Please read our cookie notice (, http://www2.deloitte.com/ca/en/legal/cookies.html, IFRS compliance, presentation and disclosure checklist, A Roadmap to Applying the New Revenue Recognition Standard (2019), Heads Up — The new revenue standard — A look at SEC feedback in year 1, Forecasting Revenue Disclosures (June 2017), Identify the performance obligations in the contract, Allocate the transaction price to the performance obligations in the contract, Recognize revenue when (or as) the entity satisfies a performance obligation. IFRS 15 includes specific requirements related to customer options for additional goods or services and requires a distinction to be made as to whether this option confers a material right . [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. With IFRS 17, the process will become future-oriented as contracts will be evaluated according to future cash-flows. IFRS 15 also includes requirements for accounting for costs related to a contract with a customer. 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. It supersedes current revenue recognition guidance including IAS 18, Revenue and IAS 11, Construction Contracts and related Interpretations. [IFRS 15:51], The standard deals with the uncertainty relating to variable consideration by limiting the amount of variable consideration that can be recognised. modification IFRS 15 requires contracts to have all of the following attributes: The contract has been approved apply IFRS 15 in full to prior periods (with certain limited practical expedients being available); or. IFRS 15 Revenue from Contracts with Customers 2 Defined terms IFRS 15 defines the following terms that form an integral part of this IFRS. The definition of an asset has been changed to confirm that a lease is ‘… a contract that conveys to the customer (‘lessee’) the right to use an asset for a period of time in exchange for consideration’. The standard should be applied in an entity’s IFRS financial statements for annual reporting periods beginning on or after 1 January 2018. Once entered, they are only See Legal for more information. IFRS 15 will introduce new requirements compared to the standards it will supersede (IAS 11, IAS 18 and their related interpretations). IFRS 15 will change the way many transport and logistics companies account for their contracts. CONTENTS 1. 4. IFRS 15 also includes requirements for accounting for costs related to a contract with a customer. IFRS 15 utilises a five-step model framework to ensure that an entity will recognise revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Understanding the ethics of IFRS 15 (corresponding Ind AS 115): IFRS 15 will replace the following standards and interpretations: 1. AASB 15-compiled 5 COMPARISON Comparison with IFRS 15 AASB 15 Revenue from Contracts with Customers as amended incorporates IFRS 15 Revenue from Contracts with Customers as issued and amended by the International Accounting Standards Board (IASB). it is probable that the consideration to which the entity is entitled to in exchange for the goods or services will be collected. a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer. IFRS 15 will change the way many transport and logistics companies account for their contracts. a good or service (or bundle of goods or services) that is distinct; or, each distinct good or service in the series that the entity promises to transfer consecutively to the customer would be a performance obligation that is satisfied over time (see below); and. Earlier application is permitted. IFRS 15 provides a guidance about contract combinations and contract modifications, too. 1. Such revenue is recognised only when the underlying sales or usage occur. 5. In certain circumstances, it may be appropriate to allocate such a discount to some but not all of the performance obligations. Some industries will experience greater changes than others. any assets recognised from the costs to obtain or fulfil a contract with a customer. hyphenated at the specified hyphenation points. The aim of this dissertation is to present the main requirements of IFRS 15, to identify its main differences and novelties compared to current From January 2018, IAS 18 will be replaced by IFRS 15. Paragraph 10 of IFRS 15: “A contract is an agreement between two or more parties that creates enforceable rights and obligations. 1. See Example 8 accompanying IFRS 15. Recognise revenue when (or as) the entity satisfies a performance obligation. 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. Whether the latter type of modification is accounted for prospectively or retrospectively depends on whether the remaining goods or services to be delivered after the modification are distinct from those delivered prior to the modification. Identification of contract. IFRS 15: the revenue standard All IFRS reporters will be impacted by IFRS 15 when it becomes effective in 2018. IFRS 15 was issued in May 2014 and applies to an annual reporting period beginning on or after 1 January 2018. Any impairment relating to contracts with customers should be measured, presented and disclosed in accordance with IFRS 9. The core principle of IFRS 15 is that an entity will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Enforceability of the rights and obligations in a contract is a matter of law. 