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  • Applying IFRS

    Transition Resource Group for Revenue Recognition Items of general agreement Updated March 2019

  • Transition Resource Group for Revenue Recognition items of general agreement

    1 Updated March 2019

    Contents

    Overview ............................................................................................... 3

    1. Step 1: Identify the contract(s) with a customer .................................... 4

    1.1 Collectability ........................................................................................ 4

    1.2 Contract enforceability and termination clauses .................................... 5

    2. Step 2: Identify the performance obligations in the contract ................... 7

    2.1 Identification of performance obligations .............................................. 7

    2.2 Stand-ready obligations ........................................................................ 8

    2.3 Series of distinct goods and services ..................................................... 9

    2.4 Gross versus net revenue – amounts billed to customers ...................... 10

    2.5 Customer options for additional goods and services ............................. 11

    3. Step 3: Determine the transaction price .............................................. 15

    3.1 Variable consideration ........................................................................ 15

    3.2 Portfolio practical expedient to estimate variable consideration ........... 15

    3.3 Accounting for restocking fees and related costs ................................. 16

    3.4 Significant financing components ........................................................ 17

    3.5 Consideration payable to a customer .................................................. 19

    4. Step 4: Allocate the transaction price to the performance obligations

    identified in the contract .................................................................... 21

    4.1 Exceptions to the relative stand-alone selling price method .................. 21

    5. Step 5: Recognise revenue when (or as) the entity satisfies a performance

    obligation ......................................................................................... 22

    5.1 Performance obligations satisfied over time ........................................ 22

    5.2 Evaluating how control transfers for performance obligations satisfied over time ........................................................................................... 23

    5.3 Determining when control of a commodity transfers ............................ 23

    5.4 Measuring progress when multiple goods or services are combined in a single performance obligation ............................................................. 24

    5.5 Practical expedient for measuring progress toward satisfaction of a performance obligation ....................................................................... 25

    5.6 Partial satisfaction of performance obligations prior to identifying the contract ............................................................................................. 27

    6. Other measurement and recognition topics ......................................... 28

    6.1 Licences of intellectual property ......................................................... 28

    6.2 Warranties ......................................................................................... 29

    6.3 Pre-production activities ..................................................................... 29

    6.4 Incremental costs to obtain a contract ................................................ 30

    6.5 Impairment testing of capitalised contract costs .................................. 32

    6.6 Contract assets and liabilities .............................................................. 33

    7. Scope of the standards ...................................................................... 35

    7.1 Islamic financing transactions (this topic was raised in an IFRS context) 35

    7.2 Determining the scope for certain credit card arrangements ................ 35

    7.3 Financial institutions (this topic was raised in a US GAAP context) ........ 36

    7.4 Contributions (this topic was raised in a US GAAP context) .................. 37

    7.5 Gambling entities – fixed-odds wagering contracts (this topic was raised in a US GAAP context) ............................................................................ 37

  • Transition Resource Group for Revenue Recognition items of general agreement

    Updated March 2019 2

    What you need to know

    • The TRG has held six joint meetings and two FASB TRG meetings since

    its inception in 2014, to discuss a number of implementation issues. In

    January 2016, the IASB said it did not plan to schedule further meetings

    of the IFRS constituents of the TRG. The November 2016 meeting was

    the last scheduled FASB TRG meeting.

    • During the discussions, TRG members reached general agreement on

    many topics, which are summarised in this publication.

    • Although the views expressed by TRG members are non-authoritative,

    they represent the latest thinking on each topic; entities should consider

    these views as they implement the standards.

  • Transition Resource Group for Revenue Recognition items of general agreement

    3 Updated March 2019

    Overview This publication summarises the issues on which members of the Transition

    Resource Group for Revenue Recognition (TRG), created by the International

    Accounting Standards Board (IASB) and the Financial Accounting Standards

    Board (FASB), generally agreed at joint meetings in 2014 and 2015 and at

    meetings of the FASB TRG in 2016. IASB TRG members did not participate

    in the meetings in 2016. However, certain members of the IASB and its staff

    observed the meetings. The IASB received oral updates of the April and

    November 2016 FASB TRG meetings in May and December 2016, respectively.

    Where possible, this publication indicates whether the IASB or its staff

    commented on the FASB TRG discussions. Unless otherwise specified, each

    issue summarises the discussions of the joint TRG.

    As a reminder, the IASB and the FASB (collectively, the Boards) created the TRG

    to help them determine whether more application guidance is needed on

    their revenue standards1 and to educate constituents. TRG members include

    financial statement preparers, auditors and users from a variety of industries

    and countries.

    In January 2016, the IASB said it did not plan to schedule further meetings of

    the IFRS constituents of the TRG, but said it will monitor any discussions of the

    FASB TRG. The November 2016 meeting was the last scheduled FASB TRG

    meeting. However, if the FASB receives enough broadly applicable questions,

    additional TRG meetings may be scheduled.

    TRG members’ views are non-authoritative, but entities should consider them

    as they implement the standards. In a recent public statement, the European

    Securities and Markets Authority (ESMA) encouraged issuers to consider

    the TRG discussions when implementing IFRS 15.2 In addition, the Chief

    Accountant of the Securities and Exchange Commission (SEC), has encouraged

    SEC registrants, including foreign private issuers (that may report under IFRS)

    to consult with the Office of the Chief Accountant if they are considering

    applying the standard in a manner that differs from the discussions in which

    TRG members reached general agreement.3

    Our summary, which is organised according to the steps in the standards’

    five-step model and by TRG discussion topic, is not intended to replace any

    summaries provided by the TRG or the Boards. For more information about

    these issues, refer to our publication, Applying IFRS: A closer look at IFRS 15,

    the revenue recognition standard , which is available on www.ey.com/ifrs.

    1 IFRS 15 Revenue from Contracts with Customers and Accounting Standards Codification

    (ASC) 606, Revenue from Contracts with Customers (created by Accounting Standards Update (ASU) 2014-09). Throughout this publication, when we refer to the IASB’s standard or FASB’s standard, we mean IFRS 15 (including any amendments) or ASC 606 (including any amendments), respectively, 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 at https://www.esma.europa.eu/sites/default/files/library/2016- 1148_public_statement_ifrs_15.pdf.

    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

    To help preparers implement the standards, the TRG discussed numerous issues.

    file:///C:/CHARLENE/Global%20IFRS/Revenue/TRG/Issue%20log/Updated%20pub%20-%20Nov%202015/www.ey.com/ifrs 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

  • Transition Resource Group for Revenue Recognition items of general agreement

    Updated March 2019 4

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