Accounting for revenue using an accountability and business model framework: The case of the South African Institute of Chartered Accountants’ professional examinations

Abstract

This research adopts a normative approach. It builds on the academic literature which argues that the usefulness of financial reporting can be enhanced by aligning accounting for balances and transactions with an organisation’s business model, as presented in its integrated report. This is done using examination fees collected by the South African Institute of Chartered Accountants (SAICA) as an example. The research demonstrates how SAICA’s business model can be used to inform the identification of contracts with customers; the definition of performance obligations and conclude on the timing of revenue recognition under IFRS 15: Revenue from Contracts with Customers. In turn, this provides a useful practical example of how, in general terms, an organisation’s business model can be used to provide a more transparent account of financial performance. The research also makes an important contribution by showing how, without requiring amendments to existing accounting standards, financial reporting can be informed by details on the value creation process explained in a company’s integrated report.

Keywords:

• Accountability
• business model
• IFRS 15
• integrated reporting
• revenue recognition
• South African Institute of Chartered Accountants (SAICA)

Notes

1. Examples include the Chartered Institute of Management Accountants, the CFA Institute, the South African Institute of Professional Accountants and the Association of Chartered Certified Accountants.

2. This is possibly corroborated by the release of IFRS 13: Fair Value Measurement, by the IASB in 2011.

3. Value creation and generation in strategic terms may be broader than in a financial reporting sense. The recognition and measurement of ‘realised value’ is constrained by definitions of ‘incomes’ and ‘expense’ and the focus on value generated for shareholders, rather than for a broader group of stakeholders. This is, however, beyond the scope of this paper.

4. SAICA allows accredited training offices, other than universities, to participate in training prospective Chartered Accountants. The appropriateness of this decision is not within the scope of this research. In addition, the identity of the service provider does not alter the assessment of how the business model is relevant for developing accounting policies.

5. At the time of writing this paper, the 2015 integrated report and financial statements were not available.

6. It is assumed that the arrangement between SAICA and the relevant contractual counterparties establishes clearly the payment terms (IASB, 2014b para 9c), has commercial substance (IASB, 2014b, para 9d) and that it is probable that the consideration due from counterparties will be collected (IASB, 2014b, para 9e).

7. The fact that fees may be paid by the student, the training office or a third party does not affect this assessment because the contractual arrangement is for the development of the individual learner’s intellectual capital.

8. This is consistent with the view that the goods and services are assets, even if they exist only momentarily as and when they are received or enjoyed by the customer (IASB, 2014b, para 33).

9. This would include the time from completion of the undergraduate degree (or equivalent) entitling the student to resister with SAICA as a trainee accountant to the point when the learner has completed both professional examinations and the minimum period of training prescribed by SAICA.

10. This was specifically done to reduce the time taken to complete the training contract and not to modify the nature and purpose of the professional examinations (special thanks to one of the reviewers for pointing this out).

11. Until the examination results are released, the student receives no identifiable benefit which could be used by a different service-provider stepping in to complete a partially satisfied performance obligation (IASB, 2014b, para B4). In reaching this conclusion, the practical difficulties of being awarded credits for a partially completed training contract are ignored (IASB, 2014b, para B4a). SAICA is, however, only required to inform the student of the final outcome of the examination and does not transfer progress made on incomplete service delivery (IASB, 2014b, para B4b).

12. The student is not entitled to a refund of the examination fee in the event of failure and the release of the results may be only a formality. The student is, however, only able to obtain substantially all of the benefits of the examination process once the results are released. Due to the fact that the time lapse between the finalization of results and their publication is unlikely to be significant, determining if control passes when marking is complete or results are published may be inconsequential.

13. Students writing the ITC and APC are also required to complete a training programme administered by independent service providers. From the author’s experience, the fees for these programmes are often paid by the learners training office. Unfortunately, SAICA’s most recent integrated report does not provide details on the activities of these service providers. As a result, the accounting implications are not discussed.