The accounting standards adopted by FASB and IASB have undergone changes over the last one year. Australia adopted these changes by amending the accounting standards. This report discusses the change that was introduced for the revenue consideration generated from contract with customers. The impact of this change in the way accounts will be prepared and the profitability of the company will be huge. The overview provides an insight into the current standards and how it will be changed.
In case of Oil and Gas sector, one of the primary issues will be related to production imbalances. Due to production imbalances, there will be need to study the contractual obligations and accordingly the revenue will be recognized. Lastly but importantly, the financial services companies will be impacted. The companies in this sector the underwriting fee and the performance based fee. Both these are such aspects that are not only abstract but also need deep understanding. Abstract means, for example the performance based fee, there is uncertainty of performance, as it is linked to market, and the underwriting fee will have to be considered as revenue when the cycle is complete which is very difficult to recognize.
Based on the above discussion, it can be said that there is impact of some of the major sectors in Australia and can have a significant impact on the performance of the companies.
The above discussion clearly highlights the issue that will be faced by companies in different industries. Certainly, it will be beneficial if the accounting standards by IASB and FASB are aligned. However, the implications related to this revenue recognition has been significant and need to be considered at the earliest. Further, it is important to note that there are certain challenges that are common while certain challenges are specific to the industry. The AASB 118 has been amended as per the key accounting issues. The concerns that have been discussed above need to be addressed, failing which the anomalies will be there leading to incorrect information communicated.