Now that the IASB and FASB have published a new joint standard on revenue recognition, the real work for food, drink and consumer goods companies is just beginning.

We look at how IFRS 15 Revenue from Contracts with Customers will affect companies in the FDCG sector, and how KPMG can help.

The new standard will result in significant impacts across the FDCG sector. 

In particular, some revenue may be recognised earlier than today, whilst some costs may be deferred. And the new disclosure requirements are extensive. However, the impacts will be felt far beyond accounting change.

A number of sector-specific arrangements will be affected, including: 

• payments to distributors and retailers; and 
• discounts, rebates and other incentives.

FDCG companies often make payments to their distributors and retailers – e.g. for product placement in the retailer’s store (‘slotting fees’), promotion events or co-branded advertising.

Under current IFRS, in the absence of specific guidance, such amounts are either recognised as a reduction of revenue or as an expense depending on their nature.

Under the new standard, you will need to consider whether such payments have been made in exchange for a distinct good or service, or as a sale incentive.

This could mean reviewing arrangements that involve such payments, and developing or modifying your systems and processes to capture relevant information.

Trade incentives provided by FDCG companies take many forms, including cash incentives, discounts and volume rebates, free or discounted goods or services, and customer loyalty programmes. 

Under current IFRS, incentives are accounted for as a reduction of revenue, as an expense, or as a separate deliverable (as in the case of customer loyalty programmes), depending on their nature.

Under the new standard, discounts, rebates, credits, price concessions, performance bonuses and similar incentives are treated as variable consideration. 

Variable consideration is included in the transaction price at the company’s best estimate, and is included in revenue to the extent that it is highly probable that there will be no significant reversal of the cumulative amount of revenue when any pricing uncertainty is resolved. 

These new requirements may change the way you account for such incentives, and you will need to review arrangements that include them, to determine their impact on the transaction price.

Read Accounting for revenue is changing: What's the impact on food, drink and consumer goods companies? (PDF 244.1 KB) to further understand how these and other FDCG sector-specific arrangements are affected, and the actions you may need to take.

It gives examples of how our cross-functional team of experts has helped clients across various sectors – including FDCG – with the accounting and operational challenges of the new revenue standard.

These include:

• performing an overall impact assessment to identify the key revenue streams that may be impacted;
• developing an accounting diagnostic to identify and prioritize the impacts on accounting policies and disclosures, including information gaps; and
• identifying and analysing key contracts under the IFRS 15 lens.

Please speak to your usual KPMG contact if you would like to find out more about how KPMG can help your business.

For KPMG’s most recent publications on the new standard, visit our IFRS – Revenue hot topics page.