may be sufficient in condensed interim financial statements. [IAS 8.29].
If an entity prepares more than one set of interim financial statements during the year
of adoption of IFRS 15 (e.g. quarterly), it should provide information consistent with that
which was disclosed in its first interim financial report, but updated for the latest
information. In some cases, the additional disclosures in a subsequent interim period
only relate to the subsequent interim period as IAS 34 allows for cross-referencing to
other documents available on the same terms, such as previous interim financial
statements. [IAS 34.16A(a)].
Entities need to consider the views of local regulators when planning not to repeat in
the current interim financial statements any disclosures already included in previous
interim reports or other documents. This is because there are different views among
regulators as to whether the policy and impact disclosures need to be repeated in full in
each set of interim financial statements issued during the year or whether cross-
referencing to earlier interim financial statements or other documents outside the
current interim report is acceptable. As an example, in April 2018, ESMA published the
annual report Enforcement and Regulatory Activities of Accounting Enforcers in 2017.
In it, ESMA clarified that they expect issuers applying IFRS 15 using a modified
retrospective approach to provide the disclosures required by paragraph C8 of IFRS 15
in all interim periods that include the date of initial application of IFRS 15.7
However, if, for instance, an entity becomes aware of new information about the impact
of the new standards at the date of initial application in a subsequent interim period, the
previously reported impact disclosures will have to be updated in the subsequent
interim period.
Revenue
1999
Local regulators may have additional requirements. For example, foreign private issuers
reporting under IFRS that are required to file interim statements may be affected by the
SEC’s reporting requirement to provide both the annual and interim period disclosures
prescribed by the new accounting standard, to the extent not duplicative, in certain
interim financial statements in the year of adoption.8
In addition to these requirements, as discussed at 11.6 below, entities need to provide
disaggregated revenue disclosures in their condensed interim financial statements, both
in the year of adoption and on an ongoing basis.
2.3.6
Other transition considerations
Regardless of the transition method they choose, many entities have to apply the
standard to contracts entered into in prior periods. The population of contracts will
be larger under the full retrospective method. However, under the modified
retrospective method, at a minimum, entities have to apply IFRS 15 to all contracts
that are not completed as at the date of initial application, regardless of when those
contracts commenced.
The Board has provided some relief from a full retrospective method, in the form of
several practical expedients, and provided the option of a modified retrospective
method, which provides one practical expedient. However, there are still a number of
application issues that may make applying IFRS 15 difficult and/or time-consuming, for
example:
• In the case of full retrospective adoption, entities have to perform an allocation of
the transaction price because of changes to the identified deliverables, the
transaction price or both. If an entity previously performed a relative fair value
allocation, this step may be straightforward. Regardless, an entity is required to
determine the stand-alone selling price of each performance obligation as at
inception of the contract. Depending on the age of the contract, this information
may not be readily available and the prices may differ significantly from current
stand-alone selling prices. While the standard is clear as to when it is acceptable to
use hindsight in respect of variable consideration to determine the transaction
price (see 6.2 below for a discussion on variable consideration), it is silent on
whether the use of hindsight is acceptable for other aspects of the model (e.g. for
the purpose of allocating the transaction price) or whether it is acceptable to use
current pricing information if that were the only information available.
• Estimating variable consideration for all contracts for prior periods is likely to require
significant judgement. The standard is clear that hindsight cannot be used for
contracts that are not completed when applying the full retrospective method. The
standard is silent on whether the use of hindsight is acceptable for entities applying
the modified retrospective method. However, the Board’s discussion in the Basis for
Conclusions implies that it originally intended to provide no practical expedients for
the modified retrospective method. [IFRS 15.BC439-BC443]. Furthermore, since entities
applying the modified retrospective method may only be adjusting contracts that are
not completed, it seems likely that the use of hindsight is not acceptable. As a result,
entities must make this estimate based only on information that was available at
contract inception. Contemporaneous documentation clarifying what information
2000 Chapter 28
was available to management, and when it was available, is likely to be needed to
support these estimates. In addition to estimating variable consideration using the
expected value or a most likely amount method, entities have to make conclusions
about whether such variable consideration is subject to the constraint (see 6.2.3 below
for further discussion).
