Stand-ready obligations

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Last Updated on 22/02/2021 by 75385885

Stand-ready obligations are obligations arising from contracts with customers by a supplier promising to stand-ready to provide a service or goods.

There has been significant discussion about when these promises constitute a performance obligation, as well as the appropriate pattern of recognition for revenue related to these obligations.

IFRS 15 26 (e) reads: ‘providing a service of standing ready to provide goods or services (for example, unspecified updates to software that are provided Stand ready obligations on a when-and-if-available basis) or of making goods or services available for a customer to use as and when the customer decides’.

The standard provides the example of an entity that owns and manages a chain of health clubs. The entity enters into a one-year contract with a customer to provide unlimited access to the health club facilities. The entity should recognize revenue on a straight-line basis throughout the year, because the customer’s use of the facilities does not affect the remaining goods and services that the entity has contracted to provide. Other fact patterns might not lead to straight-line or ratable recognition throughout the period of the contract, however.