This can be the stand-alone selling price of a good or service if it is sold separately to a customer in similar circumstances and to similar customers. Combining contracts if they are concluded at the same time or almost and negotiated as a lump sum, the payment of one depends on the other or the promised goods / services represent a single performance obligation. For many companies, the impact will be manageable. However, for those with a large number of customer contracts, different or constantly changing conditions, the impact could be significant unless measures have been taken to mitigate the impact of IFRS 15. Contracts with customers are presented on a company`s balance sheet as a contractual obligation, a contractual asset value or a receivable, depending on the relationship between the company`s performance and the customer`s payment. [IFRS 15:105] PwC`s revenue specialists have launched a new video series on IFRS 15: Revenue from Contracts with Clients. The short series of videos is designed to help you quickly understand IFRS 15. This first video covers the basics, including the 5-step model of IFRS 15. The fundamental principle of IFRS 15 is that an entity recognises revenue to represent the transfer of goods or services promised to customers in an amount that reflects the consideration to which the entity is entitled in exchange for those goods or services.
This basic principle is implemented in a five-step model framework: [IFRS 15:IN7] Control of an asset is defined as the ability to manage the use of the asset and derive substantially all the remaining benefits from the asset. This includes the ability to prevent others from controlling the use of the asset and reaping the benefits. The benefits associated with the asset are the potential cash flows that can be generated directly or indirectly. These include, but are not limited to: [IFRS 15:31-33] A contract with a customer falls within the scope of IFRS 15 if all of the following conditions are met: [IFRS 15:9] Evaluate your experience with similar types of performance obligations in this decision. Depending on the facts and circumstances, a modification of the contract will be accounted for prospectively or with a cumulative request rejected as a separate contract or continuation of the original contract. The transaction price is the amount of consideration to which a company is entitled in exchange for the transfer of goods or services to customers. The transaction price is the amount to which a company is entitled in exchange for the transfer of goods and services. In making this decision, a company takes into account the usual business practices of the past. [IFRS 15:47] If a company does not meet its performance obligation over time, it does so at some point.
Turnover is therefore recognised when control is abandoned at a specific time. Factors that may indicate the timing of the audit include: [IFRS 15:38] International Financial Reporting Standard (IFRS) 15: Revenue from contracts with clients has been prepared by the International Accounting Standards Board to provide a comprehensive revenue recognition model for all contracts with customers to improve comparability across industries. In all sectors and financial markets. Contractual assets and receivables should be recognised in accordance with IFRS 9. Any impairment related to contracts with customers must be measured, presented and disclosed in accordance with IFRS 9. Any difference between the initial recognition of a receivable and the corresponding amount of revenue recognised should also be presented as an expense, e.B. as an impairment. [IFRS 15:107-108] If a stand-alone selling price is not directly observable, estimate it taking into account all reasonably available information, such as. B market conditions, specific factors and the category of customers. An entity recognizes revenue over time when one of the following criteria is met: [IFRS 15:35] Recognize revenue when the promised goods or services are transferred to the customer and the customer takes control of them. However, a different and more restrictive approach is applied to license revenues based on revenue or usage from intellectual property licenses.
These revenues are recognized only when the underlying sales or uses occur. [IFRS 15:B63] IFRS 15 Revenue from Contracts with Customers applies to all contracts with customers, with the exception of: Leases as defined in IAS 17 Leases; Financial instruments and other contractual rights or obligations falling within the scope of IFRS 9 Financial Instruments, IFRS 10 Consolidated Financial Statements, IFRS 11 Partnerships, IAS 27 Separate Financial Statements and IAS 28 Investments in Associates and Joint Ventures; insurance contracts falling within the scope of IFRS 4; and non-monetary exchanges between companies in the same sector to facilitate sales to customers or potential customers. [IFRS 15:5] The Standard addresses uncertainty regarding variable consideration by limiting the amount of variable consideration that can be accounted for. In particular, variable consideration will only be included in the transaction price if and to the extent that it is very likely that its inclusion will not result in a significant reversal of sales in the future if the uncertainty is resolved subsequently. [IFRS 15:56] A contract with a customer may fall partly within the scope of IFRS 15 and partly within the scope of another standard. In this scenario: [IFRS 15:7] Use the model indicators to separate performance obligations if they differ and are different due to the context of the contract (distinct from other commitments in the contract). Step 5: Recognize revenue when (or as) the entity fulfills a performance obligation The new revenue recognition rules came into effect on January 1, 2018 and replace the previous revenue recognition standards (IAS 11 – Manufacturing Contracts, IAS 18 – Revenue) and most other revenue recognition guidelines (IFRIC 13 – Customer loyalty programs, IFRIC 15 – Agreements on the establishment of real estate, IFRIC 18 – Transfer of assets from Clients and SIC 31 – Revenues – Barter transactions with advertising services). In addition, the new standard introduces a new concept and revenue should be recognised over time if: In the first application of IFRS 15, entities are to fully apply the standard for the current period, including retroactive application to all contracts that were not entered into at the beginning of that period.
For previous periods, the transitional guidelines allow entities to: [IFRS 15:C3] Where a contract contains variable consideration elements, the entity estimates the amount of variable consideration to which it is entitled under the contract. [IFRS 15:50] Variable consideration may result, for example, from discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, penalties or similar items. There is also a variable counterparty if a company`s right to a counterparty depends on the occurrence of a future event. [IFRS 15:51] The basic principle of IFRS 15 is that revenue is recognised when goods or services are transferred to the customer at the transaction price. Revenue is accounted for in accordance with this basic principle using a 5-step model, as shown below. If a contract with a customer does not yet meet all of the above criteria, the company will re-evaluate the contract in the future to determine if it subsequently meets the above criteria. From that date, the entity will apply IFRS 15 to the contract. [IFRS 15:14] IFRS 15 specifies how and when an IFRS registrant recognises revenue and requires these entities to provide more informative and relevant information to users of the financial statements. The standard offers a unique five-step model based on principles that can be applied to all contracts with customers. The asset recognised for the acquisition or performance of a contract is systematically depreciated, which is consistent with the pattern of transfer of the goods or services to which the asset relates.
[IFRS 15:99] The application of these guidelines depends on the facts and circumstances present in a contract with a customer and requires the exercise of judgment […].