IFRS 15 Quick overview Revenue from contracts with customers

IFRS 15 Quick overview Revenue from contracts with customers – the easy way to obtain an solid overview.

What is the objective of IFRS 15?

To establish principles that an entity shall apply to report useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from a contract with a customer.

How does IFRS 15 meet this objective?

The core principle of IFRS 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

Practical expedient – the portfolio

Read more

Long-term supply contracts

Long-term supply contracts – To apply IFRS 15, automotive parts suppliers (APSs) will need to change the way they evaluate long-term supply contracts. APSs need to use significant judgement when they identify separate performance obligations (i.e., units of account), which may be different from those identified under IAS 18.

Tooling equipment

APSs commonly enter into long-term arrangements with Original Equipment Manufacturers (OEMs) to provide specific parts, such as seat belts or steering wheels. An arrangement typically includes the construction for the tooling, which is required to be used when manufacturing the parts to meet the OEM’s specifications. In many cases, the APS will construct and transfer the legal title for the tooling to the OEM after construction, even though they … Read more

Principal versus agent considerations

Principal versus agent considerations – If an arrangement involves three or more parties, an entity will have to determine whether it is acting as a principal or an agent in order to determine the amount of revenue to which it is entitled. For example, technology entities may offer a platform to sell virtual or digital goods on behalf of a third party or they may contract with an advertising agency to deliver advertising content to a website or mobile application.

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 … Read more

Transfer of control for distinct licences

Transfer of control for distinct licences Transfer of control for distinct licences – IFRS 15 indicates that an entity must determine, at contract inception, whether it will transfer control of a promised good or service over time. If an entity does not satisfy a performance obligation over time, the performance obligation is satisfied at a point in time. A performance obligation is satisfied over time if it meets one of the following criteria: Transfer of control for distinct licences

  • The customer simultaneously receives and consumes the benefits provided by the entity’s performance as the entity performs – by providing hosting services, for example. Transfer of control for distinct licences
  • The entity’s performance creates or enhances an asset that the customer controls as the asset is created
Read more

Pass-through conditions

Pass-through conditions – A ‘pass-through’ transfer is a transaction where an entity keeps the legal title and rights to the cash flows from a financial asset (hence condition in IFRS 9.3.2.4(a) is not met), but enters into an arrangement with a third party under which those cash flows will be passed to this third party. Securitisation is a typical example of a ‘pass-through’ transfer.

Helpful hint

Most revolving securitisation transactions that involve a consolidated SPE fail to meet the pass-through conditions. This is because the cash flows from the assets are not passed on to eventual recipients without material delay and are reinvested in new assets that are not cash and cash equivalents, before being passed onto eventual recipients.

The Read more

Extra disclosures IFRS 15 contracts

Extra disclosures IFRS 15 contracts – This part relates to a complete explanation of IFRS 15 Revenue from contracts with customers in respect of Engineering & Construction contracts, see Revenue from Engineering & Construction contracts.


Contract balances

The disclosures related to contract balances are extensive and intended to enable users to understand the relationship between the revenue recognised and changes in overall balances of total Extra disclosures IFRS 15 contract assets and liabilities in a particular reporting period.

For example, disclosures required include revenue recognised in the reporting period that was included in the contract liability balance at the beginning of the period; revenue recognised in the reporting period from performance obligations satisfied (or partially satisfied) in previous periods (e.g., changes in transaction … Read more

Satisfaction of performance obligations

Satisfaction of performance obligations – An entity recognises revenue only when it satisfies a performance obligation by transferring control of a promised good or service to the customer. Control of an asset refers to the ability of the customer to direct the use of and obtain substantially all of the cash inflows, or the reduction of cash outflows, generated by the goods or services. Control also means the ability to prevent other entities from directing the use of, and receiving the benefit from, a good or service. Satisfaction of performance obligations

The standard indicates that an entity must determine at contract inception whether it will transfer control of a promised good or service over time. If an entity does not … Read more

Control of an economic resource

Control of an economic resource – This is all about: A present economic resource controlled by the entity as a result of past events.

Two very simple examples to start with:

Pat Co has purchased a patent for $20,000. The patent gives the company sole use of a particular manufacturing process which will save $3,000 a year for the next five years.

This is an asset, albeit an intangible one. There is a past event, control and future economic benefit (through cost savings).

Baldwin Co (the company) paid Don Brennan $10,000 to set up a car repair shop, on condition that priority treatment is given to cars from the company’s fleet.

This cannot be classified as an asset. Baldwin Co

Read more

Revenue recognition at a point in time

Revenue recognition at a point in time is included in IFRS 15 Revenue from Contracts with Customers (contents page is here), that introduced 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 expects to be entitled in exchange for those goods or services. See a summary of IFRS 15 here. Revenue recognition at a point in time

We can say that performance obligation satisfied at … Read more