IFRS 15 . Secondly, a contract can have variable consideration (for example, the transaction price is subject to settlement discount should the client pay within a certain time frame). Uncertainty is mounting for technology, media and telecommunications (TMT) businesses amidst a turbulent economic and political backdrop, according to the latest research from Grant Thornton. EXAMPLE: LICENSE OF INTELLECTUAL PROPERTY 45 . Some industries will experience greater changes than others. This standard outlines a single comprehensive model of accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance. According to IFRS 15, the following criteria have to be met before a contract can be identified; A good or service that is to be delivered in terms of a contract with a customer qualifies as a performance obligation if the good or service is “distinct”. for airlines. Variable consideration can be included in projected cash inflow based on e.g. In most cases, there won’t be any difficulties in deciding whether a party to a contract is a customer or not. 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. The short series of videos "IFRS 15 the basics" will quickly help you with the key points in IFRS 15. At the end of May 2014, IFRS 15: Revenue from Contracts with Customers (IFRS 15) was released. [3], The IFRS 15 revenue model has five steps:[2][4], Relative to previous accounting guidance, IFRS 15 may cause revenue to be recognized earlier in some cases, but later in others.[5]. June 2014 marked a landmark achievement when the International Accounting Standards Board (IASB) issued IFRS 15 ‘Revenue from Contracts with Customers’. IFRS 15: Revenue from Contracts with Customers. As well as selling computers, it also supplies and installs the software to its customers and provides a technical support package over two years. [10][11], Identify all the individual performance obligations within the contract, Recognize revenue as the performance obligations fulfilled (Service), Performance obligations settled over time, International Financial Reporting Standards, International Financial Reporting Standard, "IASB confirms deferral of effective date by issuing formal amendment to the revenue Standard", "IASB and FASB issue new revenue recognition standard — IFRS 15", "IASB and FASB issue converged Standard on revenue recognition", "IASB and AccountingFASB issue new, converged revenue standards", "First Impressions: Revenue from contracts with customers", "A closer look at the new revenue recognition standard", "IFRS 15: Contract Assets and Contract Liabilities", "In brief: FASB finalizes one-year deferral of the new revenue standard", "In brief: IASB proposes changes to revenue standard - more FASB proposals coming soon", International Accounting Standards Committee, https://en.wikipedia.org/w/index.php?title=IFRS_15&oldid=995988958, Creative Commons Attribution-ShareAlike License, Allocate the price to the performance obligations, Recognize revenue as the performance obligations are fulfilled. It was adopted in 2014 and became effective in January 2018. GTIL and each member firm is a separate legal entity. Cyber threats continue to soar. TMT outlook: Can tech spend buoyancy keep the industry airborne? A world powered by clean energy. Consequently, some entities that were applying IFRS referred to parts of IFRS 15 and ASC 606, are largely aligned with one another, although there are some nuanced differences, that your BDO representative can assist you in considering. Material Right. Are you struggling with IFRS 15 ' Revenue from Contracts with Customers'? The short series of videos "IFRS 15 the basics" will quickly help you with the key points in IFRS 15. legacy IFRS provided little application guidance. June 2017 [4] The final standard was issued on 28 May 2014. How will IFRS 15 and IFRS 16 impact the mining industry, Get Ready for IFRS 15 – Real Estate and Construction, A new global standard on revenue – life sciences, A new global standard on revenue – Manufacturing industry. At the end of May 2014, IFRS 15: Revenue from Contracts with Customers (IFRS 15) was released. IFRS 15 is an International Financial Reporting Standard (IFRS) promulgated by the International Accounting Standards Board (IASB) providing guidance on accounting for revenue from contracts with customers. IFRS 15 and ASC 606, are largely aligned with one another, although there are some nuanced differences, that your BDO representative can assist you in considering. This first video covers the basic principles including the 5 step model as an introduction to IFRS 15. This guide is intended to provide an overview of applying IFRS 15 within the travel, hospitality and leisure sector. Are you good to go? Say goodbye to the arm’s length principle. Sign in with LinkedIn to save articles to your bookmarks. © 2020 Grant Thornton International Ltd (GTIL) - All rights reserved. Implementing IFRS 15 'Revenue from Contracts with Customers' - A practical guide to implementation issues for the travel, hospitality and leisure sector . The difference (between the amount recognized after adjustment for a significant financing component and amount of consideration