A good or service promised to the customer is not separately identifiable from other promises in the contract when, in substance, the customer contracted for a combined good or service. if a performance obligation does not meet the criteria of being satisfied over time, it is assumed to be satisfied at a point in time. Contracts can be written, oral or implied by an entity’s customary business practices. When there are several performance obligations in a contract, a provision is recognised only when the contract as a whole is onerous. It is also important that the right to payment is legally enforceable. by past business practices or published policies) that create a valid expectation of the customer that the entity will transfer a distinct good or service are also treated as separate performance obligations, even though they may not be enforceable by law (IFRS 15.24, BC87). restricted contractually from readily directing the asset for another use during the creation or enhancement of that asset or. IE188 Examples 36–37 illustrate the requirements in paragraphs 91–94 of IFRS 15 on incremental costs of obtaining a contract, paragraphs 95–98 of IFRS 15 on costs to fulfil a contract and paragraphs 99–104 of IFRS 15 on amortisation and impairment of contract costs. Par Hugues de Noray, associé, Advolis Audit et Conseil. IFRS 15 Revenue from Contracts with Customers provides a single, principles-based five-step model that should be applied to determine how and when to recognise revenue from contracts with customers. A car manufacturer sells its cars to a dealer and promises in the contract to provide a free maintenance to a final customer (i.e. IFRS 16 – baux commerciaux 3-6-9 : quelle durée de location retenir ? Control is the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset, or to restrict the access of other entities to those benefits (IFRS 15.31-34). IAS 37 is silent on the treatment of variable consideration, which can make a difference in assessing whether a contract is onerous or not. Découvrez toutes nos offres d'abonnement et accédez à nos articles et dossiers en ligne. Licences43 . Updated September 2019 A closer look at IFRS 15, the revenue recognition standard 2 Overview The largely converged revenue standards, IFRS 15 Revenue from Contracts with Customers and Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers1 (together with IFRS 15, the standards), that were issued in 2014 by the International Accounting Standards Board (IASB Executive summary 3 2. The customer simultaneously receives and consumes the benefits provided by the entity’s performance as the entity performs. Example: A series of distinct goods or services that are substantially the same. This may be described as a change order, a variation, or an amendment. Entity A is a company manufacturing car parts. When the application of this criterion is not straightforward, it is crucial to focus on assessing whether another entity would need to substantially re-perform the work that the entity has completed to date if that other entity were to fulfil the remaining performance obligation. A performance obligation is satisfied by transferring a promised good or service to a customer (IFRS 15.31). IFRS 15 Revenue from Contracts with Customers; Basis for Conclusions on IFRS 15 Revenue from Contracts with Customers; Illustrative Examples IFRS 15 Revenue from Contracts with Customers; Effective Date of IFRS 15; Clarifications to IFRS 15 Revenue from Contracts with Customers La parution d’IFRS 15 en mai 2014 s’accompagne d’un recueil de 63 exemples pour illustrer les conséquences pratiques attendues. Measurement method should take into account all goods and services promised in the contract. A performance obligation can be satisfied (and revenue recognised) at a point in time or over time. When the entity has transferred a legal title to a customer under a contract, it is an indicator that the control of the asset has been passed to a customer. So this feels like the right time to . Contents IFRS 15 Revenue from Contracts with Customers Illustrative Examples IE1 Identifying the contract IE2 - IE17Contract modifications IE18 - IE43Identifying performance obligations IE44 - IE65A Similarly, construction companies do not recognise revenue when they deliver building materials to the construction site if the customer contracted them to construct a building. the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (in other words: the promise to transfer the good or service is distinct within the context of the contract). In addition to the goods or services explicitly stated in the contract, all implied promises (e.g. IFRS – 15 provides two methods for the measurement of progress towards satisfaction of a performance obligation, output and input based approach. Measuring progress using an input method may be based on e.g. If the answer is yes, the good/service is distinct. When a contract execution comes to a point when the entity has the right to a payment, it is an indicator that the control of the asset has been passed to a customer. The equipment and its installation as treated as a single performance obligation as the customer would not be able to benefit from the equipment or installation service on its own. In making this assessment an entity should (IFRS 15.B4): IASB stated that this criterion for performance obligation satisfied over time is not intended to be applied when an asset (e.g. See Example 11 Cases A/E, Example 12 and Example 56 Case A accompanying IFRS 15. IFRS 15 only impacts the related revenue recognition, not any of the commercial terms of the arrangement. This is a starting point in identifying performance obligations. A good or service is transferred to a customer when they obtain control of that asset. Measurement of progress can be based on the output or the input. construction contracts). Paragraph IFRS 15.38 provides additional indicators of the transfer of control which are discussed below. › IFRS 15 – Illustrative disclosures. In such cases, goods or services that seem to be distinct are in fact only inputs to the combined item. Leur expression conceptuelle déroute parfois l’utilisateur des comptes. The following decision should be used to determine whether multiple contracts should be combined or not: Example – Combination of contracts . In the May 2018 edition of Accounting Alert we discussed the five step model for revenue recognition introduced by IFRS 15 Revenue from Contracts with Customers (“IFRS 15”):. Such a promise of free maintenance is a distinct service and constitutes a separate performance obligation for a car manufacturer. limited practically from readily directing the asset in its completed state for another use (as is the case when assets are significantly customised for the customer). For example, a telecommunications company may want to consider a ‘free’ mobile phone provided to a customer as a marketing expense as its business model is to provide telecommunications services, not to sell phones. Le trait d'union entre la communauté du droit des affaires et les entreprises, IFRS 15 