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  • Applying IFRS IFRS 15 Revenue from Contracts with Customers

    A closer look at IFRS 15, the revenue recognition standard

    (Updated October 2018)

  • Updated October 2018 A closer look at IFRS 15, the revenue recognition standard 2

    Overview

    Many entities have recently adopted 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). The standards

    supersede virtually all legacy revenue recognition requirements in IFRS and

    US GAAP, respectively.

    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 the leasing standards.

    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 2.1.1).

    As a result, entities that adopted the standards often found implementation to

    be a significant undertaking. This is because the standards affected entities’

    financial statements, business processes and internal controls over financial

    reporting. For entities that have not yet adopted the standards, successful

    implementation will require an assessment and a plan for managing the change.

    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 users from

    a variety of industries, countries, as well as public and private entities.

    Members of the TRG met six times in 2014 and 2015. In January 2016,

    the IASB announced that it did not plan to schedule further meetings of the IFRS

    constituents of the TRG, but said it would monitor any discussions of the FASB

    TRG, which met in April and November 2016. The November 2016 meeting was

    the last scheduled FASB TRG meeting.

    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 Chief

    Accountant of the US Securities and Exchange Commission (SEC) has

    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

    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. Refer to SEC website at

    https://www.sec.gov/news/speech/speech-bricker-05-05-16.html

    http://www.esma.europa.eu/sites/default/files/library/2016-1148_public_statement_ifrs_15.pdf https://www.sec.gov/news/speech/speech-bricker-05-05-16.html

  • 3 Updated October 2018 A closer look at IFRS 15, the revenue recognition standard

    We have incorporated our summaries of topics on which TRG members generally

    agreed at joint meetings in 2014, 2015 and at FASB-only TRG meetings in

    2016 throughout this publication. Unless otherwise specified, these summaries

    represent the discussions of the joint TRG. TRG members representing IFRS

    constituents did not participate in the April 2016 and November 2016

    meetings. However, certain members of the IASB and its staff observed

    the meetings and, during subsequent Board meetings, the IASB received

    oral updates. 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.

    While many entities have adopted the standards, implementation issues

    may continue to arise. Accordingly, the views we express in this publication

    may evolve as implementation continues and 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.

    http://www.ey.com/ifrs

  • Updated October 2018 A closer look at IFRS 15, the revenue recognition standard 4

    Contents

    Overview ................................................................................................................... 2

    1. Objective, effective date and transition .................................................................. 7

    1.1 Overview of the standard ......................................................................... 7

    1.2 Effective date ......................................................................................... 8

    1.3 Transition methods ............................................................................... 10

    2. Scope .................................................................................................................. 39

    2.1 Other scope considerations .................................................................... 40

    2.2 Definition of a customer ......................................................................... 42

    2.3 Collaborative arrangements ................................................................... 43

    2.4 Interaction with other standards ............................................................. 44

    3. Identify the contract with the customer ............................................................... 52

    3.1 Attributes of a contract ......................................................................... 53

    3.2 Contract enforceability and termination clause ........................................ 62

    3.3 Combining contracts .............................................................................. 67

    3.4 Contract modifications .......................................................................... 69

    3.5 Arrangements that do not meet the definition of a contract under the

    standard .................................................................................................... 80

    4. Identify the performance obligations in the contract .......................................... 83

    4.1 Identifying the promised goods or services in the contract ........................ 83

    4.2 Determining when promises are performance obligations .......................... 94

    4.3 Promised goods or services that are not distinct .................................... 118

    4.4 Principal versus agent considerations ................................................... 119

    4.5 Consignment arrangements ................................................................. 135

    4.6 Customer options for additional goods or services .................................. 135

    4.7 Sale of products with a right of return ................................................... 149

    5. Determine the transaction price ........................................................................ 151

    5.1 Presentation of sales (and other similar) taxes ....................................... 153

    5.2 Variable consideration ......................................................................... 154

    5.3 Refund liabilities ................................................................................. 172

    5.4 Rights of return .................................................................................. 173

    5.5 Significant financing component ........................................................... 178

    5.6 Non-cash consideration ....................................................................... 193

    5.7 Consideration paid or payable to a customer .......................................... 196

    5.8 Non-refundable upfront fees ................................................................ 204

    5.9