• The modified retrospective method does not require entities to restate the
amounts reported in prior periods. However, at the date of initial application,
entities electing this method still have to calculate, either for all contracts or only
for contracts that are not completed (depending on how the entity elects to apply
this transition method), the revenues they would have recognised as if they had
applied IFRS 15 since contract inception. This is needed in order to determine the
cumulative effect of adopting the standard. It is likely to be most challenging for
contracts in which the identified elements/deliverables or allocable consideration
change when the new requirements are applied.
Finally, entities need to consider a number of other issues as they prepare to adopt
IFRS 15. For example, entities with significant deferred revenue balances under legacy
IFRS may experience what some are referring to as ‘lost revenue’ if those amounts were
deferred at the adoption date of IFRS 15 and, ultimately, are reflected in the restated
prior periods or as part of the cumulative adjustment upon adoption, but are never
reported as revenue in a current period within the financial statements.
2.3.7
First-time adopters of IFRS
IFRS 1 – First-time Adoption of International Financial Reporting Standards – applies
(and not IFRS 15) when adopting IFRS 15 as part of first time-adoption of IFRS.
According to IFRS 1, a first-time adopter may apply the optional practical expedients
full retrospective method, see 2.3.3 above). However, if a first-time adopter decides to
apply any of those optional practical expedients, it must provide the disclosures
required by paragraph C6 of IFRS 15 (i.e. the types of practical expedients the entity has
applied and the likely effect of that application). [IFRS 1.D34].
IFRS 1 also permits a first-time adopter not to restate contracts that were completed
before the earliest period presented (see 2.3.2 above). [IFRS 1.D35]. In order to apply the
optional practical expedients in paragraph C5 of IFRS 15, a first-time adopter of IFRS
should read references to the ‘date of initial application’ as the beginning of the first
IFRS reporting period (i.e. the date of transition to IFRS). [IFRS 1.D34].
Although IFRS 1 also provides the same optional practical expedients available for IFRS
preparers applying the full retrospective method, adoption of IFRS 15 by first-time
adopters may be challenging. For example, determination of completed contracts may
be practically challenging if first-time adopters’ previous accounting standards were not
clear about when the goods or services had been transferred.
2.4 Definitions
The following table summarises the terms that are defined in IFRS 15. [IFRS 15 Appendix A].
Revenue
2001
Figure 28.2:
IFRS 15 Definitions
Term Definition
Contract
An agreement between two or more parties that creates enforceable rights and
obligations.
Contract asset
An entity’s right to consideration in exchange for goods or services that the
entity has transferred to a customer when that right is conditioned on something
other than the passage of time (for example, the entity’s future performance).
Contract liability
An entity’s obligation to transfer goods or services to a customer for which the
entity has received consideration (or the amount is due) from the customer.
Customer
A party that has contracted with an entity to obtain goods or services that are
an output of the entity’s ordinary activities in exchange for consideration.
Income
Increases in economic benefits during the accounting period in the form of inflows
or enhancements of assets or decreases of liabilities that result in an increase in
equity, other than those relating to contributions from equity participants.
Performance obligation
A promise in a contract with a customer to transfer to the customer either:
(a) a good or service (or a bundle of goods or services) that is distinct; or
(b) a series of distinct goods or services that are substantially the same and
that have the same pattern of transfer to the customer.
Revenue
Income arising in the course of an entity’s ordinary activities.
Stand-alone selling price
The price at which an entity would sell a promised good or service separately
(of a good or service)
to a customer.
Transaction price
The amount of consideration to which an entity expects to be entitled in
(for a contract with a
exchange for transferring promised goods or services to a customer, excluding
customer)
amounts collected on behalf of third parties.
3
IFRS 15 – SCOPE
IFRS 15 applies to all entities and all contracts with customers to provide goods or
services in the ordinary course of business, except for the following contracts, which
are specifically excluded: [IFRS 15.5]
• lease contracts within the scope of IFRS 16 (or IAS 17);
• insurance contracts within the scope of IFRS 4 – Insurance Contracts (or, when
effective, contracts within the scope of IFRS 17 – Insurance Contracts – except
when an entity elects to apply IFRS 15 to certain service contracts in accordance
with paragraph 8 of IFRS 17);
• financial instruments and other contractual rights or obligations within the scope
of IFRS 9, IFRS 10 – Consolidated Financial Statements, IFRS 11 – Joint
Arrangements, IAS 27 – Separate Financial Statements – and IAS 28 –
Investments in Associates and Joint Ventures; and
• non-monetary exchanges between entities in the same line of business to facilitate
sales to customers or potential customers.
