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Impact of IFRS 16 and revenue recognition

Lease accounting and revenue recognition are two pieces of regulatory compliance that have got a lot of CFOs and treasurers worried and last week Microsoft stated how this has affected its balance sheets.

Research by Deloitte found that 47.1 per cent of corporate c-suite executives are concerned about their organisation's ability to implement the new US standards for lease accounting, IFRS 16 Leases. And another poll by Deloitte and Bloomberg BNA found that almost 70 per cent of companies have not yet decided on their approach to the Financial Accounting Standards Board’s (FASB's) new revenue recognition standard.

The deadline for compliance with Accounting Standard Codification (ASC) 606 on revenue recognition is 1 January 2018, while the compliance deadline for IFRS 16 is 1 January 2019.

CTMfile has already covered these topics:

The resources needed to make your company fully compliant with IFRS 16 and the ASC 606 revenue recognition are one of the main hurdles for finance and accounting departments that are already under strain. It's no surprise that a company with more resources than most is getting an early grip on both these compliance goals. This week, CFO Magazine discusses how Microsoft is tackling these two 'accounting mountains'. The article states: “To attempt to do both would test the resources of even the most well-staffed finance and accounting departments.” Microsoft's chief accounting officer, Frank Brod, told analysts that the reason for taking on both compliance projects at the same time – the company officially adopted IFRS 16 and ASC 606 as of 1 July – to simplify the communication of financial data by removing the need to use non-GAAP revenue reporting and “to provide one set of restated financial statements to investors”.

Because Microsoft has chosen the full retrospective method, it will have to restate fiscal years 2017 and 2016. CFO Magazine reports that there will be material changes to Microsoft's income statements and balance sheets following the change to using IFRS 16 and ASC 606. According to Microsoft, its revenues for 2017 and 2016 will rise by about $6 billion each. CFO Magazine reports: “The assets for those two years will rise by about $9 billion, while liabilities will fall by about $6 billion and $2 billion, respectively. The company said that the accounting changes wouldn’t materially affect its cash-flow statements.”

The impact on Microsoft's income statements and balance sheets might be bigger than for most other companies but the fact still remains that preparing for these regulations is a complex task, which finance and accounting departments need to start taking action on now.


This item appears in the following sections:
FX Management
Operations
Control & Compliance in Operations

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