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Applying IFRS: A closer look at IFRS 15, the revenue recognition standardApplying IFRS
A closer look at IFRS 15, the revenue recognition standard IFRS 15 Revenue from Contracts with Customers
(Updated September 2019)
Updated September 2019 A closer look at IFRS 15, the revenue recognition standard 2
Overview
The largely converged revenue standards, IFRS 15 Revenue from Contracts
with Customers and Accounting Standards Codification (ASC) 606, Revenue
from Contracts with Customers1 (together with IFRS 15, the standards), that
were issued in 2014 by the International Accounting Standards Board (IASB
or the Board) and the US Financial Accounting Standards Board (FASB)
(collectively, the Boards) provide accounting requirements for all revenue
arising from contracts with customers. They affect all entities that enter into
contracts to provide goods or services to their customers, unless the contracts
are in the scope of other IFRSs or US GAAP requirements, such as those
for leases. The standards, which superseded virtually all legacy revenue
requirements in IFRS and US GAAP, also specify the accounting for costs
an entity incurs to obtain and fulfil a contract to provide goods or services to
customers (see section 9.3) and provide a model for the measurement and
recognition of gains and losses on the sale of certain non-financial assets, such
as property, plant or equipment (see section 2.2.1).
As a result, entities that adopted the standards often found implementation to
be a significant undertaking. This is because the standards require entities to
make more judgements and estimates and they affect entities’ financial
statements, business processes and internal controls over financial reporting.
Following issuance of the standards, the Boards created the Joint Transition
Resource Group for Revenue Recognition (TRG) to help them determine
whether more application guidance was needed on the standards. TRG
members include financial statement preparers, auditors and other users from
a variety of industries, countries, as well as public and private entities.
Members of the joint TRG met six times in 2014 and 2015, and members of the
FASB TRG met twice in 2016.
TRG members’ views are non-authoritative, but entities should consider them as
they implement the standards. In its July 2016 public statement, the European
Securities and Markets Authority (ESMA) encouraged issuers to consider
the TRG discussions when implementing IFRS 15.2 Furthermore, the former
Chief Accountant of the US Securities and Exchange Commission (SEC)
encouraged SEC registrants, including foreign private issuers (that may report
under IFRS), to consult with his office if they are considering applying the
standard in a manner that differs from the discussions in which TRG members
reached general agreement.3
We have incorporated our summaries of topics on which TRG members generally
agreed throughout this publication. Unless otherwise specified, these summaries
represent the discussions of the joint TRG. Where possible, we indicate if
members of the IASB or its staff commented on the FASB TRG discussions.
This publication summarises the IASB’s standard (including all amendments)
and highlights significant differences from the FASB’s standard. It also
addresses topics on which the members of the TRG reached general agreement
and discusses our views on certain topics.
1 Throughout this publication, when we refer to the FASB’s standard, we mean ASC 606
(including the recent amendments), unless otherwise noted. 2 ESMA Public Statement: Issues for consideration in implementing IFRS 15: Revenue from
Contracts with Customers, issued 20 July 2016, available on ESMA's website. 3 Speech by Wesley R. Bricker, 5 May 2016. Available on the SEC’s website.
While entities have adopted the standards, application issues may continue to
arise. Accordingly, the views we express in this publication may evolve as
additional issues are identified. The conclusions we describe in our illustrations
are also subject to change as views evolve. Conclusions in seemingly similar
situations may differ from those reached in the illustrations due to differences
in the underlying facts and circumstances. Please see ey.com/IFRS for our most
recent revenue publications.
