Performance obligations software contracts and cloud services contracts – Once an entity has identified the contract with a customer, it evaluates the contractual terms and its customary business practices to identify all the promised goods or services within the contract and determine which of those promised goods or services (or bundles of promised goods or services) will be treated as separate performance obligations. Performance obligations software contracts
Promised goods and services represent separate performance obligations if they are: Performance obligations in software and cloud services
• Distinct (by themselves or as part of a bundle of goods and services) Performance obligations in software and cloud services
Or Performance obligations in software and cloud services
Cryptographic assets acquired in a business combination
Disclosure of the fair value for cryptographic assets held on behalf of others
Cryptographic assets held by an investment fund (either measured at fair value or for which fair value is disclosed)
IFRS 13, ‘Fair Value Measurement’, defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date”, and it sets out a framework for determining fair values under IFRS.
INTRO An entity may receive a non-refundable prepayment from a customer that gives the customer the right to receive goods or services in the future. Common examples include gift cards, vouchers and non-refundable tickets. Typically, some customers do not exercise their right – this is referred to as ‘breakage’.
An entity recognises a prepayment received from a customer as a contract liability and recognises revenue when the promised goods or services are transferred in the future. However, a portion of the contract liability recognised may relate to contractual rights that the entity does not expect to be exercised – i.e. a breakage amount. [IFRS 15.B44–B45]
The timing of revenue recognition related to breakage depends on whether the entity expects to be entitled to a breakage amount – i.e. if it is highly probable that recognising breakage will not result in a significant reversal of the cumulative revenue recognised. [IFRS 15.B46]
Under IFRS 15 Revenue from contracts with customers, entities apply the 5 steps in IFRS 15 to determine when to recognize revenue, and at what amount. The model specifies that revenue is recognized when or as an entity transfers control of goods or services to a customer at the amount to which the entity expects to be entitled. Depending on whether certain criteria are met, revenue is recognized:
over time, in a manner that best reflects the entity’s performance; or
at a point in time, when control of the goods or services is transferred to the customer.
IFRS 15 provides application guidance on numerous related topics, including warranties and licenses. It also provides guidance on when to capitalize the costs of obtaining a contract and some costs of fulfilling a contract (specifically those that are not addressed in other relevant authoritative guidance – e.g. for inventory).
5 steps in IFRS 15 – What is IFRS 15?
Step 1: Identify the contract with a customer
A contract with a customer is in the scope of IFRS 15 when the contract is legally enforceable and certain criteria are met. If the criteria are not met, then the contract does not exist for purposes of applying the general model of IFRS 15, and any consideration received from the customer is generally recognized as a deposit (liability). Contracts entered into at or near the same time with the same customer (or a related party of the customer) are combined and treated as a single contract when certain criteria are met.
A contract with a customer is in the scope of IFRS 15 when it is legally enforceable and meets all of the following criteria. [IFRS 15.9]
– is all about correct revenue accounting in respect of the transaction price for the contract as part of IFRS 15 Revenue from contracts with customers. Step 3 Determining Transaction Price
IFRS 15 The revenue recognition standard provides a single comprehensive standard that applies to nearly all industries and has changed revenue recognition quite significant. Step 3 Determining Transaction Price
IFRS 15 introduced a five step process for recognising revenue, as follows:
Bill-and-hold arrangements occur when an entity bills a customer for a product that it transfers at a point in time, but retains physical possession of the product until it is transferred to the customer at a future point in time. This might occur to accommodate a customer’s lack of available space for the product or delays in production schedules. [IFRS 15.B79]
To determine when to recognize revenue, an entity needs to determine when the customer obtains control of the product. Generally, this occurs at shipment or delivery to the customer, depending on the contract terms (for discussion of the indicators for transfer of control at a point in time, see Performance obligations satisfied at a point in time from Step 5 IFRS 15 in the link). The new standard provides criteria that have to be met for a customer to obtain control of a product in a bill-and-hold arrangement. These are illustrated below. [IFRS 15.B80–B81]
INTRO – Contract Modifications under IFRS 15 – A ‘contract modification’ occurs when the parties to a contract approve a change in its scope, price, or both. The accounting for a contract modification depends on whether distinct goods or services are added to the arrangement, and on the related pricing in the modified arrangement. This page discusses both identifying and accounting for a contract modification, including comprehensive examples.
