International Financial Reporting Standard 15

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The International Financial Reporting Standard 15 - Revenue from Contracts with Customers ( IFRS 15 ) is an international accounting standard ( IFRS ) of the International Accounting Standards Board (IASB), which will bring together the large number of regulations for revenue recognition previously contained in various standards and interpretations.

development

In June 2002 a project on revenue from contracts with customers was included in the work program of the IASB and a discussion paper was issued on December 19, 2008. Some draft versions in 2010 and 2011 will be followed by the publication of IFRS 15 on May 28, 2014. IFRS 15 is to be applied to reporting periods beginning on or after January 1, 2018. Earlier application is permitted and recommended.

Replaced standards

The new uniform standard IFRS 15 replaces the following previous standards:

  • IAS 11 Construction Contracts
  • IAS 18 Revenue
  • IFRIC 13 Customer Loyalty Programs
  • IFRIC 15 Agreements for the Construction of Real Estate
  • IFRIC 18 Transfers of Assets from Customers
  • SIC-31 Income - Exchange of advertising services

Content

IFRS 15 specifies that the revenue that is expected for the transfer of goods or the provision of services to customers is to be recognized. There is a five-stage framework model for this:

  1. Identification of the contract (s) with a customer,
  2. Identification of the independent performance obligations in the contract,
  3. Determination of the transaction price,
  4. Distribution of the transaction price to the performance obligations of the contract,
  5. Revenue recognition when the company fulfills its performance obligations.

Step 1: Identifying the contracts with a customer

Contracts can be written, oral, or implied by normal company business practice. In any case, however, they must be enforceable and have economic substance. The model is to be applied to every contract with a customer as soon as it is “likely” that a company will receive the consideration to which it is entitled. In assessing whether the consideration is likely to be received, an entity must consider both the customer's ability and intent to provide the consideration when it is due. In general, contracts fall within the scope of IFRS 15 if:

  • all parties to the contract agree to the contract,
  • the rights of each party in relation to the goods to be transferred or the services to be provided can be identified,
  • the payment terms for the goods to be transferred or the services to be provided can be identified,
  • the contract has economic substance and
  • the consideration to which the company is entitled in exchange for the goods or services is likely to be received.

If a contract with a customer does not meet all of the above criteria to date, the company will periodically reassess the contract to determine when it meets the above criteria. From that point on, the company will apply IFRS 15 to the contract.

A company can combine two or more contracts that are concluded simultaneously or almost simultaneously with the same customer and account for them as a single contract, provided certain criteria are met.

The standard contains comprehensive regulations on changes to contracts. Depending on the specific facts and circumstances, a contract modification should be accounted for either as a separate contract or as a modification of the original contract.

Step 2: Identify the stand-alone performance obligations in the contract

Once a contract has been identified as such, an entity must review the terms of the contract and normal business practices to identify those promised goods or services (or a package of promised goods or services) that need to be recognized as separate performance obligations. A good or a service can be defined individually if the customer can use the good or the service either individually or together with other resources available at any time and the good or the service can be differentiated from other commitments in the contract.

Step 3: Determine the transaction price

The transaction price is the consideration that a company is expected to receive from customers for the transfer of goods or the provision of services. In cases where a contract contains elements of variable consideration (e.g. rebates, cash discounts), the company estimates the amount of variable consideration that the company is expected to receive under the contract.

Step 4: Distribution of the transaction price to the performance obligations of the contract

If a contract has multiple performance obligations, the company distributes the transaction price among the performance obligations in the contract based on stand-alone selling prices. When determining the stand-alone selling price, a company must use observable data, if available. If stand-alone selling prices are not directly observable, a company has to fall back on estimates that are based on information that is available at a reasonable cost. There are various estimation methods for this, although the standard does not favor any estimation method.

Step 5: Revenue recognition when the company fulfills its performance obligations

Revenue is recognized when the power of disposal of a good or a service is transferred, either at a specific point in time or over a period of time.

Contract costs

Costs to obtain a contract are to be capitalized as an asset if the company expects reimbursement in the future and these costs would not have been incurred without the contract. As a result, the costs are amortized over the service period.

Presentation in the conclusion

Contracts with customers are shown in a company's balance sheet as a passive contract item, active contract item or as a receivable. This depends on the relationship between the company's performance and the customer's payment. A passive contract item is shown on the balance sheet if the customer has already paid an amount of the consideration before the company has transferred the corresponding goods or provided services. If, on the other hand, the company has transferred or provided goods or services to the customer and the customer has not yet paid the corresponding amount of the consideration, an active contract item or a receivable is shown on the balance sheet. Active contract items and receivables are accounted for in accordance with IFRS 9 Financial Instruments.

Scope of application

IFRS 15 applies to all customer contracts with the exception of the following contracts:

  • Leases that fall under IAS 17 [from January 1, 2019 IFRS 16] Leases,
  • Financial instruments and other contractual rights or obligations falling under IFRS 9 Financial Instruments, IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IAS 27 Separate Financial Statements or IAS 28 Investments in Associates and Joint Ventures,
  • Insurance contracts in accordance with IFRS 4 Insurance Contracts
  • Non-financial exchanges between companies in the same industry aimed at facilitating sales to customers or prospects.

Web links

Individual evidence

  1. ↑ a b c d e f g h Deloitte: IFRS 15 Revenue from Contracts with Customers
  2. ↑ a b KPMG: IFRS 15 - Revenue from Customer Contracts
  3. ↑ a b c PwC: The new IFRS 15: an industry analysis ( memento of the original from February 13, 2015 in the Internet Archive ) Info: The archive link was automatically inserted and not yet checked. Please check the original and archive link according to the instructions and then remove this notice. @1@ 2Template: Webachiv / IABot / www.pwc-event.com
  4. ↑ a b c d Ernst & Young: IASB and FASB publish new standard for revenue recognition - IFRS 15