Contents
1.1 Overview of the standard ......................................................................... 7
1.2 Effective date ......................................................................................... 8
1.3 Transition methods ................................................................................. 8
2.2 Other scope considerations .................................................................... 39
2.3 Definition of a customer ......................................................................... 41
2.4 Collaborative arrangements ................................................................... 42
3. Identify the contract with the customer ............................................................... 54
3.1 Attributes of a contract ......................................................................... 55
3.2 Contract enforceability and termination clauses ....................................... 64
3.3 Combining contracts .............................................................................. 71
3.4 Contract modifications .......................................................................... 73
3.5 Arrangements that do not meet the definition of a contract under the
standard .................................................................................................... 86
4. Identify the performance obligations in the contract .......................................... 89
4.1 Identifying the promised goods or services in the contract ........................ 89
4.2 Determining when promises are performance obligations ........................ 101
4.3 Promised goods or services that are not distinct .................................... 128
4.4 Principal versus agent considerations ................................................... 129
4.5 Consignment arrangements ................................................................. 149
4.7 Sale of products with a right of return ................................................... 164
5. Determine the transaction price ........................................................................ 166
5.1 Presentation of sales (and other similar) taxes ....................................... 168
5.2 Variable consideration ......................................................................... 169
5.3 Refund liabilities ................................................................................. 191
5.6 Non-cash consideration ....................................................................... 213
5.8 Non-refundable upfront fees ................................................................ 226
5.9 Changes in the transaction price ........................................................... 230
6. Allocate the transaction price to the performance obligations ............................ 231
6.1 Determining stand-alone selling prices .................................................. 231
6.2 Applying the relative stand-alone selling price method ............................ 248
6.3 Allocating variable consideration .......................................................... 251
5 Updated September 2019 A closer look at IFRS 15, the revenue recognition standard
6.4 Allocating a discount ........................................................................... 256
6.5 Changes in transaction price after contract inception ............................. 260
6.6 Allocation of transaction price to components outside the scope of
IFRS 15 .................................................................................................... 263
7.1 Performance obligations satisfied over time .......................................... 266
7.2 Control transferred at a point in time .................................................... 304
7.3 Repurchase agreements ...................................................................... 312
7.4 Consignment arrangements ................................................................. 319
7.5 Bill-and-hold arrangements .................................................................. 320
7.7 Recognising revenue when a right of return exists .................................. 324
7.8 Recognising revenue for customer options for additional goods or
services ................................................................................................... 324
7.9 Breakage and prepayments for future goods or services ......................... 325
8. Licences of intellectual property ........................................................................ 329
8.1 Identifying performance obligations in a licensing arrangement ............... 330
8.2 Determining the nature of the entity’s promise in granting a licence ........ 337
8.3 Transfer of control of licensed intellectual property ................................ 343
8.4 Licence renewals ................................................................................. 348
8.5 Sales-based or usage-based royalties on licences of intellectual property . 349
9. Other measurement and recognition topics ........................................................ 362
9.1 Warranties .......................................................................................... 362
10.1 Presentation requirements for contract assets and contract liabilities .... 402
10.2 Presentation requirements for revenue from contracts with customers .. 411
10.3 Other presentation considerations ...................................................... 413
10.4 Disclosure objective and general requirements ..................................... 414
10.5 Specific disclosure requirements ........................................................ 415
10.6 Transition disclosure requirements ..................................................... 432
10.7 Disclosures in interim financial statements .......................................... 432
Appendix A: Extract from EY’s IFRS Disclosure Checklist ....................................... 433
Appendix B: Illustrative examples included in the standard and references in this
publication ............................................................................................................ 442
Appendix C: TRG discussions and references in this publication ............................. 446
Appendix D: IFRS IC discussions and references in this publication ......................... 449
Appendix E: Defined terms ..................................................................................... 451
Appendix F: Changes to the standard since issuance .............................................. 452
Appendix G: Summary of important changes to this publication ............................. 453
Appendix H: Summary of differences from US GAAP .............................................. 456
Updated September 2019 A closer look at IFRS 15, the revenue recognition standard 6
What you need to know
• IFRS 15 provides a single source of revenue requirements for all entities in
all industries. It represents a significant change from legacy IFRS.
• IFRS 15 applies to revenue from contracts with customers and replaced
all of the legacy revenue standards and interpretations in IFRS, including
IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer
Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real
Estate, IFRIC 18 Transfers of Assets from Customers and SIC-31 Revenue
– Barter Transaction involving Advertising Services.
• IFRS 15 is principles-based, consistent with legacy revenue requirements,
but provides more application guidance. The lack of bright lines requires
increased judgement.
• The standard may have had little effect on some entities, but may have
required significant changes for others, especially those entities for which
legacy IFRS provided little application guidance.
• 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.
7 Updated September 2019 A closer look at IFRS 15, the revenue recognition standard
1. Objective, effective date and transition
1.1 Overview of the standard
The revenue standards the Boards issued in May 2014 were largely converged
and superseded virtually all legacy revenue recognition requirements in IFRS
and US GAAP, respectively. The Boards’ goal in joint deliberations was to
develop revenue standards that:4
literature
• Provide a more robust framework for addressing revenue recognition issues
• Improve comparability of revenue recognition practices across industries,
entities within those industries, jurisdictions and capital markets
• Reduce the complexity of applying revenue recognition requirements by
reducing the volume of the relevant standards and interpretations
• Provide more useful information to users through expanded disclosure
requirements
The standards provide accounting requirements for all revenue arising from
contracts with customers. They affect all entities that enter into contracts to
provide goods or services to their customers, unless the contracts are in the
scope of other IFRSs or US GAAP requirements, such as those for leases. The
standards also specify the accounting for costs an entity incurs to obtain and
fulfil a contract to provide goods or services to customers (see section 9.3) and
provide a model for the measurement and recognition of gains and losses on
the sale of certain non-financial assets, such as property, plant or equipment
(see section 2.2.1).
