Non-refundable upfront fees

Non-refundable upfront fees arise in many sales transactions. But when to recognise revenue for such fees? Non-refundable upfront fees

In many technology transactions, customers pay an upfront fee at contract inception, which may relate to the initiation, activation or set-up of a good to be used or a service to be provided in the future. Under IFRS 15, entities must evaluate whether non-refundable upfront fees relate to the transfer of a good or service. Non-refundable upfront fees

In addition, the existence of such fees may indicate that there are other implied elements in the contract, such as the option to renew a service at a discounted rate because the upfront fee would not be charged for the renewal period. In such situations, the identified promised goods and services would also include those implied items. Non-refundable upfront fees

Under IFRS 15, the non-refundable fee is allocated to the identified performance obligations in the contract (which may include some implied performance obligations) and it is recognised as revenue as the performance obligations are satisfied. By requiring allocation of the upfront fees to the future goods or services or renewal options, adoption of IFRS 15 results in a change in practice for some entities. Non-refundable upfront feesNon-refundable upfront fees

Non-refundable upfront feesWhen an entity determines that a contract with a customer does not meet the collectibility requirements of a contract under the standard, the entity should recognize nonrefundable consideration received as revenue only when one of the following events has occurred: Non-refundable upfront fees

  • The entity has fully performed, and substantially all the consideration has been received (i.e., the entity has fully performed on all performance obligations in the contract and has received substantially all cash consideration for the entire contract).
  • The contract has been terminated. Non-refundable upfront fees
  • The entity has transferred control of the goods or services and has stopped transferring (and has no obligation under the contract to transfer) additional goods or services to the customer, if applicable. Non-refundable upfront fees

Under IFRS 15, a technology entity assesses the customer’s ability and intent to pay substantially all of the consideration to which the entity expects to be entitled. This amount may not be the contractual price. It is no longer acceptable for entities to default to deferring revenue recognition until cash is collected if they have concerns about whether they will collect the contractual amount (i.e., they are unable to conclude that collectibility is reasonably assured). Non-refundable upfront fees

IFRS Interpretations Committee – IFRS 15 Assessment of promised goods or services


The Committee received a submission about whether a stock exchange (entity) provides an admission service that is distinct from an ongoing listing service. The entity charges a customer two types of fee related to listing on the exchange:

  1. admission fees which are non-refundable upfront fees that relate to activities the entity undertakes to enable the customers’ admission to the exchange, including due diligence reviews for new applications and education services provided to customers, and  Non-refundable upfront fees
  2. ongoing fees which are periodic fees payable by customers, after having been admitted to the exchange, as the entity provides ongoing market access and maintains the listing.  Non-refundable upfront fees

The submission identifies that a customer obtains the benefits of access to capital and being enabled to raise finance at the time of admission for growth and further development from the activities that the entity undertakes for the customer’s initial listing.

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The submitter asks whether, applying IFRS 15, the entity identifies as separate performance obligations an initial listing service and an ongoing listing service. Non-refundable upfront fees

Staff analysis

Having considered the core principle of revenue recognition in IFRS 15 (i.e. revenue is recognised when an entity transfers the control of a good or service to a customer) and the fact pattern that the entity charges the customer a non-refundable upfront fee as well as ongoing listing fees, the staff analyse that the issue of the submission is whether the entity promises to transfer to the customer a service of initially being listed as well as a service of being listed on an ongoing basis, or instead it promises to transfer only one service of being listed on the exchange, rather than an assessment of ‘distinct’ as described in IFRS 15 27–30.

The staff consider that undertaking the activities for an initial listing does not represent the transfer of a service to the customer since those activities are required to ‘successfully transfer the promised goods or services for which the customer has contracted’ (IFRS 15 BC93). Non-refundable upfront fees

The staff also consider the benefits to the customer arise as a result of being listed and the customer did not have those benefits before being listed. In the case of the listing application being rejected, the customer continually refines their application until the listing authority is satisfied that the customer meets the listing criteria. This shows that the customer does not obtain any benefit from the entity that might indicate the transfer of a good or service on initial listing.

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The staff further analyse whether the provision of other services in the contract (e.g. education) results in the transfer of a service to the customer. This depends on the type of education provided to a customer. If the entity is merely guiding the customer through the listing application process, there is no transfer of service to a customer. In contrast, if the education is on matters other than the application process then it may result in the transfer of an education service to the customer.

The staff also note that the identification of a promised education service does not necessarily mean that the entity would recognise as revenue the non-refundable upfront fee at the time of providing the education to the customer.

In that situation, the entity would first assess whether the education service is distinct. The entity would then allocate the transaction price to each performance obligation in the contract 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.

The staff also note in some circumstances that entities allow customers to extend their listing beyond the initial non-cancellable period and an entity needs to consider whether the contract includes a material right that the entity identifies as a performance obligation separate from the listing service.

The submission also discussed whether passporting right (e.g. customers of an entity operating in the European Economic Area have the right to use an approved prospectus to obtain a listing on a second exchange) provides evidence of the transfer of a good or service to the customer on initial listing. The staff consider a customer’s right to use the passporting facility as similar to some other reciprocal agreements and it does not provide evidence of a service promised to the customer on initial listing.

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Staff recommendation

The staff do not recommend to add this matter to the Committee’s standard-setting agenda since the staff think the requirements in IFRS 15 provide an adequate basis for an entity to identify performance obligations in the fact pattern described in the submission. Instead the staff recommend to publish an agenda decision, discussing the application of IFRS 15 to the fact pattern described in the submission. The staff also recommend that the Committee provide a conclusion regarding the assessment of the promised goods or services in the contract, which would be helpful to stakeholders in obtaining a common understanding of the requirements.

Non-refundable upfront fees

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