Any difference between the initial recognition of a receivable and the corresponding amount of revenue recognised should also be presented as an expense, for example, an impairment loss. From that point, the entity will apply IFRS 15 to the contract. Please read, International Financial Reporting Standards, Revenue from Contracts with Customers — A guide to IFRS 15, Collection of IFRS 15 news and publications, Joint Transition Resource Group for Revenue Recognition, Clarifications to IFRS 15: Issues emerging from TRG discussions, FRC publishes thematic review findings on IFRS 15 and IFRS 16, IAAER grants for research informing the IASB's work, IPSASB extends comment letter deadline for its three recent exposure drafts, ESMA publishes 24th enforcement decisions report, A Roadmap to Applying the New Revenue Recognition Standard (2020), Deloitte comment letter on tentative agenda decision on IFRS 15 — Training costs to fulfil a contract, Deloitte comment letter on tentative agenda decision on IFRS 15 — Compensation for delays or cancellations, A Closer Look — Revenue recognition - evaluating whether an entity is acting as a principal or as an agent, IFRIC 15 — Agreements for the Construction of Real Estate, IFRIC 18 — Transfers of Assets from Customers, SIC-31 — Revenue – Barter Transactions Involving Advertising Services, Project on revenue added to the IASB's agenda, Effective for an entity's first annual IFRS financial statements for periods beginning on or after 1 January 2017, IASB defers effective date of IFRS 15 to 1 January 2018. if other standards specify how to separate and/or initially measure one or more parts of the contract, then those separation and measurement requirements are applied first. Identify the performance obligations in the contract, Allocate the transaction price to the performance obligations in the contract. [IFRS 15:105], A contract liability is presented in the statement of financial position where a customer has paid an amount of consideration prior to the entity performing by transferring the related good or service to the customer. In order to achieve the disclosure objective stated above, the Standard introduces a number of new disclosure requirements. These include, but are not limited to: [IFRS 15:31-33], An entity recognises revenue over time if one of the following criteria is met: [IFRS 15:35], If an entity does not satisfy its performance obligation over time, it satisfies it at a point in time. IFRS 15 specifies how and when an IFRS reporter will recognise revenue as well as requiring such entities to provide users of financial statements with more informative, relevant disclosures. We go through the new … Earlier application is permitted. Please turn off compatibility mode, upgrade your browser to at least Internet Explorer 9, or try using another browser such as Google Chrome or Mozilla Firefox. Earlier application is permitted. What’s new? … Any impairment relating to contracts with customers should be measured, presented and disclosed in accordance with IFRS 9. Applying IFRS 15, an entity recognises revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the entity expects to be entitled in … [IFRS 15:63], Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation, Revenue is recognised as control is passed, either over time or at a point in time. [IFRS 15:C1], When first applying IFRS 15, entities should apply the standard in full for the current period, including retrospective application to all contracts that were not yet complete at the beginning of that period. [IFRS 15:18-21]. [IFRS 15:106]. While the previous accounting standards provide separate guidance for different types of contract, the new accounting standard provides single guidance for all types of revenue. The five-step model framework. A receivable is recognised when the entity’s right to consideration is unconditional except for the passage of time. The objective of IFRS 15 is to establish the principles that an entity should apply to report useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and … This includes the ability to prevent others from directing the use of and obtaining the benefits from the asset. In that scenario: [IFRS 15:7]. IFRS 15 Revenue from Contracts with Customers6 Step 5: Recognise revenue when a performance obligation is satisfied An entity shall recognise revenue when (or as) it satisfies a performance … the entity has a present right to payment for the asset; the customer has legal title to the asset; the entity has transferred physical possession of the asset; the customer has the significant risks and rewards related to the ownership of the asset; and. The transaction price is then reduced by the amounts that are initially measured under other standards; if no other standard provides guidance on how to separate and/or initially measure one or more parts of the contract, then IFRS 15 will be applied. Specifically, variable consideration is only included in the transaction price if, and to the extent that, it is highly probable that its inclusion will not result in a significant revenue reversal in the future when the uncertainty has been subsequently resolved. - this article compares the accounting under IAS 18 and IFRS 15 on a simple example. By using this site you agree to our use of cookies. Step 2: Identify the performance obligations in the contract, At the inception of the contract, the entity should assess the goods or services that have been promised to the customer, and identify as a performance obligation: [IFRS 15.22], A series of distinct goods or services is transferred to the customer in the same pattern if both of the following criteria are met: [IFRS 15:23], A good or service is distinct if both of the following criteria are met: [IFRS 15:27], Factors for consideration as to whether a promise to transfer goods or services to the