Revenue is a key part of any business's financial statements because it shows how the business earns money. For CIBA members, understanding the disclosure requirements for revenue under IFRS for SMEs is crucial. This article explains the basic disclosure rules and provides practical tips to help you apply them effectively.

What are the Revenue Disclosure Requirements?

IFRS for SMEs Section 23 sets out the rules for recognising and reporting revenue. Here are the main things you need to disclose:

• Types of Revenue: You should clearly show the different types of revenue earned, like sales of goods, services provided, or other income. This helps people understand your business’s income sources.

• Accounting Policies: Explain the methods you use to recognise revenue. For example, do you recognise revenue when you deliver a product, or over time as a service is provided? Your policies should be clear and specific.

• Judgments and Estimates: Describe any important judgments or estimates made when recognising revenue. For instance, if you have to decide when a service is completed, explain how you made that decision.

• Deferred Revenue and Contract Liabilities: If you receive payments before delivering goods or services (like advance payments or deposits), you need to report these separately. This shows future revenue that hasn’t been earned yet.

Common Mistakes in Revenue Disclosures and How to Avoid Them

Even with clear standards, mistakes in revenue disclosures are common. Here are some practical tips to help avoid these errors:

• Be Specific, Not Vague: Avoid using broad categories like “other income” without explaining what they include. Break down revenue into clear categories such as “sales,” “service income,” and “subscription fees.”

• Keep Language Consistent: Use the same terms throughout your financial statements. Consistency helps readers understand the information easily.

• Explain Policies Clearly: Don’t just copy the standard wording for revenue recognition; explain how it applies to your business. For example, if you recognise service revenue over time, describe how you measure progress, like using hours worked or tasks completed.

Practical Example: Revenue Disclosure in Action

Here’s an example to illustrate how to apply these rules:

Scenario: ABC Consulting Services

ABC Consulting offers two types of services: a 12-month subscription service with upfront payments and one-off consulting projects billed when completed.

Revenue Disclosures:

• Types of Revenue: ABC shows income from subscriptions and one-off consulting services separately, making it clear how much comes from each source.

• Accounting Policies: ABC explains that subscription revenue is recognised monthly over the 12 months as the service is provided. For one-off projects, revenue is recognised once the project is completed.

• Deferred Revenue: ABC reports upfront payments from subscriptions as deferred revenue. This shows that some income is for future services.

Best Practices for Clear Revenue Disclosures

• Be Transparent: Clearly explain any estimates or judgments you make, such as how you decide when revenue is earned. This helps readers trust your financial statements.

• Use Simple Language: Avoid complex accounting terms where possible. Write disclosures in straightforward, easy-to-understand language.

• Review Regularly: Business operations change, and so should your disclosures. Regularly review and update your revenue disclosures to keep them relevant.

• Get Feedback: Ask stakeholders, like clients or auditors, if your disclosures are clear. Use their feedback to improve your reporting.

Conclusion

Following the disclosure requirements for revenue under IFRS for SMEs is about more than just compliance; it’s about providing a clear and honest view of how your business makes money. By keeping disclosures simple, specific, and updated, CIBA members can ensure their financial statements are both compliant and useful to all readers. This approach builds confidence and helps maintain strong, transparent relationships with stakeholders.

Join the CIBA CPD on Compilation of Annual Financial Statements: Navigating Companies Act Requirements, PI Score Implications, and Accounting Framework Essentials 2024 HERE.

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🕒 Duration: 2 hours
💡 CPD Points: 3

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