If control is transferred continuously over time, an entity may use output methods (for example, units delivered) or input methods (for example, costs incurred or passage of time) to measure the amount of revenue to be recognised. This first video covers the basic principles including the 5 step model in IFRS 15. These costs would then be amortised as control of the goods or services to which the asset relates is transferred to the customer. Identify the separate performance obligations in the contract. The short video series are intend to quickly help you understand IFRS 15. /Producer Indicators to consider in determining when the customer obtains control of a promised asset include: (1) the customer has an unconditional obligation to pay, (2) the customer has legal title, (3) the customer has physical possession, (4) the customer has the risks and rewards of ownership of the good, and (5) the customer has accepted the asset. ����[=u��0�Q�!�hS PLw�:� �\�.�Bphz̬�A��F�9���a%=5�+��7Ա]HzK�C-|YZ'{�o����i�. PwC In brief and In depth. An entity will need to conclude that it is 'probable’, at the inception of the contract, that the entity will collect the consideration to which it will ultimately be entitled in exchange for the goods or services that are transferred to the customer in order for a contract to be in the scope of the revenue standard. The standard contains principles that an entity will apply to determine the measurement of revenue and timing of when it is recognised. All relevant factors should be considered to determine whether the customer has obtained control of a good. The best evidence of stand-alone selling price is the observable price of a good or service when the entity sells that good or service separately. stream IFRS 15 sets out a single model for the recognition of revenue that apply to all contracts with customers. When an arrangement involves two or more unrelated parties that contribute to providing a specified good or service to a customer, management will need to determine whether the entity has promised to provide the specified good or service itself (as a principal) or to arrange for those specified goods or services to be provided by another party (as an agent). In May 2014, the IASB and FASB issued their converged standard on revenue recognition - IFRS 15 and ASC 606, Revenue from Contracts with Customers. The assessment should be made separately for each specified good or service. Examples . sales commissions. The following indicators might suggest the entity’s experience is not predictive of the outcome of a contract: (1) the amount of consideration is highly susceptible to factors outside the influence of the entity, (2) the uncertainty about the amount of consideration is not expected to be resolved for a long period of time, (3) the entity’s experience with similar types of contracts is limited, and (4) the contract has a large number and broad range of possible consideration amounts. An entity may also allocate discounts and variable amounts entirely to one (or more) performance obligations if certain conditions are met. A right to receive payment is unconditional if only the passage of time is required before payment is due (IFRS 15.105, 107-108). 1 0 obj IFRS 15 also includes guidance related to contract costs. IFRS 15: Revenue. Preparing for change International Financial Reporting Standard 15 (IFRS 15), the new standard for revenue recognition, establishes a new framework for assessing contracts with your customers, focusing on the transfer of control of identified performance obligations. The new standard, IFRS 15, Revenue from Contracts with Customers, replaces the accounting guidance in IAS 11 Construction Contracts, and affects annual reporting periods that begin on or after 1 January 2018. Recognise revenue when each performance obligation is satisfied. The IASB’s Standard IFRS 15 Revenue from Contracts with Customers is now effective (for periods beginning on or after 1 January 2018 with earlier adoption permitted). Such a good or service is distinct if both of the following criteria are met: Sales-type incentives such as free products or customer loyalty programmes, for example, are currently recognised as marketing expense under US GAAP in some circumstances. 1 of ; gx IFRS 15, Revenue. New accounting standards mean that construction companies need to pay attention to when they recognize revenue. Some will see pervasive changes, because the new model will replace all existing IFRS and US GAAP revenue recognition guidance, including industry-specific guidance with limited exceptions (for example, certain guidance on rate-regulated activities in US GAAP). The transaction price reflects the amount of consideration that an entity expects to be entitled to in exchange for goods or services transferred. Relates directly to anticipated contract. They were guided by IAS 11 Construction Contracts, but you might well know that after 1 January 2018, IAS 11 became superseded – it does NOT apply anymore.. TRG discussions are non-authoritative, but they may provide helpful insight on the requirements of the standard and implementation issues. IFRS 15 is silent on presentation (classification) of incremental costs of obtaining a contract and costs to fulfil a contract. 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