IFRS 15 replaced all of the legacy revenue standards and interpretations
in IFRS, including IAS 11 Construction Contracts, IAS 18 Revenue,
IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the
Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers
and SIC-31 Revenue – Barter Transactions Involving Advertising Services.5
After issuing the standards, the Boards have issued converged amendments on
certain topics (e.g., principal versus agent considerations) and different
amendments on other topics (e.g., licences of intellectual property). The FASB
has also issued several amendments that the IASB has not issued (e.g., non-
cash consideration, consideration payable). See Appendix F for a discussion of
the changes to the standards since issuance.
While we address the significant differences between the IASB’s final standard
and the FASB’s final standard throughout this publication, the primary purpose
of this publication is to describe the IASB’s standard, including all amendments
to date, and focus on the effects for IFRS preparers.6 As such, we generally
refer to the ‘standard’ in the singular.
1.1.1 Core principle of the standard
The standard describes the principles an entity must apply to measure and
recognise revenue and the related cash flows. The core principle is that an
4 IFRS 15 (2016).IN5. 5 IFRS 15.C10. 6 For more information on the effect of the new revenue standard for US GAAP preparers,
refer to our Financial Reporting Developments: Revenue from contracts with customers (ASC 606), Revised September 2019, available on EY AccountingLink.
entity recognises revenue at an amount that reflects the consideration to
which the entity expects to be entitled in exchange for transferring goods
or services to a customer.7
The principles in IFRS 15 are applied using the following five steps:
1. Identify the contract(s) with a customer
2. Identify the performance obligations in the contract
3. Determine the transaction price
4. Allocate the transaction price to the performance obligations in the
contract
5. Recognise revenue when (or as) the entity satisfies a performance
obligation
Entities need to exercise judgement when considering the terms of
the contract(s) and all of the facts and circumstances, including implied
contract terms. Entities also have to apply the requirements of the
standard consistently to contracts with similar characteristics and in similar
circumstances.8 To assist entities, IFRS 15 includes detailed application
guidance. The IASB also published more than 60 illustrative examples that
accompany IFRS 15. We list these examples in Appendix B to this publication
and provide references to where certain examples are included in this publication.
1.2 Effective date
IFRS 15 became effective for annual reporting periods beginning on or after
1 January 2018. Early adoption was permitted, provided that fact was
disclosed.
FASB differences
The FASB’s standard became effective for public entities, as defined, for
fiscal years beginning after 15 December 2017 and for interim periods
therein.9 Non-public entities (i.e., an entity that does not meet the definition
of a public entity in the FASB’s standard) are required to adopt the standard
for fiscal years beginning after 15 December 2018 and for interim periods
within fiscal years beginning after 15 December 2019. That is, non-public
entities are not required to apply the standard in interim periods in the year
of adoption.
US GAAP public and non-public entities were permitted to adopt the standard
as early as the original public entity effective date (i.e., fiscal years beginning
after 15 December 2016, including interim periods therein).
1.3 Transition methods (updated October 2018)
IFRS 15 requires retrospective application. However, it allows either a ’full
retrospective’ adoption (in which the standard is applied to all of the periods
7 IFRS 15.2. 8 IFRS 15.3. 9 The FASB’s standard defines a public entity as one of the following: A public business
entity (as defined); A not-for-profit entity that has issued, or is a conduit bond obligor for, securities that are traded, listed or quoted on an exchange or an over-the-counter market; An employee benefit plan that files or furnishes financial statements with the US SEC. An entity may meet the definition of a public business entity solely because its financial statements or financial information is included in another entity’s filing with the SEC. The SEC staff said it would not object if these entities adopt the new revenue standard using the effective date for non-public entities rather than the effective date for public entities.
9 Updated September 2019 A closer look at IFRS 15, the revenue recognition standard
presented) or a ‘modified retrospective’ adoption. See sections 1.3.2 and 1.3.3
below, respectively.
