Tag: Recognition

Recognising revenue from sales-based royalties

One type of transaction within the scope of IFRS 15 Revenue from Contracts with Customers is licensing intellectual property to a customer in return for a royalty based on the licensee’s (future) sales. IFRS 15 sometimes requires the licensor to recognise its royalty as revenue before the licensee recognises its own related revenue. Also, estimating… Continue reading Recognising revenue from sales-based royalties

Changing accounting policies: when retrospective is not best

Applying IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, changes in accounting policies are generally applied retrospectively—by restating information for prior years as if the new accounting policy had always been applied. That approach of (full) retrospective application is overridden: IAS 8 makes it look as though full retrospective application is the default… Continue reading Changing accounting policies: when retrospective is not best

Deferred tax on intragroup inventory transfers

One case when IAS 12 Income Taxes requires companies to recognise a deferred tax asset is on unrealised intragroup profits on inventory. This arises when: Recognising this deferred tax asset is uncontroversial if the buying company and selling company are taxed at the same rate, but views are more mixed if rates differ. IAS 12… Continue reading Deferred tax on intragroup inventory transfers

What is income?

Some people wonder whether the IASB’s Conceptual Framework defines ‘income’ in a useful way. This post explores 2 aspects of that issue: Many of the points discussed in this post relate just as much to expense as to income. To keep the discussion brief, I discuss only income. Is ‘income’ a debit or a credit?… Continue reading What is income?

Defining contingent liabilities

IAS 37 Provisions, Contingent Liabilities and Contingent Assets contains an unusual definition of contingent liabilities. The definition covers 3 different items that do not form a natural class, and it also differs from how people (other than people applying IAS 37) commonly think about contingent liabilities. This post explains how IAS 37 ended up having… Continue reading Defining contingent liabilities

Digital reporting needs context

People sometimes suggest that the need for financial statements is disappearing fast. They argue that advances in digital reporting enable investors to look directly for the information they need, without being constrained by the format of the financial statements. In my view, those suggestions couldn’t be more wrong. It is a great development that investors… Continue reading Digital reporting needs context

Booking a provision does not ‘set money aside’

A story this morning in The Times commits a serious and misleading wording error that is surprisingly common in the UK. Here are the headline and the first two and a half paragraphs:   Santander puts £295 million aside for car loan claimsThe brewing controversy over mis-sold car loans has forced Santander UK to set… Continue reading Booking a provision does not ‘set money aside’

Buying an asset that comes with deferred tax

IAS 12 Income Taxes generally prohibits companies from recognising a deferred tax liability (or deferred tax asset) at the time when they buy an asset separately. I discuss below: I conclude that the initial recognition exception in IAS 12 applies too widely. Sometimes, a company acquires not just an underlying asset (or liability), but also… Continue reading Buying an asset that comes with deferred tax

Why has research on ‘conservatism’ told standard setters so little?

There is a vast and burgeoning academic literature on conservatism in accounting, and a slightly less flourishing literature on the somewhat related notion of accounting prudence. When I worked in standard setting, I didn’t find that literature as helpful as I had hoped. My impression is that my colleagues and other standard setters didn’t find… Continue reading Why has research on ‘conservatism’ told standard setters so little?