MFRS 15 Implementation Issues and Challenges in For The Construction, Telecommun
MFRS 15 Implementation Issues and Challenges in For The Construction, Telecommun
MFRS 15 Implementation Issues and Challenges in For The Construction, Telecommun
Introduction
The core principle of MFRS 15 is that an entity shall recognise revenue to show the transfer
of promised goods or services to the customers in an amount that reflects the
consideration to which the entity supposes to be entitled in exchange for the goods or
services. Under this standard, the core principle of revenue recognition is represented by a
five-step model framework, depicted in Figure 1 and briefly explained further below:
Figure 1 Five-step model framework of revenue recognition under MFRS15
MFRS 15 defines a contract as an agreement between two or more parties that establishes
the enforceable rights and obligations and sets the criteria for each contract to be fulfilled.
The transaction price is the total consideration that the entity is expected to be entitled in
exchange for the transfer of the goods or services promised to the customer, excluding the
amount collected on behalf of the third party (if any).
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation.
The obligation of performance is satisfied when the asset is transferred (or as) the
customer acquires control over the asset whose obligations of execution can be fulfilled
either at one time or from time to time, depending on the contract with the customer. Upon
satisfying the obligation, revenue can be recognised.
The requirements set out in MFRS 15 significantly impact some industries such as
construction, telecommunication and automotive industries (Silvia, 2014). The entities in
these industries are facing difficulties in implementing this standard, at least at the initial
stage of its adoption. The issues and challenges faced by these industries are attributed to
the nature of the business environment and the types of business activities of the entities
(Ling & Ramesh, 2017).
Construction Industry
The contracts in the construction industry often include design and building houses that
come with fully-furnished or semi-furnished, free parking lot, security and maintenance
services. The contractors provide a significant integration of goods and services to their
:
customers, incurring costs during the bidding process and sale commission (KPMG, 2014).
Such contracts are agreed upon the completion of the houses. However, in the Malaysian
scenario, the contracts often are agreed before the completion of the houses and this
poses a challenge to the contractors on how to recognise revenue using the five-step
model. In particular, the contractors need to consider the following:
Telecommunication Industry
Contracts in the telecommunication industry often include packages with free handsets
with 12- or 24-months service plans/agreement that provide voice, SMS and data services
(Fern, 2017). In addition, there are some contracts that include additional goods and
services such as an option to upgrade the handset, roaming passes, weekend data, pocket
Wi-Fi, free trial access to video on demand services and club member privileges. The
transaction price needs to be fairly and appropriately allocated to all goods and services
according to performance obligation in the contract based on SSP. With the variety of
goods and services bulked into one contract, the telecommunication entities may face
challenges in applying the five-step model. This is because the SSP of the goods and
services are not all observable and easily measured. In particular, the entities need to
consider the following:
Automotive Industry
The contracts in the automotive industry often contain delivery of a vehicle with packages
involving discounts or rebates, free services and extended warranties. MFRS 15 requires
the entities including automotive entity to allocate the transaction price into individual
:
goods or services. This involves identification of performance obligation and assessment of
the SSP for each performance obligation, and allocation of the transaction price into the
respective performance obligation (Ramesh, 2017). The contractors may face challenges in
the allocation of transaction price to the respective departments such as revenue on the
sale of the vehicles to the sales department and the revenue on the maintenance services
provided to the customers to the maintenance service department. In addition, the
contractors may face difficulties in identifying the performance obligation when the
services have not been provided yet by the contractors to the customers. In particular, the
automotive entities need to consider the following:
Conclusion
In sum, the introduction of MFRS 15 has a significant impact on the entities’ financial
reporting where the five-step model framework provides a new and general guideline of
revenue recognition for contract with customers. It is important to understand the
mechanism and requirements of the framework in order to successfully applying the
standard. The application of the five-step model framework requires support and inputs
from all divisions of an entity and at times, involves significant judgement. Furthermore, the
entity should take into account the model framework in drafting future contracts with the
customers in order to mitigate issues arising from MFRS 15 implementation.
Delloite. (2016). IFRS 15 — Revenue from Contracts with Customers. Retrieved from
https://www.iasplus.com/en/standards/ifrs/ifrs15
KPMG. (2014). Impacts on the construction industry of the new revenue standard.
Retrieved from https://home.kpmg.com/content/dam/kpmg/pdf/2014/10/First-
Impressions-O-201409-Impacts-on-the-construction-industry-of-the-new-revenue-
standard.pdf
Ling, T.C. & Ramesh, M. (2017). One step closer to MFRS 15. Retrieved from
https://www.pwc.com/my/en/perspective/mfrs/one-step-closer-to-mfrs15.html
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MASB. (2015). MFRS 15 Revenue from Contracts with Customers. Accounting Standards,
(September 2015), 727–787. Retrieved from http://www.masb.org.my/
Silvia, M. (2014). IFRS 15 vs. IAS 18: Huge Change Is Here! Retrieved from
https://www.ifrsbox.com/ifrs-15-vs-ias-18/
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