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. Our Accounting News of May 2017 discussed the issues relating to the sequence of revenue steps and the application of the portfolio approach. [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. Residual approach (only permissible in limited circumstances). Although the concepts and examples explained below focus on the accounting for various fees charged by a lender, the same principles apply to fees paid by a borrower in terms of which fees are to be included as part of the effective interest rate and which are required to be expensed.. [IFRS 15:99], Further useful implementation guidance in relation to applying IFRS 15. The new IFRS 15 standard does not contain a separation of the revenue transactions into components. One in five companies in our Quick Review did not clearly communicate, for those performance obligations identified, when these were satisfied, be that at a point in time or over time. IFRS 15 the basics – Introduction to the standard. On this page, find an executive summary of the IFRS 15 standard, practical sample questions and illustrative examples on how to apply IFRS 15. Enforceability of the rights and obligations in a contract is a matter of law. under IFRS 15? December 2017 Applying IFRS How the new revenue standard will affect life sciences entities 2 What you need to know • Life sciences entities may need to use significant judgement and make more estimates under IFRS 15 than they do under legacy IFRS. Where the entity has performed by transferring a good or service to the customer and the customer has not yet paid the related consideration, a contract asset or a receivable is presented in the statement of financial position, depending on the nature of the entity’s right to consideration. 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 requires entities to disclose when they typically satisfy their performance obligations. IFRS 15 is an International Financial Reporting Standard promulgated by the International Accounting Standards Board providing guidance on accounting for revenue from contracts with customers. [IFRS 15:B63], Step 4: Allocate the transaction price to the performance obligations in the contracts, Where a contract has multiple performance obligations, an entity will allocate the transaction price to the performance obligations in the contract by reference to their relative standalone selling prices. IFRS 15 is effective for annual reporting periods beginning on or after 1 January 2018, with earlier application permitted. IAS 18 (AS 9) Revenue, 2. It supersedes current revenue recognition guidance including IAS 18, Revenue and IAS 11, Construction Contracts and related Interpretations. SIC 31 Revenue – Barter Transaction Involving Advertising Services. The standard was published in May 2014 and is effective from 1 January 2018. and dividend income are excluded form the scope of IFRS 15. • Life sciences entities have to update their policies, systems and controls to meet the new requirements, although their pattern of revenue 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. The standard was published in May 2014 and is effective from 1 January 2018. When does IFRS 15 apply? 5. IAS 18 (AS 9) Revenue, 2. An entity should aggregate or disaggregate disclosures to ensure that useful information is not obscured. IFRS 15 should be applied to all contracts with customers except the following: Lease contracts within the scope of IAS 17 Leases. 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. IAS 11 (AS 7) Construction Contracts. Contract – An agreement between two or more parties that creates enforceable rights and obligations. Please turn off compatibility mode, upgrade your browser to at least Internet Explorer 9, or try using another browser such as Google Chrome or Mozilla Firefox. In that scenario: [IFRS 15:7], The core principle of IFRS 15 is that an entity will recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. [IFRS 15:14]. These are recognised as an asset if certain criteria are met. Understanding the ethics of IFRS 15 (corresponding Ind AS 115): IFRS 15 will replace the following standards and interpretations: 1. Australian-specific paragraphs (which are not included in IFRS 15) are identified with the prefix “Aus”. IFRS 15 and its impact explained - by KPMG's Pierre Conradie 19 May 2016 CFO South Africa In May 2014, the accounting standards setting authorities released a new standard on revenue recognition effective for periods beginning on or after 1 January 2018: IFRS 15 Revenue from Contracts with Customers (IFRS 15). It states which insurance contracts items should by on the balance and the profit and loss account of an insurance company, how to measure these items and how to present and disclose this information. 