What even is revenue? An academics search for clarity

For the sake of improvement, Sapho Gwadiso pokes holes in technical accounting which the UCT lecturer believes is taken for granted. Gwadiso, who recently presented an award-winning paper at the South African Accounting Academy’s bi-annual conference, explains his philosophy

The most prolific healer of the 2nd century Roman Empire was Galen of Pergamum. He healed diseases thought incurable and served at the behest of Emperor Marcus Aurelius. 

Galen's understanding of anatomy was what lay behind his success. He gained this knowledge by dissecting corpses. Sapho Gwadiso, an accounting lecturer at UCT, does not have to touch any scalpels, but he does dissect technical accounting concepts in order to better understand them. 

“As a qualified accountant, you learn concepts throughout your degree as if they’re certain, as if they’re set in stone. But when you go back to class to teach it to students and you open up some research papers, you realise - wait, actually this isn’t as solid as it looks and you can poke holes in part of it,” says Gwadiso

“Hopefully, by poking holes, you can figure out ways to improve these concepts, and you can also better understand the concepts.” 

Recently, Gwadiso presented a paper titled IFRS 15 Revenue from contracts with customers at the South African Accounting Academy’s bi-annual conference, he presented a paper titled, Revenue and Other Income: An undefined difference between IAS18 and IFRS15. It won an award at the conference for being the best accounting paper. 

Gwadiso writes, “The main finding of the paper is that guidance that was in IAS18 was superseded by IFRS 15, but not replaced, thus creating a gap, and a broad area for judgement.” This gap exists mostly with income that isn’t as a result of a contract with customers but may still constitute revenue.  

He later states, “. . whilst IFRS15 brought about a big change in how revenue is accounted for, some guidance in IAS18 was excluded in IFRS15, with no clarity of that guidance should continue to be applied or not. 

One practical application Gwadiso references is how uncertainty around the meaning of revenue can muddy waters when accountants try to identify reportable segments under IFRS 8. 

Using IFRS 8, accountants consider the quantum of potential segments revenue as an indicator of whether a segment should be reported separately or rather aggregated with others. However, because it’s not clear if ‘revenue’ refers to its classic definition or instead how it’s defined under the new IFRS 15 – different accountants make different determinations. 

In his paper, Gwadiso references how Shoprite, Pick n Pay and Woolworths have responded in their financial statements.

The paper notes, “Unlike at  Pick n Pay and Woolworths above, there appears to be a change in the financial reporting presentation of Shoprite after 2019 when IFR15 became applicable. Whilst revenue only comprised sale of merchandise before 2019, with all the other items reported under “other income”, this changed afterwards, with all the items falling under the revenue note. As such, Shoprite Holdings appear to have interpreted revenue as expanding in definition when IFRS15 became effective.

If there is one thing the investors don’t want, it’s ambiguity and lack of comparability. 

Gwadiso’s bigger aims 

Gwadiso aims to rework his recent paper and try and get it published in an academic journal. But his larger mission extends beyond the nuances of a single accounting standard. 

Overworked postgraduate students often tell Gwadiso that they never want to deal with technical accounting concepts again once they finish their studies. Gwadiso also notes that research nowadays often focuses on sustainability standards and ESG rather than technical accounting concepts. 

“For me this focus makes it feel like accounting is not worth researching or that it's not interesting.” 

By dissecting and even poking fun at accounting concepts most take for granted, Gwadiso is attempting to fight this disinterest. 

“I want to find a way to get back to talking about accounting and the creation of the standards. Where do they come from, what's their basis and what's their foundation, and does it actually work? Does it make sense? Can it be improved?“