sales of nonfinancial assets and in-substance nonfinancial assets scoped in ASC 610-20 are accounted for using the contract existence, separation, measurement and derecognition guidance in ASC 606.

Sales of a subsidiary that only has nonfinancial assets and/or in-substance nonfinancial assets and is not a business are scoped into ASC 610-20. This includes partial sale transactions. 
Sales of a subsidiary or group of assets that constitutes a business or not-for-profit activity continue to be accounted for under the deconsolidation guidance (ASC 810). 
For example, if a subsidiary that has only a building and does not represent a business is sold for a fixed price plus a contingent fee:
· Under IFRS, the deconsolidation guidance (IFRS 10) applies and the gain or loss is measured using the fair value of expected proceeds.

Under US GAAP (ASC 610-20), the company estimates the transaction price following the variable consideration guidance that is subject to constraint.
Onerous contracts:  Determination of provisions for loss-making and onerous contracts
Onerous revenue contracts are accounted for under IAS 37, Provisions, Contingent Liabilities and Contingent Assets. A provision is recognized when the unavoidable costs of meeting the obligations under a contract exceed the economic benefits to be received.   US GAAP has no general guidance for recognizing a provision for onerous contracts, but instead focuses either on types of contracts or on industry-specific arrangements.

Current guidance is unchanged except for losses on long-term construction- and production-type contracts, where an entity is allowed to determine the provision for losses at either the contract level or the performance obligation level.
IFRS and US GAAP are likely to remain unaligned for the foreseeable future.
Transition:  Effective date for non-public companies
Annual periods beginning on or after January, 2018 Annual periods beginning after December,2017 (public business entities and certain not-for-profits) or after December, 2018 (other entities). Non-public business entities that have an IFRS parent may need to adopt the revenue standard one year earlier compared to what would be required for US stand-alone financial statements.
Transition:  Definition of 'completed contract'
Completed contract for the purposes of transition is a contract for which the company has transferred all of the goods or services identified under legacy IFRS, regardless of whether all of the revenue has been recognized.

Legacy IFRS revenue guidance continues to apply to revenue or adjustments to revenue arising from completed contracts after the transition date.
Completed contract for the purposes of transition is a contract for which all (or substantially all) of the revenue was recognized under legacy GAAP In an effort to simplify the transition, both GAAPs permit not applying the new requirements to completed contracts. Because the definition of a completed contract differs and US GAAP permits entities to apply the new standard either just to open contracts or to both open and completed contracts, the population of contracts to analyze may differ.
Overall, transition options are slightly different between the two GAAPs, so that opening numbers may not be similar under IFRS and US GAAP.
Disclosures:  Remaining performance obligations
Disclosure relief in two situations. An entity needs to disclose the aggregate amount of the transaction price allocated to unsatisfied or partially satisfied performance obligations and when it expects to recognize this amount as revenue, unless:
  • the contract is one year or less; or
  • the entity qualifies for the practical expedient to recognize revenue in the amount that is has the right to invoice.
Disclosure relief in four situations. Additional to the two exceptions under IFRS 15, ASC 606 permits not including variable consideration in the disclosure of remaining performance obligations when variable consideration:
  • is a sales- or usage-based royalty for a license of intellectual property; or
  • meets the criteria to be allocated entirely to a wholly unsatisfied performance obligation, or to a wholly unsatisfied distinct good or service that is part of a single performance obligation under the series guidance.
Under IFRS 15, the entity needs to estimate certain variable consideration for disclosure purposes only, even when those estimates are not needed for the recognition of revenue.
Disclosures:  Interim disclosures
Disclosure of disaggregated revenue Similar to annual disclosures -- e.g. disaggregated revenue, contract balances and remaining performance obligations IFRS 15 has fewer disclosure requirements for interim financial reporting than ASC 606.

Contact us Phone:+86 10 85665858 Fax:+86 10 85665120 Email:china@cn.gt.com

[100004], 5th Floor, Scitech Palace 22 Jianguomen Wai Avenue, Chaoyang District, Beijing