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. a good or service (or a bundle of goods or services) that is distinct; or. The IASB has made it clear that IFRS preparers are not required to consider the decisions of the FASB and the US Transition Resource Group for Revenue Recognition for guidance in applying IFRS 15. IFRS 15 provides a one single accounting model, separation is not needed since the treatment under IFRS 15 is the same. IFRS 15 is effective for annual reporting periods beginning on or after 1 January 2018, with earlier application permitted. The biggest IFRS 16 change is that now most leased items have to be included as an asset in the company books, following the new ‘right-of-use’ model which says: ‘A contract is, or contains, a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration’ (IFRS 16, par.9)’ The remainder of this section takes a deeper look at Contract – An agreement between two or more parties that creates enforceable rights and obligations. Each word should be on a separate line. explained? In subsequent IFRS 15 series, the 5 key IFRS 15 principles will be explained in-depth in an easy-to-understand way. Here are the differences explained in more detail. What is a material right and how do you make this assess\ Disclaimer: the IASB, the IFRS Foundation, the authors and the publishers do not accept responsibility for any loss caused by acting or refraining from acting in reliance on the material in this publication, whether such loss is caused by negligence or otherwise. From that point, the entity will apply IFRS 15 to the contract. See Example 8 accompanying IFRS 15. All of it. As explained in the DHSC GAM, the definition of a contract under IFRS 15 is extended to incorporate legislation and regulations which enables an entity to obtain revenue that is not classified as a tax. 4. This first video covers the basic principles including the 5 step model as an introduction to IFRS 15. With only a couple of years before the effective date, we can help you: Get organised. Revenue is recognised when (or as) a company transfers control of goods or services to a customer at the amount to which the company expects to be entitled. A five-step model is applied to determine when to recognise revenue, and at what amount. Don’t forget to bookmark the website and also click on the email subscription button to stay up-to-date with us. The standard provides detailed guidance on how to account for approved contract modifications. In May 2014, the International Accounting Standards Board (IASB) issued IFRS 15. Research Paper March 2015 4 Impact of IFRS 15 on revenue in the public sector Summary of research undertaken With the International Accounting Standards Board (IASB) having issued IFRS 15 Revenue from Contracts with Customers, entities reporting in terms of IFRS will in future be applying a significantly different approach to accounting for revenue. IFRS 15, Revenue from Contracts with Customers, is a new standard that outlines a single comprehensive framework for entities to use in accounting for revenue arising from contracts with customers. As IFRS 15 contains more precise rules than IAS 18, it can trigger the change in the accounting systems. An entity that chooses to apply IFRS 15 earlier than 1 January 2018 should disclose this fact in its relevant financial statements. Read the following publications to further understand how the sector-specific arrangements are affected, the actions you may need to take, and key considerations you need to focus on. The most important changes that IFRS 17 will bring concern the methodology of assessing insurance policies and contracts. What action items do I need to take to effectively apply the new standard. It was the subject of a joint project with the Financial Accounting Standards Board, which issues accounting guidance in the United States, and the … Research Paper March 2015 4 Impact of IFRS 15 on revenue in the public sector Summary of research undertaken With the International Accounting Standards Board (IASB) having issued IFRS 15 Revenue from Contracts with Customers, entities reporting in terms of IFRS will in future be applying a significantly different approach to accounting for revenue. 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. Contracts can be written, oral or implied by an entity’s customary business practices. The key difference between IFRS 15 and IAS 18 is that while IFRS 15 provides a standardised five-step model to recognize all types of revenue earned from customer contracts, IAS 18 considers different recognition criteria for a different type of incomes received. By using this site you agree to our use of cookies. This core principle is delivered in a five-step model framework: [IFRS 15:IN7]. [IFRS 15:1] Application of the standard is mandatory for annual reporting periods starting from 1 January 2018 onwards. We can help you grasp the opportunity to improve as well as comply. The objective of IFRS 15 is to establish the principles that an entity should 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. IFRS 15 Revenue from Contracts with Customers provides a single, principles-based five-step model that should be applied to determine how and when to recognise revenue from contracts with customers. [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 entity’s promise to transfer the good or service to the customer is separately idenitifable from other promises in the contract. retain prior period figures as reported under the previous standards, recognising the cumulative effect of applying IFRS 15 as an adjustment to the opening balance of equity as at the date of initial application (beginning of current reporting period). 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