MFRS 15 Revenue from Contracts with Customers

Accounting standard on revenue from contracts deferred by a year

         

The Malaysian Accounting Standards Board (MASB) confirmed today that the effective date of MFRS 15 Revenue from Contracts with Customers will be deferred to annual periods beginning on or after 1 January 2018, following the recent press release by the International Accounting Standards Board (IASB) confirming a one-year deferral of IFRS 15 Revenue from Contracts with Customers. However, early application of MFRS 15 is still permitted.

As a result, the effective date for Transitioning Entities (TEs) to apply the Malaysian Financial Reporting Standards (MFRSs) will also be deferred to annual periods beginning on or after 1 January 2018.

The TEs are entities within the scope of MFRS 141 Agriculture and/or IC Interpretation 15 Agreements for the Construction of Real Estate, including their parents, significant investors and joint ventures. Generally, the TEs are entities in the real estate and agriculture industries that have been given the option to continue applying the Financial Reporting Standards Framework, the predecessor of the MFRSs Framework.

Reasons for the deferment

MFRS 15 was issued in September 2014 with the original effective date of 1 January 2017. MFRS 15 is word-for-word IFRS 15 (including the effective date), which was issued by the IASB in May 2014.

On 22 July 2015, the IASB announced its decision to defer the effective date of IFRS 15 by one year to 1 January 2018. This is mainly because on 30 July 2015, the IASB proposed some targeted amendments to IFRS 15. These proposed amendments are meant to aid implementation of IFRS 15 by clarifying some of the requirements, adding and amending illustrative examples and introducing additional practical expedients on transition.

Also, the deferral aligns the effective date of IFRS 15 with that of the US revenue standard (Topic 606). When Topic 606 and IFRS 15 were issued in 2014, they were fully converged, including the effective date. However, the effective date of Topic 606 was recently deferred by one year in response to stakeholders’ feedback. The IASB concluded that having the same effective date for IFRS 15 and Topic 606 is important for cost-benefit reasons, especially for group entities that have both IFRS and US reporting requirements. It will also ensure comparability of reporting results between IFRS and US reporting entities.

Given that the MFRSs are fully converged with the IFRSs, a parallel amendment is necessary to preserve the convergence of MFRS 15 with IFRS 15; and as such, the effective date of MFRS 15 will be deferred.

Notwithstanding the deferral, early application of the Standard is permitted. We believe entities that expect to be ready to implement MFRS 15 on its original effective date will welcome this option.

Deferral’s effect on TEs

The MASB has consistently used the effective date of MFRS 15 as the basis for setting the effective date for the TEs to apply the MFRSs. In the light of the IASB’s deferral of IFRS 15, the effective date for the TEs to apply the MFRSs will also be deferred to 1 January 2018.

MASB chairman Encik Mohamed Raslan Abdul Rahman explains, “A one-year deferral will be helpful for the TEs as it provides additional time to implement the internationally recognised framework. Furthermore, the quality of disclosure should improve as well. Nevertheless, the TEs ought to carefully consider adopting the MFRSs early so that their financial statements will receive the recognition they deserve.”

MASB executive director, Ms Tan Bee Leng further explains, “The formal amendment to IFRS 15, specifying the new effective date, is expected to be issued later this month. Once the IASB has issued the amendment, the MASB expects to issue a similar amendments to MFRS 15 by end of October 2015.”