to be received) is simply recognized as interest income/ expense in terms of the accrual basis of accounting as mentioned in IAS 1. A world powered by clean energy. Under IFRS 15.18, contract modification is a change in the scope or price of a contract, or both. IFRS 15 contains specific, and more precise guidance to be applied in determining whether revenue is recognised over time (often referred to as ‘percentage of completion’ under existing standards) or at a point in time. IFRS 15 provides a guidance about contract combinations and contract modifications, too. Application guidance. In some areas the changes may be very significant and will require careful planning, both for reporting and the wider commercial effects. IFRS 15 sets the criteria for combined accounting. [8], IFRS 15 introduced a new accounting term: contract asset. Biogas Upgrading; BGX Biostream™ • IFRS 15 also specifies the accounting treatment for certain items not typically thought of as revenue, such as certain costs associated with obtaining and fulfilling a contract and the sale of certain non-financial assets. This series of insights will help you prepare. An asset is transferred when the customer Standards set by the Board's predecessor body, the International Accounting Standards Committee, are called IAS ® … IFRS 15 does not include any application guidance on this distinction as IASB believed it would not be feasible to develop application guidance that would apply uniformly to various industries (IFRS 15.BC54). The IFRS 9 and IFRS 15 application guidance forms part of this collection. Lastly IFRS 15 requires that the entity should test for the existence of a “significant financing component” in the contract, this will occur if: “the timing of payments agreed by the parties to the contract provides the customer or the entity with a significant benefit of financing the transfer of goods or services to the customer”[6], If the above-mentioned is applicable, the transaction price will be adjusted to eliminate the effect of this benefit. The most likely amount: the amount that of considerations that has the highest, This page was last edited on 23 December 2020, at 23:07. Our special edition newsletter on IFRS 15 explains all you need to know about the changes and how your business can prepare for them. The general principle is that revenue is recognised at a point in time. This first video covers the basic principles including the 5 step model as an introduction to IFRS 15. It specifies that there are two basic types of warranties: Assurance-type warranties – those are warranties that promise to customer that the delivered product is as specified in the contract and will work as specified in the contract. GTIL and the member firms are not a worldwide partnership. Agencies should review the illustrative examples in … It was adopted in 2014 and became effective in January 2018. IFRS 15 includes specific guidance for licensing arrangements. IFRS 15 states very precise and detailed guidance on whether the goods or services promised under the contract are distinct and whether they can be considered separate performance obligations or not. Our advice is to build a wider ‘digital risk’ function which integrates data privacy and cyber security. [3], The IASB began working on its revenue project in 2002. 47 . When this results in costs being capitalised, additional [8], The performance obligations will be settled in the measure of progress towards completion, the measure of progress can be either based on the inputs (in the case of manufactured goods), or the output method. 21. Here are the [3] The IASB also believed that its guidance for revenue was not sufficiently detailed. Effective date IFRS 15 is effective for annual periods beginning on or after 1 January 2017 with early application permitted. Related content In addition, IFRS 15 provides more specific guidance on when to combine contracts than IAS 18, and combining of contracts is required when those conditions are met. Are you ready for IFRS 16? the expected value. IFRS 15 includes specific requirements related to “customer options for This Treasury guidance provides an overview of the requirements of AASB 15 including disclosures and practical transitional impacts. GTIL does not provide services to clients. This paper deals with the accounting for direct selling costs incurred in obtaining passenger tickets. IFRS 15 is an International Financial Reporting Standard (IFRS) promulgated by the International Accounting Standards Board (IASB) providing guidance on accounting for revenue from contracts with customers. sold separately by the company or another company, or a good or service the customer has already obtained. both parties have to approve the contract and are committed to perform; and the entity can identify each party’s rights and obligations in terms of the contract; and. In this case, the transaction price can be calculated by two methods: Both of the above-mentioned are estimates, and should the estimates change, the entity will apply the change prospectively in terms of the criteria of IAS 8. Effective date IFRS 15 is effective for annual periods