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We run a B2C home-based services business. We repair and service used appliances. We offer service and/or maintenance agreements on used refurbished appliances we sell and/or appliances we have repaired in the home. These service and maintenance agreements are a significant percentage of our annual revenue.
Our accountant we must now realize service maintenance agreements revenue incrementally. If we sell a one year service agreement, we must break out the fee (paid @ start of agreement) on a 1/12 basis (each month) thus incrementally applying the full fee to the agreement.
There are some years in the life of a company where changes to the financial reporting environment are so extensive that the implications of change can seep into the company's financial management, decision-making, and costs. 2018 is expected to be one of those years.
The International Accounting Standards Board (IASB) has issued two major accounting standards, which will be effective in 2018: IFRS 15 Revenue from Contracts with Customers (IFRS 15, or the “Standard”) and IFRS 9 Financial Instruments. In this article, we shall consider the implications of IFRS 15 and its US Generally Accepted Accounting Principles (GAAP) counterpart, ASC 606 Revenue from Contracts with Customers (“ASC 606”).
While the implementation of all new accounting standards requires CFOs to think through its implications — because revenue is at the heart of all profit-orientated business — the impact of IFRS 15 could fundamentally change the profit, forecasts, and thus the business model of some companies.
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