Effect of Uncertainties on Revenue Recognition (AS 9)

Effect of Uncertainties on Revenue Recognition may either result in postponement of recognition of revenue in full or partial adjustment thereof by way of provisions for a particular accounting period.

As per AS-9 issued by the ICAI, revenue recognition necessitates that revenue be measurable and that ultimate collection is reasonable at the time of sale or service provision.

When the ability to assess the ultimate collection with reasonable certainty is lacking at the time of raising any claim, such as for price escalation, export incentives, interest, and so on, revenue recognition is delayed to the extent of uncertainty involved. In such cases, it may be appropriate to recognise revenue only when the ultimate collection is reasonably certain. Even if payments are made in instalments, revenue is recognised at the time of sale or rendering of service where there is no uncertainty about ultimate collection.

When there is uncertainty about collectability after the sale or rendering of the service, it is better to make a separate provision to reflect the uncertainty rather than adjust the amount of revenue originally recorded.

An important criterion for revenue recognition is that the consideration receivable for the sale of goods, the provision of services, or the use of enterprise resources by others is reasonably determinable. When such consideration cannot be determined within reasonable limits, revenue recognition is postponed.

When revenue recognition is delayed due to the impact of uncertainties, it is considered revenue of the period in which it is properly recognised.

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List of Accounting Standards of ICAI: AS-1 to AS-32

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