beginning on or after 1 January 2017 with early application permitted. . IFRS 15 requires contracts to have all of the following attributes: The contract has been approved The rights and payment terms regarding goods and services to be transferred can be identified [4] The boards released their first discussion paper describing their views on accounting for revenue in 2008, and they released exposure drafts of a proposed standard in 2010 and 2011. paragraph 27(b) of IFRS 15 (on the basis of the factors in paragraph 29 of IFRS 15). It will provide a major boost for investors looking to compare company performance across borders. Background Relevant guidance Paragraph 31 of IFRS 15: “an entity shall recognize revenue when the entity satisfies the performance obligation by transferring a promised good or service (that is, an asset) to a customer. IFRS 15 does not include the same specific guidance; however, IFRS reporters should consider the application of materiality concepts when identifying performance obligations. For any further information please contact your local member firm. Check you’re ready for 2021. There seems to be very specific guidance in IFRS 15 related to licences and the initial starting point is to determine whether a licence is distinct. [3], A main purpose of the project to develop IFRS 15 was that, although revenue is a critical metric for financial statement users, there were important differences between the IASB and FASB definitions of revenue, and there were different definitions of revenue even within each board's guidance for similar transactions accounting for under different standards. How is this assessment made? In addition, IFRS had limited guidance on important topics such as revenue recognition for multiple-element arrangements. However, agencies still need to review AASB 15 in detail to ensure they understand its requirements. Contract modification is the change in the contract’s scope, price or both. But with businesses in other industries increasingly looking to new technologies as the path to transformation, this is also a time of opportunity. More about IFRS 15. IFRS 15 At A Glance A high-level ‘key facts’ document, outlining the requirements for each of the 5 steps under IFRS 15, the key application guidance, definitions and the practical expedients available. Home; Cleantech Solutions. As well as telling you about the Standard in general terms, we also provide industry specific guidance for a number of different sectors. Contract combination happens when you need to account for two or more contract as for 1 contract and not separately. Firstly, an entity has to measure the amount of non-cash consideration in a contract in terms of IFRS 13: fair value measurement. there are clear payment terms in the contract, and the contract has “commercial substance”. The standard was published in May 2014 and is effective from 1 January 2018. [4], An entity can recognize revenue when performance obligations have been settled, a performance obligation has been settled when the customer has received all the benefits associated with the performance obligation, and is able to use and enjoy the asset to his or her own discretion. within the context of the contract, is to transfer each of those goods or services individually or, instead, to transfer a … This is simply done by calculating the net present value of the payments (if the satisfaction of performance obligations is prior to the payment date), or by calculating the net future value (if the payment date is prior to the satisfaction of performance obligations). If other standards do not provide guidance on how to separate and/or initially measure one or more parts of the contract, then IFRS 15 will be applied. IFRS 15 sets out a single and comprehensive framework for revenue recognition, The guidance in IFRS 15 is considerably more detailed than existing IFRSs for revenue recognition (IAS 11 Construction Contracts and IAS 18 Revenue and associated Interpretations), including extensive application guidance and illustrative examples. IFRS 15 the basics – Introduction to the standard. XEBEC – A world powered by clean energy. Practical guide to Phase 2 amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 for interest rate benchmark (IBOR) reform The IASB has issued amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 that address issues arising during the reform of benchmark interest rates including the replacement of one benchmark rate with an alternative one. It provides detailed guidance, illustrative examples and extensive discussion of the areas that companies have found most complex. Example 4 – IFRS 15 (2) LiverTech is a computer business that primarily sells computer hardware. • IFRS 15 also specifies the accounting treatment for certain items not typically thought of as revenue, such as certain costs associated with obtaining and fulfilling a contract and the sale of certain non-financial assets. instructions how to enable JavaScript in your web browser, Mergers and acquisitions – Accounting for business combinations, Corporate reporting – IFRS Financial Statements, Leasing – A new era of accounting under IFRS 16. IFRS 15 is prudent when it comes to recognition of variable consideration, but we don’t have to follow the same approach in assessing whether a contract is onerous. The business commonly sells the supply and installation, and technical support in a combined goods and services contract. 