IFRS 15 Revenue from Contracts with Customers (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.
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. The standard provides a single, principles based five-step model to be applied to all contracts with customers.
IFRS 15 was issued in May 2014 and applies to an annual reporting period beginning on or after 1 January 2018. On 12 April 2016, clarifying amendments were issued that have the same effective date as the standard itself.
This contents page provides a detailed analysis of the revenue standard, IFRS 15 Revenue from Contracts with Customers, including insights and examples to help entities to navigate the revenue recognition requirements. In many cases, further analysis and interpretation may be needed for an entity to apply the requirements to its own facts, circumstances and individual transactions. Furthermore, some of our insights may change and new insights will be developed as issues from the implementation of the revenue standard arise and as practice evolves.
Introduction |
A contract can be oral, written or implied by an entity’s business practice. A contract with a customer will fall
If the above criteria are met, a contract shall not be re-assessed unless there is an indication of a significant change in facts or circumstances, however if the contract does not meet the above criteria the entity will continue to re-assess the contract going forward to determine whether the criteria are subsequently met. Combination of contracts Specific topics: Broader perspective: Contracts on Reference for business |
STEP 2 Identify performance obligations At contract inception, an entity shall assess the goods or services that have been promised to the customer, and shall identify as a performance obligation:
Factors for consideration as to whether an entity’s promise to transfer the good or service to the customer is separately identifiable include, but are not limited to:
Distinct goods or services,
Series provision, Specific topics: |
STEP 3 Determine the transaction price
The transaction price would be the amount of consideration that an entity expects to be entitled to in exchange for transferring promised goods or services to a customer. An entity will consider the terms of the contract and past customary business practices when making this determination. If a contract contains a variable amount, the entity will estimate the amount to which it will be entitled under the contract. The consideration can also vary if an entity’s right to consideration is contingent on the occurrence of a future event. The variable consideration is only included in the transaction price to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur when the uncertainty associated with the variable consideration is subsequently resolved. An adjustment for the time value of money is made to a transaction price for the effects of financing, if present and significant to the contract, for example, where a consideration is paid in advance or in arrears. A practical expedient is available where the interval between the transfer of promised goods or services and the payment by the customer is expected to be less than 12 months. Variable consideration, Specific topics: |
STEP 4 Allocating the Transaction Price to Performance Obligations
An entity shall allocate the transaction price to each performance obligation in an amount that depicts the amount of consideration to which the entity expects to be entitled in exchange for transferring the promised goods or services to the customer. Where a contract has many performance obligations, an entity shall allocate the transaction price to the performance obligations in the contract by reference to their relative stand-alone selling prices. If a standalone selling price is not directly observable, an entity will need to estimate it. IFRS 15 suggests various methods that may be used, including:
Sometimes the transaction price may include a discount. Any overall discount is allocated between the performance obligations on a relative stand-alone selling price basis. In some circumstances it may be appropriate to allocate the discount to some but not all of the performance obligations. Allocating the transaction price based on the stand-alone selling price, Specific topics: |
STEP 5 Recognise revenue when each performance obligation is satisfied An entity shall recognise revenue when (or as) it satisfies a performance obligation by transferring a promised good or service to a customer, which is when control is passed, either over time or at a point in time. Control of an asset means having the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset. An entity recognises revenue over time if one of the following criteria are met:
For a performance obligation satisfied over time, an entity would select an appropriate measure of progress to determine how much revenue should be recognised as the performance obligation is satisfied. Factors which may indicate that control is passed at a point in time include, but are not limited to:
Revenue satisfied over time Specific topics: |
OTHER IFRS 15 TOPICS
Revenue from contracts with customers – Overview |
See also: The IFRS Foundation
IFRS 15 Revenue from Contracts with Customers
IFRS 15 Revenue from Contracts with Customers IFRS 15 Revenue from Contracts with Customers
IFRS 15 Revenue from Contracts with Customers IFRS 15 Revenue from Contracts with Customers
IFRS 15 Revenue from Contracts with Customers IFRS 15 Revenue from Contracts with Customers
IFRS 15 Revenue from Contracts with Customers IFRS 15 Revenue from Contracts with Customers
IFRS 15 Revenue from Contracts with Customers IFRS 15 Revenue from Contracts with Customers
IFRS 15 Revenue from Contracts with Customers IFRS 15 Revenue from Contracts with Customers