Serie 1 - How to Recognize Revenue Recognition According to PSAK 72

A Brief Explanation of PSAK 72

PSAK 72 is a Financial Accounting Standards Statement that regulates revenue recognition from contracts with customers. It became effective on January 1, 2020, and replaced various previous revenue standards. This standard is principles-based (not rule-based) and aims to provide a more accurate picture of a company's revenue through the transfer of control of goods or services to customers.

Revenue recognition is carried out through a systematic five-step model. Here is a step-by-step explanation:

1. Identify Contracts with Customers

Determine whether a contract meets the criteria: a written or oral agreement that creates legally enforceable rights and obligations, and a customer with the ability to pay. The contract must have economic substance, not just a formality. If the contract does not meet these criteria, revenue is not recognized.

2. Identify Performance Obligations

Break the contract into major performance obligations, such as the delivery of goods or the provision of services. These obligations are considered separate if the customer can benefit from the goods/services independently or in combination with other goods/services available in the market.

3. Determine the Transaction Price

Calculate the total value expected to be received from the customer, including fixed/variable discounts, implicit financing, and non-cash consideration. Estimates for variables (such as bonuses) are made using the most likely method, such as expected value or most likely amount.

4. Allocate the Transaction Price to Performance Obligations

Apportion the transaction price based on the relative standalone selling price for each obligation. If there are discounts, allocate them proportionately unless evidence indicates a specific allocation.

5. Recognize Revenue When Performance Obligations Are Satisfied. Recognize revenue when (or as) control of the goods/services is transferred to the customer. This can be:

- At a single point in time (e.g., upon delivery of goods).
- Over time (e.g., subscription services), if criteria are met, such as the customer receiving ongoing benefits or the company being unable to transfer goods that have been produced.

This process ensures that revenue recognition reflects economic reality, not just cash flow. If there are any contract modifications, reevaluate the steps above..