Many SA businesses unaware of changes in revenue recognition

2012-01-24 00:00

A GLOBAL survey of 2 800 businesses conducted by Grant Thornton has revealed that only 40% of South African businesses are aware of coming ­global changes in accounting standards relating to the way they recognise and report revenue.

The International Accounting Standards Board (IASB) and ­Financial Accounting Standards Board (FASB) have recently ­developed a joint proposal for a converged ­revenue-recognition standard.

However, less than one third (32%) of SA businesses believe existing ­accounting standards on revenue recognition need to be improved or replaced, despite a decade of documented problems with corporate ­revenue recognition.

“The majority of local businesses are not educated about these very important changes. Those that are, do not believe they are necessary. And yet, these changes will most likely have a significant impact on them,” said David Reuben of Grant Thornton.

More than half (53%) thought that the latest joint proposals would lead to increased costs, and 64% said it would lead to more complexity.

“It is concerning that South African businesses share this view with some of the world’s biggest economies,” said Reuben.

“There is a very real need for businesses to be aware of the pending changes”.

He referred to the United States and United Kingdom where, respectively, only 30% and 33% believe im­provement is needed, while 72% of business in the U.S. and 44% in the UK said it will lead to increased complexity.

It should be kept in mind that in the U.S., revenue-recognition issues ­resulted in 10% of reported restatements in 2010 and the UK’s accounting regulator has challenged several companies’ revenue-recognition ­policies and disclosures.

Ed Nusbaum, CEO of Grant Thornton International, said: “Although some argue that the current standards aren’t broken, we do think there are serious problems. Revenue is a key performance measure for every business and a single, global accounting standard in this area is critical. There is understandable concern about increased cost and complexity, but we believe that the IASB and FASB are moving in the right direction, and we’re pleased they’re moving together.”

The IASB and FASB have amended their proposals to simplify application and reduce unnecessary disruption to established accounting practices. For example, the latest exposure draft is expected to result in most construction and services-sector businesses continuing to recognise revenue as they perform under a contract, much more in line with current practice. The boards have added practical expedients to simplify application in some areas, including contracts with embedded financing and onerous obligations.

Encouragingly, support for change was greatest in India (59% believe improvement is needed), the Association for South East Asian Nations (ASEAN) countries (56% believe that improvement is needed) and Latin America (48% believe that improvement is needed).

The IASB and FASB’s latest joint proposal was published in November 2011, following a previous Exposure Draft in June 2010 and a Preliminary Views document in 2008. The ­comment deadline is March 13 this year. Grant Thornton will submit a global comment letter on or before that date.

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