Agenda decision on IFRS 15
This IFRS IC agenda decision relates to the approach used in practice to identify the performance obligations (POs) in a contract, based on a fact pattern in which a stock exchange charges two types of fee to a customer.
Keywords: Mazars, Thailand, IFRS, IFRS 15, IFRS IC
11 March 2019
- a non-refundable upfront fee on initial listing, relating to activities undertaken by the stock exchange at contract inception;
- an ongoing listing fee, paid regularly to the stock exchange for continuing to list the company.
The question put to the IFRS IC was whether or not the stock exchange promises to transfer an admission service that is distinct from the listing service. In other words, does the contract include two performance obligations or just one?
In the agenda decision, the IFRS IC noted that before identifying the POs in a contract in accordance with IFRS 15.22, an entity must identify all the goods or services promised to the customer (i.e. the contractual “promises”), taking account of the facts and circumstances of the contract.
The agenda decision also included a reminder that these contractual promises do not include activities that an entity must undertake to fulfil a contract unless those activities transfer a good or service to a customer (IFRS 15.25). This assessment is particularly important if the customer is charged a non-refundable upfront fee (IFRS 15.B49). It is common for such fees to be charged for activities that the entity is required to undertake at contract inception, but that do not result in the immediate transfer of a promised good or service to the customer.
In the case of the fact pattern submitted to the IFRS IC, the Committee concluded that the activities undertaken by the stock exchange at contract inception to enable admission to the exchange (e.g. carrying out due diligence and reviewing the listing application) are required in order to provide the service for which the customer has contracted (i.e. the service of being listed on the exchange) but do not transfer a service to the customer.
In practice, this means that the non-refundable upfront fee on initial listing is an upfront payment for the ongoing listing service. It should therefore be recognised as revenue when the service is provided (i.e. over the estimated duration of the listing).