One of auditors’ biggest concerns during the pandemic was the true and timeous reflection of revenue … Revenue recognition, in practice, determines when, in time, revenue can be reflected in your company’s financial statements. It involves confirmation and recognition of revenue values, timing, and payment in accordance with a customer’s contract subject to relevant completion dates.
It is an important process as it affects a company’s financial results and can have an impact on its financial position and performance. The process must adhere to the standards of the International Financial Reporting Standards (IFRS).
Revenue recognition is subject to:
- A contract between buyer and seller and detailed terms and condition.
- Based on an agreed value or estimate valued on a fair and commercial basis.
- Proof of transfer of goods or services between buyer and seller.
- The seller, your company, must have Proof of Payment from the buyer.
The contract between seller and buyer is key to revenue recognition. Once the seller has completed its obligations and been remunerated according to the agreement, revenue can be recognized. Alternatively, on a pro rata basis subject to proof of work in progress. Revenue generation is an important feature in providing a true and fair representation of a company’s financial results and important in making informed business decisions.