Tweak your invoicing process to be compliant with FRS 115
The Financial Reporting Standard 115 change aims to improve the quality and consistency of revenue reporting which ultimately means fairer calculations of tax obligations for all businesses. In a nutshell, under FRS 115, revenue is recognised either over time or at a point in time, depending on the pattern of transfer of the goods or services to the customer. This is different from the current risks-and-rewards model that requires different treatments depending on the type and form of the transactions.
From a process perspective, if it is applicable to your business this could mean just a minor tweak in your invoicing to ensure compliance by generating and issuing invoices as and when services are completed or products are delivered according to the contract. So let’s look at a very simple example:
You’ve won a contract to deliver 300 pencil cases over 3 months (100 per month). Total contract value is $300. When the contract is signed, a sales order is created for the full contract value. At the end of each month when the delivery is complete, a sales invoice is issued to the customer and upon payment the revenue is posted to accounting. You can do the same on the purchasing side by issuing the purchase invoices against the sales order. This process will also allow reporting of GST based on the accumulated revenue and costs for that quarter. For easy tracking, ensure that the contract, sales order and invoices are referenced to each other.
This of course is a straight forward example. Ideally you should review your current processes and identify what needs to be changed first before making the necessary system changes. If you’re still unsure, contact us and we’ll be more than happy to help.