IFRS 15: Revenue from Contracts with Customers

Also known as “Revenue from Contracts with Customers,” this was issued in May 2014 and became effective for annual reporting periods beginning on or after 1 January 2018.

IFRS 15 specifies how and when an IFRS reporter will recognize revenue, and the requirements to provide users of financial statements with more informative, relevant disclosures.

The standard provides a five-step model to be applied to all companies that have contracts with customers:

1)  Identify the contract(s) with a customer

This step mentions certain conditions, all of which must be met for the contract to be in compliance with IFRS 15. The standard provides detailed guidance on how to account for approved contract modifications.

2) Identify the separate performance obligations (PO) in the contract

At the inception of the contract, the goods or services that have been promised to the customer by the company should be identified clearly and defined as a performance obligation.

3) Determine the transaction price

The transaction price is the amount to which a company expects to be paid in exchange for the transfer of goods and services. When making this determination, a company should consider past customary business practices.

4) Allocate the transaction price to the separate POs

If a contract has multiple performance obligations, a company will allocate the transaction price to the performance obligations in the contract by reference to their relative standalone selling prices.

5) Recognize revenue when the entity satisfies a PO

IFRS 15 is based on the transfer of control as opposed to the transfer of risks and rewards, which was the basis for IAS 18 – Revenue.

As noted above, revenue is recognized when control is passed.  IFRS 15 provides guidance on whether this is at a point in time or over time.

Perhaps the most significant impact of IFRS 15 for most companies is the additional disclosures.  This includes qualitative and quantitative information about revenues from contracts with customers as well as significant judgments made in applying the standard. Contact your DMCL advisor today for further IFRS 15 guidance.