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EFRAG Advisory Forum on Revenue Recognition A regulators’s perspective Philippe DANJOU - Chief Accountant - AMF

EFRAG Advisory Forum on Revenue Recognition A regulators’s perspective Philippe DANJOU - Chief Accountant - AMF. Importance of Revenue data for investors. OFTEN AN ELEMENT OF ENTITY’s MARKET CAPITALIZATION « ECONOMIC » (= MANAGED) vs ACCOUNTED REVENUE AMOUNT (e.g order backlog )

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EFRAG Advisory Forum on Revenue Recognition A regulators’s perspective Philippe DANJOU - Chief Accountant - AMF

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  1. EFRAG Advisory Forum on Revenue Recognition A regulators’s perspective Philippe DANJOU - Chief Accountant - AMF AMF - titre de la présentation

  2. Importance of Revenue data for investors • OFTEN AN ELEMENT OF ENTITY’s MARKET CAPITALIZATION • « ECONOMIC » (= MANAGED) vs ACCOUNTED REVENUE AMOUNT (e.g order backlog ) • RISK THAT NON GAAP MEASURES BECOME PROMINENT • ANALYTICAL APPROACH • UNDERSTANDING THE BUSINESS FROM THE P/L STRUCTURE  MANAGEMENT’S VIEW IS ALSO IMPORTANT TO INVESTORS • FORECASTING FUTURE PERFORMANCE • IS ASSET / LIABILITY APPROACH THE MOST USEFUL ? • PORTFOLIO ALLOCATION - COMPARABILITY AMONG LISTED COMPANIES • AT WHICH LEVEL ? • CROSS BORDER • AT LARGE INDUSTRY SECTOR LEVEL ? • BETWEEN DIFFERENT SECTORS ? AMF - titre de la présentation

  3. Regulators concerns (1) • NEED FOR A COMMON SET OF PRINCIPLES THAT APPLY TO ALL LISTED COMPANIES • HIGH LEVEL PROBABLY NOT SUFFICIENT TO GUARANTEE COMPARABILITY OF FINANCIAL STATEMENTS • SOME ADDITIONAL GUIDANCE AT INDUSTRIES LEVEL MAY BE NEEDED • SHOULD IT BE PART OF IFRS OR IFRIC ? • PRINCIPLES MUST BE CLEAR AND COMPREHENSIVE ENOUGH TO BE ENFORCEABLE • HOWEVER REGULATORS IN E.U HAVE NO APPETITE FOR DETAILED RULES FOR EACH INDUSTRY • JUDGMENT AND BEST PRACTICES + TRANSPARENCY AMF - titre de la présentation

  4. Regulators concerns (2) • COMPLEXITY ISSUES • COMPONENTS OF MULTI ELEMENT REVENUE TRANSACTIONS (UNBUNDLING) • ASSOCIATED COMMITMENTS AND COSTS TO COMPLETE • TIMING OF RECOGNITION • MEASUREMENT (FV ?) • ENTITY IS SUPPOSED TO BE A GOING CONCERN • ENTITY’S OWN COSTS RATHER THAN MARKET PRICE TO MEASURE THE COST OF DISCHARGING THE OBLIGATION ? • CONSERVATISM / PRUDENCE IN MEASUREMENT ? • SOME CONCERNS REGARDING « MARK TO MODEL PROFITS », DAY 0 / DAY 1 PROFITS.. AND EARNINGS MANIPULATION • RELIABILITY vs FAITHFUL REPRESENTATION ? • USEFULNESS OF A FAIR VALUE BASED MEASUREMENT OF REVENUES ? • ACCOUNTING RECOGNITION OR FINANCIAL DISCLOSURES ? AMF - titre de la présentation

  5. Regulators concerns (3) • TYPICALLY ENCOUNTERED REVENUE ACCOUNTING DIFFICULTIES • Respective scopes (and clarity ?) of IAS 18 and 11 • Gross amount of transactions versus net margin (pass through? Expenses vs revenue deductions ?) • Service element (single or multiple) associated with sale of goods – unbundling and measurement of components ; application of IFRIC 4 • Sale of license recognized with a different pattern of payments terms • Customers loyalty programmes • Timing of recognition for intangible services ( e.g software development) • Timing of recognition for prepaid subscriptions – deferral ? Accrual for costs ? • Sales with conditional clauses (Transfer of risks and rewards) • Sale of extended warranties • Timing of revenue recognition regarding claims in long term contracts (application of percentage of completion method) • Sale with repurchase clause vs lease accounting • Etc… AMF - titre de la présentation

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