customer is not separately identifiable include, but are not limited to: [IFRS 15:29], The transaction price is the amount to which an entity expects to be entitled in exchange for the transfer of goods and services. A practical expedient is available, allowing the incremental costs of obtaining a contract to be expensed if the associated amortisation period would be 12 months or less. It supersedes current revenue recognition guidance including IAS … 6 IFRS IN PRACTICE 2019 fi IFRS 15 REVENUE FROM CONTRACTS WITH CUSTOMERS TRANSITION 2. Such revenue is recognised only when the underlying sales or usage occur. IFRS 15 replaces the following standards and interpretations: The objective of IFRS 15 is to establish the principles that an entity shall apply to report useful information to users of financial statements about the nature, amount, timing, and uncertainty of revenue and cash flows arising from a contract with a customer. Whether the latter type of modification is accounted for prospectively or retrospectively depends on whether the remaining goods or services to be delivered after the modification are distinct from those delivered prior to the modification. In May 2014, IFRS 15 (International Financial Reporting Standards) Revenue from Contracts with Customers was issued. [IFRS 15:51], The standard deals with the uncertainty relating to variable consideration by limiting the amount of variable consideration that can be recognised. Application of this guidance will depend on the facts and circumstances present in a contract with a customer and will require the exercise of judgment. In simpler terms, IFRS 15 covers all contracts with customers, and disposal or sale of non-currents assets owned by an entity. [IFRS 15:81], Where consideration is paid in advance or in arrears, the entity will need to consider whether the contract includes a significant financing arrangement and, if so, adjust for the time value of money. [IFRS 15:1] Application of the standard is mandatory for annual reporting periods starting from 1 January 2018 onwards. the entity does provide a significant service of integrating the goods or services with other goods or services promised in the contract; the goods or services significantly modify or customise other goods or services promised in the contract; the goods or services are highly interrelated or highly interdependent. Factors that may indicate the point in time at which control passes include, but are not limited to: [IFRS 15:38], The incremental costs of obtaining a contract must be recognised as an asset if the entity expects to recover those costs. [IFRS 15:14]. [IFRS 15:14]. The amendments do not change the underlying principles of the standard, just clarify and offer some additional transition relief. [IFRS 15:107-108], The disclosure objective stated in IFRS 15 is for an entity to disclose sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. IFRS 15 specifies when and how an organization should recognize revenue derived from contracts with customers, including how to provide users of financial statements with more informative, relevant disclosures. the contract has been approved by the parties to the contract; each party’s rights in relation to the goods or services to be transferred can be identified; the payment terms for the goods or services to be transferred can be identified; the contract has commercial substance; and. From that point, the entity will apply IFRS 15 to the contract. ... timing and uncertainty of revenue and cash flows from a contract with a customer… any assets recognised from the costs to obtain or fulfil a contract with a customer. Contract assets and receivables shall be accounted for in accordance with IFRS 9. 4. [IFRS 15:50] Variable consideration can arise, for example, as a result of discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, penalties or other similar items. Variable consideration is also present if an entity’s right to consideration is contingent on the occurrence of a future event. [IFRS 15:5], A contract with a customer may be partially within the scope of IFRS 15 and partially within the scope of another standard. [IFRS 15:111]. Start studying IFRS 15 Revenue from contracts with customers. The standard should be applied in an entity’s IFRS financial statements for annual reporting periods beginning on or after 1 January 2018. DipEd. An entity should aggregate or disaggregate disclosures to ensure that useful information is not obscured. A practical expedient is available, allowing the incremental costs of obtaining a contract to be expensed if the associated amortisation period would be 12 months or less. How should an entity determine whether a promise is a distinct … An entity that chooses to apply IFRS 15 earlier than 1 January 2018 should disclose this fact in its relevant financial statements. Further detail about these specific requirements can be found at IFRS 15:113-129. Deleted text is struck through and new text is underlined. Contracts with customers will be presented in an entity’s statement of financial position as a contract liability, a contract asset, or a receivable, depending on the relationship between the entity’s performance and the customer’s payment. Residual approach (only permissible in limited circumstances). The benefits related to the asset are the potential cash flows that may be obtained directly or indirectly. A contract has rights and obligations … * Identify the Performance Obligations (Initial Recognition). Step 1: Identify the contract with the customer, A contract with a customer will be within the scope of IFRS 15 if all the following conditions are met: [IFRS 15:9], If a contract with a customer does not yet meet all of the above criteria, the entity will continue to re-assess the contract going forward to determine whether it subsequently meets the above criteria.