The Financial Accounting Standards Board and the International Accounting Standards Board have issued new rules that offer a one-stop, comprehensive source for how companies and nonprofit enterprises are to report revenue. The rules aim to improve, simplify and strengthen revenue recognition principles and practices. The new standards are to have broad effect globally and will be effective for public companies in 2017. Private companies and not-for-profits will have until 2018 to implement the rules.
This may necessitate a review of compensation packages and incentive schemes because many of these are based on the reported revenue of the company. The method of reporting may result in more unpredictability in bonuses and other compensation schemes. The telecommunications, computer software, construction, real estate sales and asset management sectors are most likely to see major changes more quickly than other sectors.
Takeaway:
- Bonus plans and other incentive compensation packages may need to be reviewed in light of recent changes to accounting rules.