First global revenue accounting rule set for 2017

Wed May 28, 2014 10:25am EDT

* Rule presents changes for telecoms, software, real estate

* IT systems, other processes will have to change

* Latest example of standard setters aligning rules

By Huw Jones

LONDON, May 28 (Reuters) - Investors will be able to compare more easily from 2017 how much companies from all parts of the world earn under the first common global revenue rule published on Wednesday.

Revenue is one of the most important lines in a company's accounts and a key benchmark for deciding on mergers and acquisitions, but different accounting rules in the United States and the rest of the world make company comparisons harder.

The Financial Accounting Standards Board (FASB) which writes book-keeping rules in the United States, and the International Accounting Standards Board (IASB), whose rules are used in over 100 countries spanning Europe, Asia and parts of the Americas, have taken years to thrash out the common approach.

The IASB's current rule lacks detail on when revenue should be booked - when a sale is agreed or when payment is made - while critics say the U.S. rule is too prescriptive.

"The revenue recognition standard represents a milestone in our efforts to improve and converge one of the most important areas of financial reporting," FASB Chairman Russell Golden said.

Accountants say companies using IASB rules will feel the biggest impact as they have had little guidance on how to book revenue from sales that combine different elements such as a product and back-up servicing.

Many businesses will have to change their IT systems, internal controls and even when bonuses are awarded.

It will particularly affect telecom, software, outsourcing, life science and construction, forcing them to estimate some of the revenue when a product is sold and book the rest over the course of linked servicing contracts.

"For some of these companies, the change may present a formidable logistical challenge," said Nigel Sleigh-Johnson, head of the reporting faculty at ICAEW, an accounting body.

"This will involve assessing the impact of the standard on all the company's revenue streams and determining what customers pay for each element of goods and services sold as packages. This can be a complicated task," Sleigh-Johnson said.

Brian Marshall, a partner at accounting firm McGladrey in Stamford, Connecticut, said U.S. companies in industries such as software may like the change because they consider the current revenue rule overly restrictive.

The rule takes effect from 2017 but U.S. companies will have to show its impact in 2015 and 2016 under a U.S. law that requires two comparison years ahead of accounting changes.

The reform is part of an effort by the two standard setters to align their rules to make capital markets more efficient, as called for by leaders of the Group of Twenty (G20) economies.

Disagreements remain, with the two boards unable to agree a single rule forcing banks to make provisions for souring loans earlier. They are also set to differ over accounting at insurers. (Additional reporting by Dena Aubin in New York; editing by Tom Pfeiffer)