IFRS 15 Measuring progress to completion
– how to do it, what to use, learn it all
For each performance obligation satisfied over time, revenue must be recognised over time (IFRS 15.39-45 & IFRS 15.B14-B19). To do so, an entity shall measure the progress towards complete satisfaction of the performance obligation.
The measurement of progress has the objective of faithfully depicting an entity’s performance in transferring control of the goods or services promised to the customer (that is, the extent to which the performance obligation is satisfied).
An entity shall apply a single method of measuring progress for each performance obligation satisfied over time, and shall apply that method consistently to similar performance obligations and in similar circumstances.
At the end of each reporting period, an entity shall remeasure its progress towards complete satisfaction of each performance obligation satisfied over time.
In July 2015 the Joint Transition Resource Group (TRG a combined effort by IASB and FASB to detect problems raised by the implementation of the revenue recognition standards) clarified that the principle of applying a single method of measuring progress for a given performance obligation is also applicable to a combined performance obligation, i.e. one that contains multiple non-distinct goods or services.
Hence, it is not appropriate to apply several methods depending on the stage of performance, even if these methods all belong to one of the two major categories of methods presented below (output methods vs input methods), for example a method measuring progress on the basis of hours expended, and a method measuring progress on the basis of labour costs incurred.