The new draft version of Accounting Principle OIC 34 on the “Revenues”

Prepared by Felice De Lillo, Fabio Pirolozzi and Veronica Cetroni


On November 8, 2021, the Italian Accounting Standard Board (“OIC”) published in draft for consultation the national accounting standard OIC 34 relating to the “Revenues“, which will apply to financial statements starting from  the fiscal years beginning on or after January 1, 2023.

Purpose of the principle

The purpose of accounting standard OIC 34 is to regulate the criteria for the recognising, classifying and evaluating of the revenues, as well as the information to be reported in the explanatory notes.

As highlighted in the motivations at the basis of the choices made by the OIC, the draft of OIC 34 became necessary because the provisions on revenues, contained in the accounting standards, were not always considered sufficient to represent the different, and sometimes complex, types of transactions performed by the various companies.

Context of application

OIC 34 regulates the methods of accounting for all transactions that require recognition of revenues under item “A1 – Revenues from sales and services” in the income statement, pursuant to art. 2425 of the Italian Civil Code, and provides internally some simplifications for financial statements prepared in abbreviated form (art. 2435-bis of the Italian Civil Code) and for micro-businesses (art. 2435-ter of the Italian Civil Code).

The new OIC 34 standard excludes from its scope of application:

  1. transactions which, according to OIC 12, are classified under item “A5 – Other revenues and income”.
  2. revenues deriving from work in progress contract pursuant to OIC 23.
  3. transactions that do not have a commercial purpose.

Regarding the classification of revenues in the profit and loss account, principle OIC 34 refers to the general criteria of OIC 12 – “Composition and format of the financial statements“.

Structure of the principle

As indicated in the explanatory notes, principle OIC 34 establishes the following phases for the recognition of the revenue:

  1. determination of the total price of the contract;
  2. identification of the elementary unit of accounting;
  3. valuation of the elementary accounting units; and
  4. recognition of revenues.

Based on the draft OIC 34, the scope of the standard is to facilitate the preparation of financial statements in the recognition of revenues arising from complex contracts, i.e., contracts that provide for more than one elementary unit of accounting, introducing a procedural approach.

Based on the definitions contained in the draft of the standard, an “elementary unit of accounting” is defined as the individual service included in the contract to be accounted for separately.

In the case of simple contracts, according to the draft of the standard, it will not be necessary to perform all the required evaluations (e.g., a contract that provides for a single basic unit of accounting or that does not include premiums, discounts, or other variable elements).

Recognition, initial and subsequent evaluation

Firstly, the draft of the standard provides the  “Grouping of the Contracts”, specifying that a group of contracts may be treated as a single contract when they are negotiated simultaneously with the same customer and when one of the following conditions exists:

  • when the group of contracts is negotiated jointly with a single business objective and there is appropriate supporting documentation; or
  • the price of the contract depends on the prices or performance of the other contracts.

It is of fundamental importance, in this first phase, the determination of the overall price of the contract, which must indicate separately, if present, the valuation of the variable components of the same, any amounts paid to the client and, if applicable, the actualization effect if the payment terms are more than 12 months from the time of initial recognition.

The most important phase of the procedure is the identification of the basic unit of accounting.  In particular, the individual goods, services or other provision that are promised to the client under the contract must be treated separately. The segmentation of the contract becomes necessary as a single sale contract can give rise to several rights and obligations that must be accounted for separately.

The draft of the standard also indicates that the editor of the financial statements will not have to separate the individual elementary units of accounting when the goods or services provided in the contract are integrated or interdependent among them, or when one or more services provided in the contract do not form part of the company’s characteristic activities and they are provided free of charge.

Once the elementary accounting units have been identified, it will be necessary to value each of them by allocating the total price of the contract to each elementary accounting unit identified.

In the final instance, once the elementary units of account have been valued, it will be necessary to recognise the revenues, depending on whether the sale of goods or the provision of services is involved.

At the moment, it would be identified the approach that revenues from the sale of goods are recognised when: i) the substantial transfer of risks and benefits has taken place; ii) the amount of the revenues can be reliably determined; and iii) the production process is completed.

Regarding the provision of services, in line with the provisions of OIC 23 for work in progress contract, the draft standard envisages that revenues are recognised based on the state of progress if the right to consideration for the seller matures in proportion to the service provided and if the amount of the revenue can be reliably quantified.  The draft of the standard also clarifies that, if the company cannot recognise the revenue according to the state of progress principle, the revenue for the service rendered is recognised in the income statement when the service has been definitively completed.

Based on the draft of the standard OIC 34, if after the initial registration, the company revises its estimates, the value must be updated to consider the additional information.

If there is a contractual change (e.g., additional service), this is accounted for separately.

Small and Medium-Sized Enterprises

To reduce the related administrative costs, the draft of the standard OIC 34 requires companies that draw up abbreviated financial statements (art. 2435-bis of the Italian Civil Code) or micro-companies (art. 2435-ter of the Italian Civil Code) to apply a simplified model that does not require the separation and valuation of the various elementary accounting units.

As highlighted in the explanatory notes of the draft of the standard for “these companies, in the case of contracts that, for a single consideration, envisage the sale of an asset and the provision of a service in a subsequent financial year, will be able to continue to recognise the entire revenue at the time of the sale of the asset and will assess the recognition of a provision for risks and charges against the cost they expect to incur for the service“.

Further simplifications may be evaluated by the OIC for these entities following the closure of the consultation process on the draft standard OIC 34.

First-time adoption

Any effects resulting from the first-time adoption of the new standard OIC 34 will be recognised according to the provisions of OIC 29 “Changes in accounting standards, changes in accounting estimates, correction of errors, events occurring after the end of the financial year” for changes in accounting standards. 

Furthermore, with a view to simplification, the prospective application of the new standard OIC 34 is allowed.

Application guidance and illustrated examples

Finally, it should be noted that the draft of the accounting standard contains, as an integral part of it, an Application Guide in which the accounting treatment of certain cases that have an impact on revenues are indicated, such as:

  • Sale with guarantee;
  • Sale of licenses;
  • Sale with obligation to repurchase;
  • Company acting on its own behalf or on behalf of third parties (in the latter case, entering the revenue from the sale net of the costs incurred for the purchase of the asset, thus identifying the value of the commission due).

Similarly, although not an integral part of the principle, some illustrative examples are given, such as:

  • Right-to-Return Sales.
  • Prize competitions.
  • Sales with ex lege warranty.
  • Sales with additional guarantee and discount allocation.
  • Discount accounting and discount allocation.
  • Accounting for the amount to be paid to the customer.
  • Accounting for licenses.
  • Sales with deferred delivery.
  • Sale of goods and service: ordinary financial statements and condensed financial statements.

Let’s Talk

For a deeper discussion, please contact:

Marco Meulepas

PwC TLS Avvocati e Commercialisti

Partner Milano

Roberto Pilati

PwC TLS Avvocati e Commercialisti

Director Milano

Felice De Lillo

PwC TLS Avvocati e Commercialisti

Partner Roma

Fabio Pirolozzi

PwC TLS Avvocati e Commercialisti

Partner Roma