The IASB has published IFRS 15 ‘Revenue from Contracts with Customers’ which is effective for annual reporting periods beginning on or after 1 January 2018. IFRS 15:
IFRS 15 will apply to most revenue arrangements, including constructions contracts. Among other things, it changes the criteria for determining whether revenue is recognised at a point in time or over time. IFRS 15 also has more guidance in areas where current IFRSs are lacking – such as multiple element arrangements, variable pricing, rights of return, warranties and licensing.
IFRS 15 is based on a core principle that requires an entity to recognise revenue:
Accordingly, now, there is one single model for revenue recognition in five steps as follows:
A contract modification arises when the parties approve a change in the scope and/or the price of a contract (i.e. a change order). The accounting for a contract modification depends on whether the modification is deemed to be a separate contract or not. An entity accounts for a modification as a separate contract, if both:
Besides, IFRS 15 also provided detailed guidance for other topics which were presented in limitation under IAS 18 and IAS 11 such as contract costs, warranties, licensing, rights of return and repurchase obligations, etc.
Beside revenue arisen from the contract on its statements of profit or loss, IFRS 15 requires the entity to present contracts in its statement of financial position as a contract liability, a contract asset, or a receivable, depending on the relationship between the entity’s performance and the customer’s payment at the reporting date.
IFRS 15 requires to disclose many new information about contracts with customers, including: recongised revenue, contract balances, performance obligations, significant judgements and other related information.
For detail instruction on IFRS 15, please read our full report in English at the following link:
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