Revenue recognition practices in South Africa: An analysis of the decision usefulness of IFRS 15 disclosures

Abstract

The paper analyses the first-time adoption of IFRS 15 and reports on the appropriateness, rigour and decision usefulness of revenue disclosure practices in South Africa. The decision usefulness is assessed by reviewing the nature, amount, timing and uncertainty of revenue recognition information. A disclosure checklist was used for the content analysis and interpretation of a selection of South African listed companies. In most instances, revenue disclosures appeared to be orderly, concise, coherent and appropriately cross-referenced, indicating that generally companies were able to deal appropriately with entity-specific information regarding the nature, amount and timing of revenue recognition. Specifically, the disaggregation of revenue, the accounting policies and the transitional requirements were applied appropriately. However, two main concerns were identified, which compromise the decision usefulness of revenue recognition. Firstly, misalignment between the IFRS 15 information in the annual financial statements and the interim financial statements was identified in the first year of the application of IFRS 15. The finding indicates that some entities need to start their process of adopting a new financial reporting standard earlier. Secondly, specific assumptions and judgments regarding revenue recognition, determining the transaction price and measuring obligations for returns, refunds and other similar obligations were not always disclosed. Insufficient disclosure specifically regarding the uncertainty of revenue recognition could compromise the decision usefulness of revenue information. The findings of this paper contribute to the understanding of the first-time adoption implications of new accounting standards, such as IFRS 15.