Increased disclosure required under IFRS 15: are you ready?
New accounting standard IFRS 15, Revenue from Contracts with Customers, introduces more detailed requirements for presentation and disclosure than the standards it replaces. Shipping company financial statements do not currently disclose many of these new elements, so attention needs to be given to how this information is obtained and whether accounting systems and processes need to be amended or updated.
In terms of presentation, IFRS 15 requires companies to show revenue from contracts separately from other revenue sources. Voyage charter income would therefore need to be presented separately from time charter income. This disclosure can be made in the notes to the financial statements.
The standard also requires contract balances (contract assets and liabilities) to be presented in the statement of financial position – and presented separately from other assets. Contract balances will arise due to timing differences between when revenue is recognised and when cash is received from the customer. For example, the receipt of cash before a voyage charter has been satisfied will lead to the recognition of a contract liability (rather than deferred income as under current accounting rules).
Shipping companies also need to prepare for the new disclosures required by IFRS 15. The new standard sets out a disclosure objective which is “…to understand the nature, timing and uncertainty of revenue and cash flows arising from contracts with customers…”. To meet this objective, qualitative and quantitative information is required about contracts with customers, the significant judgements made in applying the standard, and assets recognised from costs incurred to obtain or fulfil a contract. IFRS 15 sets out in considerable detail what information companies must disclose, including when a performance obligation is satisfied, significant payment terms, the nature of goods or services promised, estimation of variable amounts and any types of warranties.
A further major disclosure requirement concerns the need to give information about unsatisfied or partially satisfied performance obligations and the aggregate amount allocated to them – effectively disclosure of the confirmed order book. Shipping companies will also need to explain when they expect to recognise these amounts as revenue, either through narrative or in a tabular format.
Details of the presentation and disclosure requirements of IFRS 15, are explained in our factsheet available to download here.
Source: Moore Stephens