Revenue recognition

The International Accounting Standards Board has issued IFRS 15, Revenue from Contracts with Customers.

The standard applies to annual reporting periods beginning on or after 1 January 2017, but earlier application is permitted.

However, an entity that chooses to apply IFRS 15 earlier than 1 January 2017 should disclose this fact in its relevant financial statements.

This is a jointly issued converged standard with the Financial Accounting Standards Board (US GAAP), and the aim is that it 'will improve the financial reporting of revenue and improve comparability of the top line in financial statements globally'.

The Standard states that the 'core principle of the new standard is for companies to recognise revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration (that is, payment) to which the company expects to be entitled in exchange for those goods or services.

The new Standard will also result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively (for example, service revenue and contract modifications) and improve guidance for multiple-element arrangements.'

The core recognition principle is achieved by a five-step model framework:

  • identify the contract(s) with a customer
  • identify the performance obligations in the contract
  • determine the transaction price
  • allocate the transaction price to the performance obligations in the contract
  • recognise revenue when (or as) the entity satisfies a performance obligation.