IFRS 15 Revenue from Contracts with Customers

In May 2014, IASB issued IFRS 15 Revenue from Contracts with Customers, together with the introduction of Topic 606 into the Financial Accounting Standards Board’s Accounting Standards Codification (US GAAP). IFRS 15 provides a comprehensive framework for recognizing revenue from contracts with customers replacing the following standards:

  • IAS 11 Construction Contracts
  • IAS 18 Revenue
  • IFRIC 13 Customer Loyalty Programme
  • IFRIC 15 Agreements for the Construction of Real Estate
  • IFRIC 18 Transfers of Assets from Customers
  • SIC-31 Revenue - Barter Transactions Involving Advertising Services

IFRS 15 outlines the principles that an entity applies when reporting information about the nature, amount, timing and uncertainty of revenue and cash flows from a contract with a customer. Applying IFRS 15, an entity recognizes 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.

To recognize revenue under IFRS 15, an entity should employ the following five steps:

  • Identify the contract(s) with a customer. A contract is an agreement between two or more parties that creates enforceable rights and obligations.
  • Identify the performance obligations in the contract. Performance obligations are promises in a contract to transfer to a customer goods or services that are distinct.
  • Determine the transaction price. The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer. If the consideration promised in a contract includes a variable amount, an entity must estimate the amount of consideration to which it expects to be entitled in exchange for transferring the promised goods or services to a customer.
  • Allocate the transaction price to each performance obligation based on the relative stand-alone selling prices of each distinct good or service promised in the contract.
  • Recognize revenue when a performance obligation is satisfied by transferring a promised good or service to a customer (which is when the customer obtains control of that good or service). A performance obligation may be satisfied at a point in time (typically for promises to transfer goods to a customer) or over time (typically for promises to transfer services to a customer). For a performance obligation satisfied over time, an entity would select an appropriate measure of progress to determine how much revenue should be recognized as the performance obligation is satisfied.

The overview, available translations and latest news, as published by the IASB, regarding this standard can be found here.