IFRS 15 (here is the full standard) establishes a single and comprehensive framework which sets out how much revenue is to be recognised, and when. The core principle is that a vendor should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the vendor excepts to be entitled in exchange for those goods and services.
|STEP 1 Identify the Contract
Combination of contracts
Costs to fulfil a contract
Contract enforceability and termination clauses
– Reassessment of the five identification criteria IFRS 15
– Engineering and Construction: Identify the contract with the customer
– Arrangements where the identification criteria are not met
– Assessing collectibility for a portfolio of contracts
– Contract extensions
– Product delivered without a written contract
– Identifying the customer or collaborative arrangement
– Arrangements with multiple parties
– Revenue not from a contract with a customer
– What are enforceable contracts with customers?
|STEP 2 Identify performance obligations
Distinct goods or services,
Promises in a contract,
Implicit promises in a contract,
– Automotive: Long-term supply contracts,
– Software and cloud services: Performance obligations,
– Engineering and Construction: Identify the performance obligations in the contract
– What does a performance obligation look like?
|STEP 3 Determine the transaction price
– Refund liabilities,
– Repurchase options and residual value guarantees,
– Dealer sales vehicles incentives,
– Construction warranties,
Constraining estimates of variable consideration,
– Sales- and usage-based royalties,
The existence of a significant financing component in the contract,
– Example Financing component,
Consideration payable to a customer.
Engineering and Construction: Determine the transaction price
|STEP 4 Allocating the Transaction Price to Performance Obligations
Allocating the transaction price based on the stand-alone selling price,
Allocation of variable consideration.
Engineering and Construction: Allocate the transaction price to the performance obligations
|STEP 5 Recognise revenue when each performance obligation is satisfied
Performance obligation/Revenue satisfied over time
– (No) alternative use,
– Enforceable right to payment for performance completed to date,
Measuring progress toward complete satisfaction of a performance obligation,
– Output method,
– Input method,
Revenue recognition at a point in time.
Engineering and Construction: Recognise revenue when (or as) satisfying each performance obligation
|OTHER IFRS 15 TOPICS
Revenue from contracts with customers – Overview
Options to purchase additional goods or services
Disaggregation of revenue
Contract assets and contract liabilities
Service or insurance contract?
Extra disclosures IFRS 15
Transition to new IFRS 15 Disclosures
Engineering and Construction: From IAS 11 to IFRS 15
Engineering and Construction: Contract costs