IFRS 15 replaces the following standards and interpretations: The objective of IFRS 15 is to establish the 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. These include, but are not limited to: [IFRS 15:31-33], An entity recognises revenue over time if one of the following criteria is met: [IFRS 15:35], If an entity does not satisfy its performance obligation over time, it satisfies it at a point in time. When making this determination, an entity will consider past customary business practices. [IFRS 15:81], Where consideration is paid in advance or in arrears, the entity will need to consider whether the contract includes a significant financing arrangement and, if so, adjust for the time value of money. IFRS 15 can be applied to all contracts of an entity except (a) lease contracts, (b) insurance contracts, and (c) contracts … a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer. the entity’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date. [IFRS 15:74] If a standalone selling price is not directly observable, the entity will need to estimate it. IFRS 15 Revenue from Contracts with Customers applies to all contracts with customers except for: leases within the scope of IAS 17 Leases; financial instruments and other contractual rights or obligations within the scope of IFRS 9 Financial Instruments, IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IAS 27 Separate Financial Statements and IAS 28 Investments in Associates and Joint Ventures; insurance contracts within the scope of IFRS 4 Insurance Contracts; and non-monetary exchanges between entities in the same line of business to facilitate sales to customers or potential customers. Any difference between the initial recognition of a receivable and the corresponding amount of revenue recognised should also be presented as an expense, for example, an impairment loss. the entity does provide a significant service of integrating the goods or services with other goods or services promised in the contract; the goods or services significantly modify or customise other goods or services promised in the contract; the goods or services are highly interrelated or highly interdependent. IFRS 15 specifies how and when an IFRS reporter will recognise revenue as well as requiring such entities to provide users of financial statements with more informative, relevant disclosures. From that point, the entity will apply IFRS 15 to the contract. IFRS 15 Examples: How IFRS 15 affects your company - this article explains how certain industries (telecom, real estate and others) are affected by IFRS 15. Step 1: Identify the contract with the customer, A contract with a customer will be within the scope of IFRS 15 if all the following conditions are met: [IFRS 15:9], If a contract with a customer does not yet meet all of the above criteria, the entity will continue to re-assess the contract going forward to determine whether it subsequently meets the above criteria. [IFRS 15:14]. Earlier application is permitted. [IFRS 15:99], Further useful implementation guidance in relation to applying IFRS 15. the costs relate directly to a contract (or a specific anticipated contract); the costs generate  or enhance resources of the entity that will be used in satisfying performance obligations in the future; and, Performance obligations satisfied over time, Methods for measuring progress towards complete satisfaction of a performance obligation, Customer options for additional goods or services, the significant judgments, and changes in the judgments, made in applying the guidance to those contracts; and. An entity should aggregate or disaggregate disclosures to ensure that useful information is not obscured. Summary of IFRS 15 Revenue from Contracts with Customers; IFRS 15 vs. IAS 18: Huge change is here! the entity does provide a significant service of integrating the goods or services with other goods or services promised in the contract; the goods or services significantly modify or customise other goods or services promised in the contract; the goods or services are highly interrelated or highly interdependent. Any impairment relating to contracts with customers should be measured, presented and disclosed in accordance with IFRS 9. In respect of prior periods, the transition guidance allows entities an option to either: [IFRS 15:C3], Your email address will not be published. [IFRS 15:107-108], The disclosure objective stated in IFRS 15 is for an entity to disclose sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. IFRS 15 was issued in May 2014 and applies to an annual reporting period beginning on or after 1 January 2018. Introduction Revenue is income from ‘ordinary activities’. IFRS 15 utilizes the Five-Step Model in order to recognize and measure revenue. Identify the performance obligations in the contract, Allocate the transaction price to the performance obligations in the contract. Any difference between the initial recognition of a receivable and the corresponding amount of revenue recognised should also be presented as an expense, for example, an impairment loss. [IFRS 15: Appendix A]An agreement between two or more parties that creates enforceable rights and obligations.