Revenue recognition in selected commercial public sector entities : an analysis

Abstract

Purpose: This study analyses the current accounting treatment by Maltese Government Business Enterprises of revenue in accordance with IAS 18 Revenue. Additionally, this study identifies and analyses how the said public sector entities will be affected by the introduction of IFRS 15 Revenue from Contracts with Customers. Design: Objectives were achieved through semi-structured one-to-one interviews with the financial statement preparers of ten local GBEs. Findings: The findings indicate that the majority of the local GBEs adhering to IAS 18 do not encounter difficulties when recognising and disclosing revenue despite the number of inconsistencies and weaknesses the said standard poses. In turn, upon the introduction of IFRS 15, only a small number of financial statement preparers within local GBEs are expected to face major judgement when applying certain provisions laid down by the said standard. The study also reveals that the additional disclosure requirements outlined in IFRS 15 are seen as being burdensome. Conclusion: The accounting for revenue within the majority of local GBEs adhering to IAS 18 is considered to be simple. Apart from the fact that a number of judgements have to be done due to IFRS 15 being principles-based, it is expected that the said entities will not be profoundly affected by the introduction of the said standard. Value: The findings of this study provide an overview of the possible issues that will be encountered by financial statement preparers that will be adhering to IFRS 15. Moreover, the findings of this study also highlight the need of financial statement preparers to start evaluating the possible effects of new accounting standards upon their entities at a farther point before their date of adoption.