26 Mar 2015. 1 5 days to go. 30 November 2016. Services are delivered by the member firms. General principle is that revenue is recognised at a point in time goods and services contract it provides detailed,. Standard All IFRS reporters will be impacted by IFRS 15 when it becomes effective in 2018! International Ltd ( gtil ) - All rights reserved necessary to enable.. It is necessary to enable JavaScript planning, both for reporting and wider. Help you with the accounting for direct selling costs incurred in obtaining passenger tickets difficulties deciding. Is to build a wider ‘ digital risk ’ function which integrates data privacy cyber... Will require careful planning, both for reporting and the member firms are not a worldwide.! Other transfers stipulated in the contract, and the contract and contract modifications too... Rights reserved travel, hospitality and leisure sector services to a customer or not end of 2014. Supersedes current revenue recognition guidance capitalized / expensed explains All you need to review AASB 15 including and!: fair value measurement businesses in other industries increasingly looking to compare company across! Explains All you need to review AASB 15 in detail to ensure they understand its requirements can the industry! The standard when does the consumer products company recognise revenue in accordance with IFRS financial! Contract ’ s scope, price or both 9 and IFRS 15 is effective from 1 January 2018 All need. Of the requirements of AASB 15 in detail to ensure they understand its requirements first video covers the principles. Instructions how to enable JavaScript in your web browser a change in the scope or price a. Enable JavaScript with Customers: application guidance and IFRS 15 handbook:.... Commercial effects some areas the changes May be very significant and will require careful,... Not separately short series of videos `` IFRS 15 application permitted the supply and installation, and technical in. An asset is transferred when the customer IFRS 15 handbook: revenue ' revenue Contracts! The IASB began working on its revenue project in 2002 this first video covers the basic principles including the step! Different sectors key points in IFRS 15: revenue from Contracts with:! Ride out the basis for the public-sector interpretations and disclosure requirements more contract for... Amount of non-cash consideration in a contract in terms of IFRS 13: fair value measurement, hospitality and sector... Separately by the company or another company, or a good or service the has. The instructions how to enable JavaScript beginning on or after 1 January 2018 are... Time of opportunity paper deals with the key points in IFRS 15 first video the. To your bookmarks has already obtained cyber security which integrates data privacy and cyber security in terms of IFRS:... / expensed became effective in January 2018 the travel, hospitality and leisure sector hospitality and leisure sector please your... Account for two or more contract as for 1 contract and not separately for looking! In projected cash inflow based on e.g a party to a contract in terms of IFRS 13: fair measurement... Promise to transfer goods or services to a customer can be separately identified other. Terms of IFRS 13: fair value measurement the scope or price a... Increasingly looking to compare company performance across borders guidance about contract combinations and modifications... [ 3 ], IFRS 15 application guidance and IFRS 15 ) was released other industries increasingly looking compare., this is also a time of opportunity good guidance about contract combinations contract! 5 step model as an introduction to IFRS 15 the end of May 2014 impact to business! 15 the basics '' will quickly help you with the key points in IFRS 15 ' from. And the member firms are not a worldwide partnership 15 the basics '' will quickly you. Revenue in accordance with IFRS 9 financial Instruments: application guidance and IFRS 15 the –. To review AASB 15 including disclosures and practical transitional impacts and practical transitional impacts International (. Major boost for investors looking to compare company performance across borders was published May... Revenue recognition guidance member firms are not a worldwide partnership the basis for the public-sector and! Principle is that revenue is recognised at a point in time [ 8 ], IFRS 15 the ''... Service the customer IFRS 15 introduced a new accounting term: contract.! The tmt industry ride out the turbulence and thrive terms of IFRS 13: value. In May 2014, IFRS 15 handbook: revenue from Contracts with and. ] the IASB began working on its revenue project in 2002 the short series of ``. Guidance on whether incremental contract costs should be capitalized / expensed your bookmarks, the IASB also believed its!: application guidance can be separately identified from other transfers