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.Increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in an increase in equity, other than those relating to contributions from equity participants.A promise in a contract with a customer to transfer to the customer either: Income arising in the course of an entity’s ordinary activities.The amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties. a good or service (or a bundle of goods or services) that is distinct; or. In certain circumstances, it may be appropriate to allocate such a discount to some but not all of the performance obligations. using the asset to produce goods or provide services; using the asset to enhance the value of other assets; using the asset to settle liabilities or to reduce expenses; the customer simultaneously receives and consumes all of the benefits provided by the entity as the entity performs; the entity’s performance creates or enhances an asset that the customer controls as the asset is created; or. When making this determination, an entity will consider past customary business practices. [IFRS 15:1] Application of the standard is mandatory for annual reporting periods starting from 1 January 2018 onwards. [IFRS 15:50] Variable consideration can arise, for example, as a result of discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, penalties or other similar items. The transaction price is then reduced by the amounts that are initially measured under other standards; if no other standard provides guidance on how to separate and/or initially measure one or more parts of the contract, then IFRS 15 will be applied. [IFRS 15:105], A contract liability is presented in the statement of financial position where a customer has paid an amount of consideration prior to the entity performing by transferring the related good or service to the customer. the entity has a present right to payment for the asset; the customer has legal title to the asset; the entity has transferred physical possession of the asset; the customer has the significant risks and rewards related to the ownership of the asset; and. any assets recognised from the costs to obtain or fulfil a contract with a customer. using the asset to produce goods or provide services; using the asset to enhance the value of other assets; using the asset to settle liabilities or to reduce expenses; the customer simultaneously receives and consumes all of the benefits provided by the entity as the entity performs; the entity’s performance creates or enhances an asset that the customer controls as the asset is created; or. Identify the performance obligations in the contract, Allocate the transaction price to the performance obligations in the contract. Application of this guidance will depend on the facts and circumstances present in a contract with a customer and will require the exercise of judgment. On 12 April 2016, clarifying amendments were issued that have the same effective date as the standard itself. These words serve as exceptions. Application of this guidance will depend on the facts and circumstances present in a contract with a customer and will require the exercise of judgment. What’s new? IFRS 15 suggests various methods that might be used, including: [IFRS 15:79], Any overall discount compared to the aggregate of standalone selling prices is allocated between performance obligations on a relative standalone selling price basis. Save my name, email, and website in this browser for the next time I comment. Factors that may indicate the point in time at which control passes include, but are not limited to: [IFRS 15:38], The incremental costs of obtaining a contract must be recognised as an asset if the entity expects to recover those costs. It established a single comprehensive model for entities to use in accounting … [IFRS 15:97], The asset recognised in respect of the costs to obtain or fulfil a contract is amortised on a systematic basis that is consistent with the pattern of transfer of the goods or services to which the asset relates. A practical expedient is available, allowing the incremental costs of obtaining a contract to be expensed if the associated amortisation period would be 12 months or less. Step 2: Identify the performance obligations in the contract, At the inception of the contract, the entity should assess the goods or services that have been promised to the customer, and identify as a performance obligation: [IFRS 15.22], A series of distinct goods or services is transferred to the customer in the same pattern if both of the following criteria are met: [IFRS 15:23], A good or service is distinct if both of the following criteria are met: [IFRS 15:27], Factors for consideration as to whether a promise to transfer goods or services to the customer is not separately identifiable include, but are not limited to: [IFRS 15:29], The transaction price is the amount to which an entity expects to be entitled in exchange for the transfer of goods and services. [IFRS 15:106]. * … Contracts with customers will be presented in an entity’s statement of financial position as a contract liability, a contract asset, or a receivable, depending on the relationship between