2002 Chapter 28
In addition, arrangements must meet the criteria set out in paragraph 9 of IFRS 15, which are
discussed at 4.1 below, in order to be accounted for as a revenue contract under the standard.
For certain arrangements, entities have to evaluate their relationship with the
counterparty to the contract in order to determine whether a vendor-customer
relationship exists. Some collaboration arrangements, for example, are more akin to a
partnership, while others have a vendor-customer relationship. Only transactions that
are determined to be with a customer are within the scope of IFRS 15. See 3.3 below for
a discussion on collaborative arrangements.
Note that IFRS 9 became effective for annual periods beginning on or after 1 January 2018,
superseding IAS 39 – Financial Instruments: Recognition and Measurement. However,
entities that are applying IFRS 4 have an optional temporary exemption that permits an
insurance company whose activities are predominantly connected with insurance to defer
adoption of IFRS 9. If an entity uses this optional exemption, it continues to apply IAS 39
until its first accounting period beginning on or after 1 January 2021, which is the effective
date of IFRS 17 (see Chapter 51 at 10 for further discussion). References to IFRS 9 in this
chapter are generally also relevant for IAS 39.
As noted above, when effective, IFRS 17 could change the applicable standard for
certain service contracts, specifically fixed-fee service contracts, which are contracts in
which the level of service depends on an uncertain event. Examples include roadside
assistance programmes and maintenance contracts in which the service provider agrees
to repair specified equipment after a malfunction for a fixed fee. IFRS 17 indicates that
these are insurance contracts and therefore, when it is effective, that standard would
apply. However, if their primary purpose is the provision of services for a fixed fee,
IFRS 17 permits entities the choice of applying IFRS 15 instead of IFRS 17 to such
contracts if, and only if, all of the following conditions are met: [IFRS 17.8]
• the entity does not reflect an assessment of the risk associated with an individual
customer in setting the price of the contract with that customer;
• the contract compensates the customer by providing services, rather than by
making cash payments to the customer; and
• the insurance risk transferred by the contract arises primarily from the customer’s
use of services rather than from uncertainty over the cost of those services.
The entity may make that choice on a contract by contract basis, but the choice for each
contract is irrevocable. See Chapter 52 at 2.3.2 for further discussion.
3.1
Other scope considerations
Certain arrangements executed by ent
ities include repurchase provisions, either as a
component of a sales contract or as a separate contract that relates to the same or similar
goods in the original agreement. The form of the repurchase agreement and whether the
customer obtains control of the asset will determine whether the agreement is within the
scope of the standard. See 8.4 below for a discussion on repurchase agreements.
Revenue
2003
Entities may enter into transactions that are partially within the scope of IFRS 15 and
partially within the scope of other standards. In these situations, the standard requires an
entity to apply any separation and/or measurement requirements in the other standard
first, before applying the requirements in IFRS 15. See 3.4 below for further discussion.
The standard also specifies the accounting requirements for certain costs, such as the
incremental costs of obtaining a contract and the costs of fulfilling a contract. However,
the standard is clear that these requirements only apply if there are no other applicable
requirements in IFRS for those costs. See 10.3 below for further discussion on the
requirements relating to contract costs in the standard.
Certain requirements in IFRS 15 are also relevant for the recognition and measurement
of a gain or loss on the disposal of a non-financial asset not in the ordinary course of
business. See 12.3 below for further discussion.
3.2
Definition of a customer
The standard defines a customer ‘as a party that has contracted with an entity to obtain
goods or services that are an output of the entity’s ordinary activities in exchange for
consideration’. [IFRS 15 Appendix A]. IFRS 15 does not define the term ‘ordinary activities’
because it was derived from the definitions of revenue in the respective conceptual
frameworks of the IASB and the FASB. In particular, the IASB’s Conceptual Framework
description of revenue refers specifically to the ‘ordinary activities’ of an entity –
[CF(2010) 4.29, IFRS 15 Appendix A] – and the definition of revenue in the FASB’s Statement of
Financial Accounting Concepts No. 6 refers to the notion of an entity’s ‘ongoing major
or central operations’.9 In many transactions, a customer is easily identifiable. However,
in transactions involving multiple parties, it may be less clear which counterparties are
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 395