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Dear Sir
Could you please help me to understand the accounting treatment of the following case:
The revenue recognition method changes from an output method (percentage of completion based on the proportion of the contracted services performed) to an input method (percentage of completion based on costs incurred), Do we require to use retrospective method to account for this change ?
Thanks in advance. Appreciate your time and effort.
Warm regards
MymoonHi Mymoon,
You need to think about whether it is a change in an accounting estimate or a change in accounting policy.
The accounting policy is to spread the revenue as the performance obligations are satisfied, so it isn’t a change in policy as that is still what we are doing and it wouldn’t involve a retrospective change.
The change in estimate is based upon the different methods used being changed so we have a change in estimate and it would be dealt with prospectively.
Hope that clears it up for you, and I like how you’ve given the situation some thought. Top work!
Thanks
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