IFRS 15 - Revenue from Contracts with Customers

At last! Between the publication in December 2008 of the Discussion Paper on Revenue Recognition, and the arrival of IFRS 15 at the end of May 2014, nearly five and a half years have passed.

Keywords: Mazars, Thailand, Accounting, US GAAP, IASB, FASB, Revenue, IFRS 15, IFRIC 13, IFRS 11, IAS 18, IAS 11, IFRIC 18, SIC 31

 22 July 2014

During this period, two exposure drafts were published (June 2010 and November 2011), and it took 30 months’ work to move from the second exposure draft to the final joint standard with the US GAAP.

Despite this delay in publishing the standard, the mandatory application date is still 1 January 2017. Let us hope that this period will be sufficient for the Transition Resource Group, set up jointly by the IASB and the FASB, to identify and analyse any application difficulties that IFRS 15 may pose. Recent experience of the standards on consolidation – IFRS 11 in particular - that are currently dominating the agenda of the IFRS Interpretations Committee has shown the importance of dealing with application problems at an early stage.

Overview of IFRS 15

On 28 May 2014, the IASB and the FASB published a new converged standard on revenue recognition. This publication is the culmination of years of work. The aim is to provide entities using IFRSs with a more robust and comprehensive standard covering all transactions, even the most complex, without further need to consult another body of standards or to develop interpretation guidance. The boards have also sought to enhance the relevance of disclosures.

IFRS 15 (ASU 2014-09 in the US) sets out the revenue recognition principles applicable to all contracts with customers (except leases, insurance contracts and contracts covered by the standards on financial instruments). In practice, IFRS 15 replaces IAS 18 on revenue and IAS 11 on construction contracts (and all the linked interpretations: IFRIC 13, IFRIC 15, IFRIC 18 and SIC 31).

IFRS 15 clarifies when an entity must recognise revenue, and for what amount. The standard uses a five-step model:

  • Step 1: Identify the contract with the customer;
  • Step 2: Identify the separate performance obligations in the contract;
  • Step 3: Determine the transaction price of the contract;
  • Step 4: Allocate the transaction price to the separate performance obligations; and
  • Step 5: Recognise the revenue when (or as) a performance obligation is satisfied.

Application guidance (covering issues such as performance obligations satisfied over time, or sales with a right of return), is appended to IFRS 15, and illustrative examples are also provided.

IFRS 15 will be of mandatory application for reporting periods beginning on or after 1 January 2017, subject to endorsement by the European Union. Earlier application is permitted. The transitional provisions state that initial application should be retrospective, but with significant reliefs where entities elect to recognise the impact of the change of method at 1 January 2017 for contracts that are not completed contracts at that date (i.e. no restatement of the comparative periods presented in such a case).

Mazars will shortly publish an analysis of the main provisions of IFRS 15 and an overview of the significant anticipated impacts.