7 Drivers of Revenue by Chris Yip

Written by Chris Yip
Edited by Sharifah Amira

Kaodim is constantly finding ways to keep employees motivated and informed, through various workshops in an effort to help them become more aware of the inner workings of the company and allowing them to feel more inclusive.

This specific workshop was conducted by Chris Yip and was held on the 13th of July at Kaodim’s office. The workshop focused mainly on informing employees about the business model and educating them regarding revenue and the 7 drivers that affect revenue.

“All of us know revenue, but do we know in depth, how each revenue contributes to the company?” said Chris. Employees were then given a deeper insight into how Kaodim recognises revenue according to International Financial Reporting Standard) – IFRS 15. Employees gained knowledge regarding the services and goods sold by Kaodim covering topics such as cash flows, the uncertainty of revenue and contract between customers, Chris then stresses on how contracts with a party other than a customer are not applicable to IFRS 15.

He stresses on the difficulty to determine whether an individual is dealing with a collaborating party or customer (e.g. some mutual development projects with other entities), therefore the precautions need to be taken and knowledge regarding this matter is important to help safeguard the company.

Individuals need to be aware that there are some exclusions from IFRS 15, namely: Leases (IAS 17 or IFRS 16)
Financial instruments and other rights and obligations within the scope of IFRS 9 (IAS 39), IFRS 10, IFRS 11, IAS 27, IAS 28;
Insurance contracts (IFRS 4) and Non-monetary exchanges between entities within the same business to facilitate sales.
Application for IFRS 15 for periods starting from 1 January 2018 or later.

5 steps to recognize revenue under IFRS 15
The main aim of IFRS 15 is to recognize revenue in a way that shows the transfer of goods/services promised to customers in an amount reflecting the expected consideration in return for those goods or services.
It seems understandable and very easy at first sight, and it truly is in many cases. But at times IFRS 15 can be very extensive and this is because many situations are not as straightforward and entities recognize revenues differently.

Take these cases for example:
Buy 2 get 1 free;
Buy monthly prepaid plan + get internet for free;
Earn loyalty points and cash them out/receive free goods later on;
Get bonuses for delivery on time; etc.

To make it systematic, IFRS 15 requires the application of 5 step model for revenue recognition.
The 5 steps are shown in the following:

Step 1: Identify the contract with the customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations
Step 5 Recognize revenue when (or as) the entity satisfies a performance obligation

The major lesson that can be taken from the session is to educate employees regarding Kaodim’s accounts and how revenue accumulates within the company. It also gives employees a better understanding regarding what the finance department does within the company and the impact they have on Kaodim.

The 7 revenue drivers conveyed during the session will help educate employees regarding increased or decreased revenue, and how they can now use this knowledge to their advantage to exceed revenue target set each month

Stay tuned for more article from the Chris.