The following are the dates relevant to transition:
• The date of initial application – the start of the reporting period in which
an entity first applies IFRS 15.10 This date of initial application does not
change, regardless of the transition method that is applied. Examples of
dates of initial application for different year-ends include:
Year ending Date of initial application
31 December 2018 1 January 2018
30 June 2019 1 July 2018
• The beginning of the earliest period presented – the start of the earliest
reporting period presented within an entity’s financial statements for the
reporting period in which the entity first applies IFRS 15. This is relevant
for entities using the full retrospective adoption method. For example:
Beginning of the earliest period presented
Year ending (one comparative period)
(two comparative periods)
31 December 2018 1 January 2017 1 January 2016
30 June 2019 1 July 2017 1 July 2016
1.3.1 Definition of a completed contract (updated September 2019)
IFRS 15 defines a completed contract as a contract in which the entity has
fully transferred all of the goods or services identified in accordance with legacy
IFRS.11 Depending on the manner an entity elects to transition to IFRS 15, an
entity may not need to apply IFRS 15 to contracts if they have completed
performance before the date of initial application or the beginning of the
earliest period presented (depending on the practical expedient) (see
sections 1.3.2 and 1.3.3), even if they have not yet received the consideration
and that consideration is still subject to variability. Applying a completed
contract practical expedient might also affect an entity’s revenue recognition in
subsequent reporting periods. That is, if an entity applies a practical expedient
for completed contracts, it continues to apply its legacy revenue policy to its
completed contracts, instead of IFRS 15. In some cases, even though an entity
will have fully transferred its identified goods or services, there may still be
revenue to recognise in reporting periods after adoption of IFRS 15.
The IASB noted in the Basis for Conclusions that ‘transferred all of the goods
or services’ is not meant to imply that an entity would apply the ‘transfer of
control’ notion in IFRS 15 to goods or services that have been identified in
accordance with legacy IFRS. Rather, it is performance in accordance with
legacy requirements (i.e., those in IAS 11, IAS 18 and related Interpretations),
as noted in IFRS 15.BC441. “Consequently, in many situations the term
‘transferred’ would mean ‘delivered’ within the context of contracts for the sale
of goods and ‘performed’ within the context of contracts for rendering services
and construction contracts. In some situations, the entity would use judgement
when determining whether it has transferred goods or services to the
customer.”12
10 IFRS 15.C2(a). 11 IFRS 15.C2(b). 12 IFRS 15.BC445D.
Updated September 2019 A closer look at IFRS 15, the revenue recognition standard 10
Consider the following examples (assuming the modified retrospective
transition method is applied):
• Contract is completed — a retailer sold products to a customer on
31 December 2017, with immediate delivery. The customer has a poor
credit history. Therefore, the retailer required the customer to pay half
of the consideration upfront and half within 60 days. In accordance with
IAS 18, the retailer recognised half of the consideration at the time of
the sale. However, the retailer concluded it was not probable that it would
be able to collect the remainder and deferred recognition of this amount.
Because the goods were delivered prior to the date of initial application of
IFRS 15 (e.g., 1 January 2018) and collectability concerns were only the
reason for delaying recognition of revenue under IAS 18, the contract is
considered completed under IFRS 15 (see Question 1-5 below).
• Contract is not completed — an entity entered into a contract to provide
a service and loyalty points to a customer on 31 January 2017. In
accordance with IFRIC 13, the entity allocated a portion of the total
contract consideration to the loyalty points and deferred revenue
recognition until the points were exercised on 15 January 2018. The entity
completed the required service within six months and recognised revenue
related to the service over that period in accordance with IAS 18. As at
the date of initial application of IFRS 15 (e.g., 1 January 2018), the entity
had not yet performed in relation to the loyalty points. As a result, the
contract was not considered completed under IFRS 15 (see Question 1-7
below).
As discussed above, determining which contracts are completed at transition
may require significant judgement, particularly if legacy IFRS did not provide
detailed requirements that indicated when goods had been delivered or
services performed (e.g., licences of intellectual property).
Entities should not consider elements of a contract that did not result in
recognition of revenue under legacy IFRS (e.g., warranty provisions) when
assessing whether a contract is complete.
FASB differences
The definition of a ‘completed contract’ is not converged between IFRS and
US GAAP. A completed contract under ASC 606 is defined as one for which
all (or substantially all) of the revenue was recognised in accordance with
legacy US GAAP that was in effect before the date of initial application.13
The different definitions could lead to entities having a different population
of contracts to transition to the revenue standards under IFRS and US GAAP,
respectively. However, the Board noted in the Basis for Conclusions that
an entity could avoid the consequences of these different definitions by
choosing to apply…

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