Arrangements that do not meet the definition of a contract

If an arrangement does not meet the criteria to be considered a contract under the standard, it must be accounted for as stipulated in IFRS 15 15 – 16 (recognition of the consideration received as revenue if certain events have been met or as a liability until one of these events have been met), using the following decision tree:


References:

Document your decisions in your financial close file to facilitate internal review and approval and external audits.

Entities are required to continue to assess the criteria in IFRS 15 9 throughout the term of the arrangement to determine whether they are subsequently met. Once the criteria are met, the Concise information Concise information Concise information Concise informationmodel in the standard applies, rather than the requirements discussed below. If an entity determines that the criteria in IFRS 15 9 are subsequently met, revenue is recognised on a cumulative catch-up basis as at the date when a contract exists within the scope of the model (i.e., at the ‘contract establishment date’, reflecting the performance obligations that are partially, or fully, satisfied at that date. Arrangements that do not meet the definition of a contract Arrangements that do not meet the definition of a contract

If an arrangement does not meet the criteria in IFRS 15 9 (and until the criteria are met), an entity only recognises non-refundable consideration received as revenue when one of the events outlined above in the decision tree has occurred (i.e., full performance and all (or substantially all) consideration received or the contract has been terminated) or the arrangement subsequently meets the criteria in IFRS 15 9.

Until one of these events happens, any consideration received from the customer is initially accounted for as a liability (not revenue) and the liability is measured at the amount of consideration received from the customer.

There is no specific requirement in the standard to reconsider whether a contract meets the definition of a contract when it is modified. However, if a contract is modified, we believe that may indicate that “a significant change in facts and circumstances” has occurred (see IFRS 15 13) and that the entity should reassess the criteria in IFRS 15.9 for the modified contract. Any reassessment is prospective in nature and would not change the conclusions associated with goods or services already transferred. That is, an entity would not reverse any receivables, revenue or contract assets already recognised under the contract because of the reassessment of the contract criteria in IFRS 15 9. However, due to the contract modification accounting (see link to contract modifications), the entity may need to adjust contract assets or cumulative revenue recognised in the period of the contract modification.

Arrangements that do not meet the definition of a contract

Until one of these events happens, any consideration received from the customer is initially accounted for as a liability (not revenue) and the liability is measured at the amount of consideration received from the customer. Arrangements that do not meet the definition of a contract

Leave a Comment

Your email address will not be published. Required fields are marked *