1 Identifying a contract modification
A contract modification is a change in the scope or price of a contract, or both. This may be described as a change order, a variation, or an amendment. When a contract modification is approved, it creates or changes the enforceable rights and obligations of the parties to the contract. Consistent with the determination of whether a contract exists in Step 1 of the model, this approval may be written, oral, or implied by customary business practices, and should be legally enforceable. [IFRS 15.18]
If the parties have not approved a contract modification, then an entity continues to apply the requirements of IFRS 15 to the existing contract until approval is obtained.
If the parties have approved a change in scope, but have not yet determined the corresponding change in price – i.e. an unpriced change order – then the entity estimates the change to the transaction price by applying the guidance on estimating variable consideration and constraining the transaction price (see variable consideration and the constraint) in Step 3 of IFRS 15. [IFRS 15.19]
are closely related industries that in their core refer to the financial service of managing assets by means of financial instruments and/or other investments with the aim of increasing the invested assets.
An asset manager is a financial professional who analyses, collects and handles a client’s financial portfolio. Asset managers focus on specific asset investments, such as real estate, exchange-traded funds, stocks or fixed-income securities. An asset manager’s goal is to increase returns from client investments and restructure them when needed to gain their clients more profit.
An investment manager is a general term for a financial professional who uses risk assessment to ensure their clients receive a profitable return on their investments. Their duties include tax planning, estate planning, retirement planning, philanthropy and education. The main goal of an investment manager is to generate a steady flow of profit through investment strategies for their clients.
A primary difference between asset managers and investment managers is their customer base. Asset managers typically work with individuals or businesses that have extensive amounts of money, while investment managers often work with individuals or businesses with any size of income.
The two most significant IFRS accounting matters for asset management or investment management entities are:
Timing of revenue and profit recognition
Valuation of investments (assets) the entity holds or invests on behalf of its customers
– provides a narrative providing guidance on users of financial statements’ needs to present financial disclosures in the notes to the financial statements grouped in more logical orders. But there is and never will be a one-size fits all.
Here it has been decided to separately disclose financial assets and liabilities and non-financial assets and liabilities, because of the distinct different nature of these classes of assets and liabilities and the resulting different types of disclosures, risks and tabulations.
Disclosure financial assets and liabilities guidance
Disclosing financial assets and liabilities (financial instruments) in one note
Users of financial reports have indicated that they would like to be able to quickly access all of the information about the entity’s financial assets and liabilities in one location in the financial report. The notes are therefore structured such that financial items and non-financial items are discussed separately. However, this is not a mandatory requirement in the accounting standards.
Accounting policies, estimates and judgements
For readers of Financial Statements it is helpful if information about accounting policies that are specific to the entityand about significant estimates and judgements is disclosed with the relevant line items, rather than in separate notes. However, this format is also not mandatory. For general commentary regarding the disclosures of accounting policies refer to note 25. Commentary about the disclosure of significant estimates and judgements is provided in note 11.
Scope of accounting standard for disclosure of financial instruments
IFRS 7 does not apply to the following items as they are not financial instruments as defined in paragraph 11 of IAS 32:
prepayments made (right to receive future good or service, not cash or a financial asset)
tax receivables and payables and similar items (statutory rights or obligations, not contractual), or
contract liabilities (obligation to deliver good or service, not cash or financial asset).
While contract assets are also not financial assets, they are explicitly included in the scope of IFRS 7 for the purpose of the credit risk disclosures. Liabilities for sales returns and volume discounts (see note 7(f)) may be considered financial liabilities on the basis that they require payments to the customer. However, they should be excluded from financial liabilities if the arrangement is executory. the Reporting entity Plc determined this to be the case. [IFRS 7.5A]
Classification of preference shares
Preference shares must be analysed carefully to determine if they contain features that cause the instrument not to meet the definition of an equity instrument. If such shares meet the definition of equity, the entity may elect to carry them at FVOCI without recycling to profit or loss if not held for trading.