Elisabetta Barone (Brunel University London & Cork University Business School), Stephani Mason (DePaul University), Araceli Mora (Universidad de Valencia), and David Procházka (Prague University of Economics and Business) on behalf of the Financial Reporting Standards Committee (FRSC) of the European Accounting Association sent a comment on the Post-Implementation Review on IFRS 15 Revenue from Contracts with Customers to IASB and EFRAG. The purpose of the EAA FRSC and the EAA members is to bring contributions of academic research to the standard-setting process related to Financial Reporting. In this comment letter, the authors aim to provide research-based input to the debate on the PIR IFRS 15 Revenue from Contracts with Customers.
The letter can be found in:
Summary of our views
Our starting point was identifying recently published papers, working papers, and dissertations that delve into various aspects of revenue recognition after implementing IFRS 15. We also consider the work on ASC 606, as the requirements of both standards are similar, and many of the results could be extrapolated, with the caveats caused by the different contexts in which IFRS 15 is applicable. From those papers, we selected and analysed those that we considered relevant and related to the PIR Request for Information.
The literature on the direct accounting effects of the new standard (such as measurement, recognition, presentation, and disclosure) is particularly rich for disclosure and transition (i.e., Q7 and Q8 in the PIR). However, there is less prominent and rather indirect evidence available for some specific topics of the 5-step model, namely timing of revenue recognition (Q4 in the PIR), transaction price (Q3 in the PIR), and principle-agent consideration (Q5 in the PIR). The most robust evidence is available for (widely defined) user and stakeholder benefits, including capital market effects and preparers’ costs (Q1 in the PIR). Additionally, the academic literature provides multiple examples of real effects (Q11 in the PIR) for the new standard.
The main findings from academic research are:
- IFRS 15 is decision-useful for many stakeholders;
- the adoption is associated with high implementation costs;
- the impact of the new standard on the business is complex, with implementation driving significant investment in other areas, bringing additional benefits beyond accounting;
- accounting figures are more comparable; disclosures are more relevant to users;
- users value the full retrospective approach to transition more;
- any negative effects identified appear to be temporary.
We want to highlight that compared to other standards, the number of studies related to IFRS 15 (and ASC 606) at the date of writing this comment letter is relatively limited. Most of the studies we considered potentially relevant are still working papers (not published in peer-reviewed journals but distributed on websites or databases). Presumably, many are not finalised but are pending the academic peer review process. However, we still believe these studies are relevant and, thus, were of interest to the Comment Letter team.
Despite the limitations, we believe that the results of these academic studies may be of great interest to the Board and that additional and more complete academic evidence on IFRS 15 will be available in the coming years.