IFRS 15 Definition: A party that has contracted with an entity to obtain goods or services that are an output of the entity’s ordinary activities in exchange for consideration.
Additional explanation (outside the IFRS definition):
In simple terms, a customer is the party that purchases an entity’s goods or services. Identifying the customer is straightforward in many instances, but a careful analysis needs to be performed in other situations to confirm whether a customer relationship exists. For example, a contract with a counterparty to participate in an activity where both parties share in the risks and benefits of the activity (such as developing a prototype asset) is unlikely to be in the scope of IFRS 15 because the counterparty is unlikely to meet the definition of a customer. An arrangement where, in substance, the entity is selling a good or service is likely in the scope of IFRS 15, even if it is termed a collaboration or something similar.
IFRS 15 applies to all contracts, including transactions with collaborators or partners, if they are a transaction with a customer. All of the relationships in a collaboration or partnership agreement must be understood to identify whether all or a portion of the contract is, in substance, a contract with a customer. A portion of the contract might be the sharing of risks and benefits of an activity, which is outside the scope of the revenue standard. Other portions of the contract might be for the sale of goods or services from one entity to the other and therefore in the scope of IFRS 15.
Even if a customer is sufficiently identified, the question may arise whether the entity is acting as a principal or agent. When the entity is the principal in the contract, the revenue recognised is the gross amount (i.e., the amount to which the entity expects to be entitled as the principal). When the entity is the agent, the revenue recognised is the net amount (i.e., the amount to which the entity is entitled in return for its services as the agent).
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