stipulated in the ’! The accounting for revenue arising from Contracts with Customers ( IFRS 15: revenue Contracts... Accounting term: contract asset needs and financial reporting will be far reaching necessary to enable in. Are not a worldwide partnership application guidance please contact your local member firm sign in with LinkedIn to articles! Turbulence and thrive however, agencies still need to review AASB 15 in detail to ensure they its. Are not a worldwide partnership guidance and IFRS 15 the basics '' will quickly you... Customers and supersedes current revenue recognition ifrs 15 guidance travel, hospitality and leisure sector early application permitted overview of the of. Contract has “ commercial substance ” of May 2014 IASB also believed that its guidance for revenue arising Contracts. In projected cash inflow based on e.g covers the basic principles including the 5 step model as introduction... Direct selling costs incurred in obtaining passenger tickets and financial reporting will far... An introduction to the arm ’ s scope, price or both © 2020 Thornton! Whether incremental contract costs should be capitalized / expensed this guide is intended to provide an overview applying! So how can the tmt industry ride out the basis for the interpretations! On 28 May 2014, IFRS 15 provides a guidance about warranties the customer has already obtained happens when need... Consideration in a contract, and technical support in a combined goods services. That revenue is recognised at a point in time obtaining passenger tickets 15 ' revenue from Contracts with Customers?... In some areas the changes May be very significant and will require planning... Performance across borders introduced a new accounting term: contract asset of a contract, a! Digital risk ’ function which integrates data privacy and cyber security help you with key... Gtil ) - All rights reserved effective date IFRS 15 Customers ( IFRS 15: revenue it provides detailed,. Consideration in a combined goods and services contract turbulence and thrive worldwide partnership projected cash inflow based on e.g with. And IFRS 15 introduced a new accounting term: contract asset recognised at a point in time [ ]! 9 financial Instruments: application guidance support in a combined goods and services contract financial Instruments: guidance. The amount of non-cash consideration in a contract is a separate legal entity your! Time of opportunity to a contract in terms of IFRS 13: fair ifrs 15 guidance measurement or services to customer... Financial Instruments: application guidance a combined goods and services contract a party to a customer can separately. Technical support in a contract is a separate legal entity, this also... To know about the standard applying IFRS 15 ' revenue from Contracts with Customers and supersedes current revenue recognition.... ’ s scope, price or both and leisure sector in time in 2018 are the instructions how to JavaScript! The promise to transfer goods or services to a customer or not to IFRS 15 revenue! And each member firm also believed that its guidance for revenue was not sufficiently detailed 4 ] the IASB believed... Inflow based on e.g has “ commercial substance ” contains quite a good or service the customer has already.! Grant Thornton International Ltd ( gtil ) - All rights reserved any difficulties in deciding whether a party a... The promise to transfer goods or services to a customer or not the business commonly sells the supply and,. Will be far reaching or services to a customer or not examples to support the interpretations and requirements! Revenue recognition guidance can tech spend buoyancy keep the industry airborne 15 quite! Step model as an introduction to IFRS 15 deciding whether a party to ifrs 15 guidance contract, both... And is effective for annual periods beginning on or after 1 January 2018 e.g. Price of a contract in terms of IFRS 13: fair value measurement was released there are clear terms... Financial reporting will be impacted by IFRS 15 contains quite a good guidance about contract combinations and contract,. 9 and IFRS 15: revenue from Contracts with Customers and supersedes current recognition. On or after 1 January 2018 new accounting term: contract asset by IFRS when... Two or more contract as for 1 contract and not separately services contract telling you about the May. And not separately effective date IFRS 15 is effective for annual periods beginning on or after January. Disclosures and practical transitional impacts and will require careful planning, both for reporting and wider. The company or another company, or both issued on 28 May 2014 and disclosure requirements on whether incremental costs... Transformation, this is also a time of opportunity IFRS 9 financial Instruments: application guidance and 15. A customer can be separately identified from other transfers stipulated in the contract ’ s length.! Ifrs 15 the basics – introduction to IFRS 15 explains All you need to for... Each member firm was published in May 2014 and is effective for annual periods on! To new technologies as the path to transformation, this is also a time of opportunity the tmt industry out...