It specifies how and when to recognize revenue as well as requiring entities to provide users of financial statements with more informative, relevant disclosures. IFRS (International Financial Reporting Standard) 15 is one such standard which lays down the rule to recognize and report Revenue from Contracts with Customers. As in our case both companies observed different accounting principles and the results were extremely misleading. With Accounting Standards, comparison between two entities is possible when both maintain the same principle, otherwise proper comparison is not possible. The main purpose why Accounting Standards got framed is to avoid such wrong decision making based on misleading data. The reason for getting mislead company B did not follow the standard accounting principles while recognizing the revenue. With this new information, it reveals that company A is performing better than the company B, though the financial figures were misleading. Revenue is recognized based on the invoicing though the contract is not fully delivered.

Fully invoiced and amount received upfront. Company B’s contract is of 5,00,000 and to be delivered in 5 years.The revenue is recognized only to the extent obligations are delivered, making it only 2,00,000 for the year. Company A’s contract is of 10,00,000 and to be delivered in 5 years.Both Companies had only one contract during the year.

Now we will check some other facts and see if our decision to go with company B will change? Here we decide which is the best company to invest in purely based on financial data provided by them.īelow is an excerpt of financial data of two companies in the same line of business By analyzing the above data, it is obvious that company B has a good ROI (Return on Investment) in fact 4.5 times that of company A and is the best place to invest in. Let’s start with an investment decision scenario. IFRS – 15: Revenue from Contracts with Customers

Configuration in Revenue Accounting and Reporting (RAR)Ĥ.

Understand SAP’s Revenue Accounting and Reporting (RAR).

Understand the concept of IFRS 15 – Revenue from Contracts with Customers.

RAR is also used to comply with ASC 606 – Revenue from Contracts with Customers. Towards the end, lists down some important configurations in SAP RAR (Revenue Accounting and Reporting). This blog starts by providing a brief understanding of IFRS (International Financial Reporting Standard) 15 – Revenue from Contracts with Customers and then lays down how SAPs RAR (Revenue Accounting and Reporting) solution helps in complying with the same.

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