IFRS 15 REVENUE FROM CONTRACT WITH CUSTOMER
In may 2014, the International Accounting Standard Board (IASB), issued IFRS 15 Revenue contract with Customers which will be effective from 1 January 2017, though earlier application is permitted. The issuance of IFRS 15 signifies the culmination of a joint project with the US national standard-setter, the Financial Accounting Standards Board (FASB), to develop a high-quality global accounting standard for revenue recognition.
IFRS 15, which is converged with Accounting Standards Update 2014-09 Revenue from Contracts with Customers issued by the FASB, establishes a single, comprehensive framework for revenue recognition. The framework will be applied consistently across transactions, industries and capital markets, and will improve comparability in the ‘top line’ of the financial statements of companies globally.
Revenue is an important number to users of financial statements in assessing an entity’s financial performance and position. That’s why good regulation are needed to applied in company so that number However, previous revenue recognition requirements were in need of improvement due to many inconsistencies and weakness it might occur during the practice in companies. For example in IAS 18 provided limited guidance on many important revenue topics such as accounting for multiple-element arrangements. Companies around the world are also in a need to simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer. Furthermore, the users of financial statements also need a more useful information through improved disclosure requirements.
Because of those reasons, since 2014, the International Accounting Standard Board has been preparing a new standard for revenue recognition principle to be launched and implemented globally in 2018. This standard is called and numbered : IFRS 15, Revenue from Contract with Customer. This standard will structurally SUPERSEDES all of current revenue recognition standard which includes
- IFRS 18 Revenue.
- IAS 18 Revenue
- IFRIC 13 Customer Loyalty Programmes
- IFRIC 15 Agreements for the Construction of Real Estate
- IFRIC 18 Transfers of Assets from Customer
- SIC 31 Revenue-Barter Transaction involving advertising services
However, the IFRS 15 are exception for following scope transaction down:
- Lease contracts within the scope of IAS 17 Leases;
- Insurance contracts within the scope of IFRS 4 Insurance Contracts;
- Financial Instruments and Other contractual rights or obligations within the scope of IFRS 9 Financial Instruments;
- IFRS 10 Consolidated Financial Statements;
- IFRS 11 Joint Arrangements;
- IAS 27 Separate Financial
IFRS 15 : NEW 5 STEPS MODEL
Lets begin with getting more with: what is IFRS 15? How do we recognize the revenue?
There are 5 steps companies need to go through to recognize revenue:
Step 1 : Identify the contract(s) with a customer– a contract is an agreement between two or more parties that creates enforceable rights and obligations. The requirements of IFRS 15 apply to each contract that has been agreed upon with a customer and meets specified criteria. In some cases, IFRS 15 requires an entity to combine contracts and account for them as one contract
Step 2 : Identify the performance obligations in the contract. A contract includes promises to transfer goods or services to a customer. If those goods or services are distinct, the promises are performance obligations and are accounted for separately. A good or service is distinct if the customer can benefit from the good or service on its own or together with other resources that are readily available to the customer and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract.
Step 3 : Determine the transaction Price. The transaction price is the amount of consideration in a contract to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer. The transaction price can be a fixed amount of customer consideration, but it may sometimes include variable consideration or consideration in a form other than cash.
Step 4 : Allocate the transaction price to the performance obligations in the contract. An entity typically allocates the transaction price to each performance obligation on the basis of the relative stand-alone selling prices of each distinct good or service promised in the contract. If a stand-alone selling prices is not observable, an entity estimates it. Sometimes, the transaction price includes a discount or a variable amount of consideration that relates entirely to a part of the contract. The requirements specify when an entity allocates the discount or variable consideration to one or more, but not all, performance obligations (or distinct goods or services) in the contract.
Step 5 : recognize revenue when (or as) the entity satisfies a performance obligation. An entity recognize revenue when (or as) it satisfies a performance obligation by transferring a promised good or service to a customer (which is when the customer obtains control of that good or service). The amount of revenue recognized is the amount allocated to the satisfied performance obligation. A performance obligation may be satisfied at a point in time (typically for promises to transfer goods to a customer) or over time (typically for promises to transfer services to a customer). For performance obligations satisfied over time, an entity recognizes revenue over time by selecting an appropriate method for measuring the entity’s progress towards complete satisfaction of that performance obligation.
1. IFRS 15 Guidelines published by IASB
2. ifrs 15 Project Summary and Feedback Statement