The International Financial Reporting Standard 15 (IFRS 15) - Revenue from Contracts with Customers, announced in May 2014 by the International Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB), has widely changed the way how companies recognise, measure and disclose revenues. This article investigates the question of whether the objectives to eliminate inconsistencies, improve comparability and increase revenue levels were achieved in practice.
The aim is to synthesize previous research on the various effects of the IFRS 15 implementation, specifically the accounting and information effects, and provide empirical evidence for the impact on financial statements. As available literature has identified the effects for the Retail sector only superficially without any quantification, this article aims to bridge current knowledge gaps by focusing on Retail companies.
To carry out this research, the author has selected four multinational Retail companies to review qualitative and quantitative information on the IFRS 15 implementation from their annual reports to determine possible accounting and information effects.
Results show that IFRS 15 had no significant but slightly positive impact on the financial figures of the selected companies, leading to the conclusion that the persued goal to improve revenue levels turned effective in the Retail sector.
Table of Contents
1. Introduction
2. Literature Review
2.1 Purpose of IFRS 15 and changes versus previous standards
2.2 Accounting effects of IFRS 15
2.3 Information effects of IFRS 15
2.4 Capital Market effects and Real effects of IFRS 15
2.5 Limitations and knowledge gaps
3. Methodology
3.1 Sample
3.2 Data Collection Methods
3.3 Variables
4. Analysis
4.1 Impact on Retained Earnings
4.2 Impact on Revenue
4.3 Evaluation of Findings
5. Conclusion
Objectives and Scope of the Research
The paper investigates the implementation of IFRS 15 - Revenue from Contracts with Customers in multinational retail companies, specifically analyzing the accounting and information effects on their financial statements to determine if the standard's objectives of improving comparability and revenue recognition have been achieved.
- Analysis of accounting effects on retained earnings and revenue.
- Examination of information effects regarding disclosure quality and comparability.
- Empirical review of annual reports from four multinational retail companies.
- Evaluation of whether the standard's goals were realized within the retail sector.
Excerpt from the Book
Introduction
The financial figure revenue plays an important role for investors in their decision-making process, allowing them to make predictions on a company’s development and growth (Haggenmüller, 2019; Napier and Stadler, 2020). Due to the high relevance, revenue and earnings management have been subject to increasing attention, sometimes leading to internal data manipulation and fraud, as in the significant cases from Tesco (2014) or Toshiba Corp (2015) (Rutledge, 2016; Enomoto, 2018; Haggenmüller, 2019). By introducing the International Financial Reporting Standard 15 (IFRS 15) - Revenue from Contracts with Customers, the FASB and IASB provided a universal set of revenue recognition requirements for all industries. The greater goal was to eliminate inconsistencies and increase comparability across entities, industries and capital markets, while at the same time improving revenue and profitability levels (Deloitte, 2016; Rutledge et al., 2016; Napier and Stadler, 2020).
Although the possible effects for companies looked promising on paper, the introduction raised a tremendous number of questions for some industries and created unforeseeable challenges. A survey conducted by GAAPweb (2015) reveals that over 50% of the participants from the UK were not prepared for the changes, were having difficulties, or were unfamiliar with the details and implications. Most literature does not address the topic of implementation issues and effects in detail.
Chapter Summary
1. Introduction: Highlights the importance of revenue as a financial figure and introduces IFRS 15 as a universal standard aimed at increasing comparability and reducing accounting inconsistencies.
2. Literature Review: Synthesizes existing research regarding the shift from IAS 18/11 to IFRS 15, examining its accounting and information effects across various industries.
3. Methodology: Outlines the selection criteria for four multinational retail companies and explains the qualitative and quantitative approaches used to analyze their annual reports.
4. Analysis: Details the empirical findings on changes in retained earnings and revenue, while evaluating the overall impact of IFRS 15 on these specific financial metrics.
5. Conclusion: Summarizes that IFRS 15 resulted in positive accounting and information effects for the retail sector, while noting that future research should include implementation costs to better assess profitability.
Keywords
IFRS 15, revenue recognition, retail, accounting effects, financial statements, comparability, implementation, retained earnings, disclosure, IASB, FASB, information asymmetry, annual reports, performance obligations, business models.
Frequently Asked Questions
What is the primary focus of this study?
The study focuses on the accounting and information effects of the IFRS 15 standard specifically within the multinational retail sector.
What is the core research goal?
The aim is to determine if the objectives of IFRS 15—to eliminate inconsistencies, improve comparability, and increase revenue levels—have been achieved in practice for retail companies.
Which companies were selected for the analysis?
The author selected Foot Locker, Inc., Gap, Inc., Next PLC, and Nike, Inc. based on their multinational presence and status as major retail entities.
What methodology was employed?
The research uses a qualitative and quantitative review of corporate annual reports to extract and compare data on IFRS 15 implementation.
What are the main variables analyzed?
The key variables are the Change in retained earnings (ΔRE) and the Change in revenue (ΔR) observed after the transition to IFRS 15.
What are the central themes of the work?
Key themes include revenue recognition requirements, earnings quality, management estimates, and the real-world impact of accounting standard changes on retail business operations.
Did the study find significant negative impacts?
No, the findings indicate no significant negative impacts, but rather identify minor positive effects on financial figures within the retail companies examined.
How does this study address the existing literature gap?
While previous literature addressed IFRS 15 effects superficially or across mixed industries, this study bridges the gap by providing a focused, sector-specific empirical assessment for retail.
- Citation du texte
- Annika Specht (Auteur), 2021, Effects of the new revenue recognition policy IFRS 15 for multinational Retail companies, Munich, GRIN Verlag, https://www.grin.com/document/1223198
