The primary standard for revenue recognition, IAS 18, sets out the requirements for measuring and recognizing revenue and defines it as the gross inflow of economic benefits over a specified period. The period may arise in the ordinary course of business and applies to the accounting for revenue from the sale of goods, the provision of services, and the use by third parties of assets that generate interest, dividends, or royalties. This paper aims to discuss two sets of IAS revenue recognition standards and provide examples of differences between these two standards.
According to the main standard IAS 18, particular criteria determine the recognition of revenue when economic benefits are received by an enterprise. However, critics say that the requirements for measuring and recognizing revenue set out in IAS 18 are too general and require further specification. Revenue is one of the leading financial indicators of a company and often the largest number in financial statements that attract the most attention (“Revenue recognition,” 2021). Along with profit, revenue is an important indicator of business success in many sectors.
Therefore, the remuneration package, that is, the size of the salaries of managers and managing directors, may depend on the size of this indicator. Revenue is therefore also called the element related to the performance of the company and determines its effectiveness. Equally important, IAS 11 addresses how revenue is allocated to contract periods for construction work. As a result, income and expenses are recognized in connection with the recognition of the completion of work under the construction contract (“IAS 11 Construction Contracts,” 2021). If the contract terms are not met, revenue is recognized to the extent of the recoverable costs incurred under the contract.
Thus, two sets of the IAS standards were discussed, and the differences between them were admitted. The two international financial reporting standards are IAS 18, detailed above, and IAS 11. The main difference between IAS 11 is that it applies IAS 18 standards to construction companies. Both standards are based solely on the principles of transparency, timeliness, relevance, and others. Therefore, IAS has recently begun to develop new standards that will be more inclusive, direct, and comprehensive.
References
IAS 11 Construction Contracts. (2021). Web.
Revenue recognition. (2021). Web.