the entity’s performance and the customer’s payment. [IFRS 15:C1], When first applying IFRS 15, entities should apply the standard in full for the current period, including retrospective application to all contracts that were not yet complete at the beginning of that period. Please read, International Financial Reporting Standards, Revenue from Contracts with Customers — A guide to IFRS 15, Collection of IFRS 15 news and publications, Joint Transition Resource Group for Revenue Recognition, Clarifications to IFRS 15: Issues emerging from TRG discussions, FRC publishes thematic review findings on IFRS 15 and IFRS 16, IAAER grants for research informing the IASB's work, IPSASB extends comment letter deadline for its three recent exposure drafts, ESMA publishes 24th enforcement decisions report, A Roadmap to Applying the New Revenue Recognition Standard (2020), Deloitte comment letter on tentative agenda decision on IFRS 15 — Training costs to fulfil a contract, Deloitte comment letter on tentative agenda decision on IFRS 15 — Compensation for delays or cancellations, A Closer Look — Revenue recognition - evaluating whether an entity is acting as a principal or as an agent, IFRIC 15 — Agreements for the Construction of Real Estate, IFRIC 18 — Transfers of Assets from Customers, SIC-31 — Revenue – Barter Transactions Involving Advertising Services, Project on revenue added to the IASB's agenda, Effective for an entity's first annual IFRS financial statements for periods beginning on or after 1 January 2017, IASB defers effective date of IFRS 15 to 1 January 2018. if other standards specify how to separate and/or initially measure one or more parts of the contract, then those separation and measurement requirements are applied first. Applying IFRS 15, an entity recognises 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 … [IFRS 15:18-21]. Further details on accounting for contract modifications can be found in the Standard. New effective date of IFRS 15 is 1 January 2018, This site uses cookies to provide you with a more responsive and personalised service. An entity should aggregate or disaggregate disclosures to ensure that useful information is not obscured. the entity’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date. [IFRS 15:32], Controlof an asset is defined as the ability to direct the use of and obtain substantially all of the remaining benefits from the asset. [IFRS 15:56], However, a different, more restrictive approach is applied in respect of sales or usage-based royalty revenue arising from licences of intellectual property. The full functionality of our site is not supported on your browser version, or you may have 'compatibility mode' selected. The benefits related to the asset are the potential cash flows that may be obtained directly or indirectly. Any impairment relating to contracts with customers should be measured, presented and disclosed in accordance with IFRS 9. This includes the ability to prevent others from directing the use of and obtaining the benefits from the asset. [IFRS 15:97], The asset recognised in respect of the costs to obtain or fulfil a contract is amortised on a systematic basis that is consistent with the pattern of transfer of the goods or services to which the asset relates. Your email address will not be published. Each word should be on a separate line. Scope. Variable consideration is also present if an entity’s right to consideration is contingent on the occurrence of a future event. TRANSITIONAL PROVISIONS The transitional requirements, set out in Appendix C of the standard, define the term ‘date of initial application’, which is the start of the reporting period in which an entity first applies IFRS 15. Variable consideration is also present if an entity’s right to consideration is contingent on the occurrence of a future event. IFRS 15 Revenue from contracts with customers. the customer can benefit from the good or services on its own or in conjunction with other readily available resources; and. [IFRS 15:47], Where a contract contains elements of variable consideration, the entity will estimate the amount of variable consideration to which it will be entitled under the contract. Therefore, an entity should disclose qualitative and quantitative information about all of the following: [IFRS 15:110], Entities will need to consider the level of detail necessary to satisfy the disclosure objective and how much emphasis to place on each of the requirements. A practical expedient is available, allowing the incremental costs of obtaining a contract to be expensed if the associated amortisation period would be 12 months or less. In May 2014, IFRS 15 (International Financial Reporting Standards) Revenue from Contracts with Customers was issued. Further details on accounting for contract modifications can be found in the Standard. Be found at IFRS 15:113-129 to ensure that useful information is not obscured other promises in contract... In its relevant financial statements contract modification will be collected in certain circumstances it... Customers should be considered carefully when applying IFRS 15 to the asset are potential! 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