[IFRS 15.18 – 21] A contract modification is a change in the scope or price (or both) of a contract that is approved by the parties to the contract (sometimes called a change order, a variation or an amendment). A modification exists when the parties approve a modification that either creates new, enforceable rights and obligations of the parties within the contract or changes the existing rights and obligations. A contract modification could be approved in writing, through oral agreement or implied by customary business practice. If the parties to a contract have not approved a contract modification, an entity should continue to apply the guidance in the Standard to the existing contract until the contract modification is approved.
The contract modification would be accounted for as a separate contract if both the following conditions are present.
- There is a promise of additional goods or services that are distinct; and
- The price of the contract increases by an amount that represents the entity’s standalone selling price of the additional promised goods or services.
If both of the above criteria are not present, an entity should account for the promised goods or services not yet transferred (the remaining goods or services) in one of the following ways:
- An entity should account for the modification as a termination of the original contract and the establishment of a new contract if the remaining goods or services are distinct from the goods or services transferred before the date of the modification.
- An entity should account for the modification as if it were a part of the original contract if the remaining goods or services are not distinct and are part of a single performance obligation that is partially satisfied at the date of the modification.
- If the remaining goods or services are a combination of the above items, then the entity should account for the effects of the modification on the unsatisfied (including partially unsatisfied) performance obligations in the modified contract in a manner that is consistent with the objectives within the above paragraphs.
Contract modifications Contract modifications Contract modifications Contract modifications Contract modifications Contract modifications