IFRS 15 – Revenue from Contracts with Customers

IFRS 15 Revenue from Contracts with Customers, will replace the extant revenue recognition standards IAS 18 and IAS 11 and related IFRIC interpretations, including IFRIC 13, IFRIC 15, IFRIC 18 and SIC 31.

The standard is effective for periods beginning on or after 1 January 2018 with earlier application permitted.
It will not apply to certain forms of revenue covered by other standards, such as revenues under lease contracts or revenues under insurance contracts.
For many entities revenue recognition will not change, however more guidance now exists on contracts with multiple performance obligations.
The standard is based around five steps in recognising revenue:
  1. Identify the contract with the customer – the contract must be approved by the parties and should have commercial substance.
  2. Identify the performance obligations in the contract – these are distinct goods or services that are to be transferred to the customer.
  3. Determine the transaction price – based on the contract terms the transaction price should be determined.
  4. Allocate the transaction price – the transaction price should be allocated to each performance obligation identified in step 2, based on the relative stand-alone selling prices of each distinct good or service, or an estimate of such a price if the price is not observable.
  5. Recognise revenue when a performance obligation is satisfied – a performance obligation is satisfied when the customer obtains control of the good or service.
Disclosure principles for the standard include disclosing the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, by providing qualitative and quantitative information.

To assist companies applying the IFRS 15 please refer to educational and support materials on website of International Accounting Standards Board.