reconnaissance du chiffre d’affaires, Option Finance - 07 juillet 2014 - Hugues de Noray. This is another criterion that, if met, makes a performance obligation satisfied over time. Offre premium Tous les articles et les archives du magazine accessibles en ligne, Ne perdez rien de toute l'information financière, Le traitement comptable d’une cession-bail à loyers variables, Recommandations de l’AMF relatives à l’arrêté des comptes 2020 en IFRS. For example, a gym membership is an obligation to stand-ready to provide the customer with access to the gym and its equipment. See Example 10 Case A, Example 11 Cases B/E and Example 55 and Example 56 Case B accompanying IFRS 15. It contracts with a car producer to manufacture 1 million car seats over the next three years. In output based approach, the value transferred to the customer is measured and treated as a basis for revenue recognition. presume that another entity fulfilling the remainder of the performance obligation would not have the benefit of any asset that is presently controlled by the entity and that would remain controlled by the entity if the performance obligation were to transfer to another entity. If the answer is yes, entities move on to point b. and assess whether this good/service is distinct within the context of the contract (again, more discussion on this point below). However, the control may have been passed to a customer even without the transfer of legal title, e.g. If the answer is no, the good/service is not distinct. Identifying performance obligations is critical to revenue recognition under IFRS 15. the entity’s performance does not create an asset with an alternative use to the entity due to legal and/or practical restrictions and. Reporting revenue under IFRS 15 is now one of the ordinary activities of companies in the 100+ countries that use IFRS Standards. IFRS 15 does not have any specific provisions on onerous (loss-making) contracts, therefore these IAS 37 requirements apply. IFRS 15 applies to all contracts with customers, except for those that are within the scope of other IFRSs. Inline XBRL; ZIP; Example 16: Financial assets & … Variable consideration is also present if an entity’s right to consideration is contingent on the occurrence of a future event. Examples of such activities are setup of a manufacturing process or connecting a customer to a telecommunications network. At first, entities look at point a. and assess whether the good or service is capable of being distinct (more discussion on this point below). EXAMPLE: REPURCHASE AGREEMENT 43 . En échange de ce coût initial et ponctuel, l’entité ne transfère ni un bien ni un service, ce qui ne crée aucune «obligation de performance». with a dealer or distributor) covered in IFRS 15.B77-B78, bill-and-hold arrangements covered in IFRS 15.B79-B82 and in Example 63 accompanying IFRS 15. It does so, because in concludes that conditions in paragraph IFRS 15.35(c) are met (more on performance obligations satisfied over time below). the expected value. Basis for Conclusions to IFRS 15 and Example 19 include specific discussion on uninstalled materials (IFRS 15.BC170-BC175) and inefficiencies and wasted materials (IFRS 15.BC176-BC178). 43 Output methods are covered in IFRS 15.B15-B17. When the up-front fees are deemed to be a compensation for set-up costs incurred by the entity, those costs can be recognised as costs to fulfil a contract (assets) (IFRS 15.B51). When a contract modification is approved, it creates or changes the enforceable rights and obligations of the parties to the contract. I wrote about this model many times, for example here and here. Examples may include surveys of work performed, units produced, units delivered etc. For arrangements with trial/evaluation periods, revenue is not recognised until the customer accepts the asset or trial period ends and customer becomes committed to pay consideration for the asset (IFRS 15.B86). Usually, the upfront fee does not result in the transfer of a distinct good or service to the customer and therefore it is not treated as a separate performance obligation. This does not mean that an entity must have an unconditional right to payment at the reporting date but, instead, it must have an enforceable right to demand payment for performance completed to date if the customer were to terminate the contract before completion. [IFRS 15:51] Such an approach is not allowed under IFRS 15 (IFRS 15.BC88-BC90). Paragraph 10 of IFRS 15: “A contract is an agreement between two or more parties that creates enforceable rights and obligations. See paragraphs IFRS 15.B6-B8 and BC134-BC141 for more discussion. Your essential guide to the revenue disclosures. If a performance obligation is not satisfied over time, it must be treated as satisfied at a point in time (IFRS 15.32). How is this assessment made? Use at your own risk. Consider a hypothetical example where Kinaxis renews (or newly signs) an on-premise agreement in Q1 19 with a customer for a three-year term and a $1 million annual subscription fee. When the entity is unable to measure the progress reliably, revenue is recognised only to the extent of the costs incurred, provided that the entity expects to recover them. direct labour hours, time elapsed or resources consumed. An exception to this rule applies when the entity can objectively determine that the agreed specifications are met, such as weight or size (IFRS 15.B83-B85). Performance obligation is satisfied over time if one of the criteria given in IFRS 15.35 is met: This criterion is met in routine or recurring services, such as access to the Internet charged on a flat fee basis or cleaning services, but can also apply in more complex contracts. Instead, it is allocated to other performance obligations identified in the contract (IFRS 15.B48-B50). IFRS 15 Thematic (September 2020) Financial Reporting Council 2 Page 1. Each car seat is a distinct good, but Entity A treats the whole contract as one performance obligation under paragraph IFRS 15.22(b). IFRS 15 requires that revenue and impairment losses arising from contracts with customers to be disclosed separately from items not arising from contracts with customers. The manufacturer charges $0.5 million of up-front setup costs and $100 for each manufactured piece. Example 15: Assets measured at Fair Value . Questions or comments? What exactly are repurchase agreements and what is their impact on accounting for revenue under IFRS 15? Le coût initial («upfront fee») est considéré comme le paiement par avance d’une partie du prix d’une transaction globale. Example: A series of distinct goods or services that are substantially the same. At the reporting period, the package has already been transported to Berlin. Another important type of a performance obligation is a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer (IFRS 15.22(b)). IFRS 15 states also that it is possible to recognise revenue on a straight-line basis if the entity’s efforts or inputs are spread evenly throughout the performance period. Instead, revenue is recognised proportionately to time lapsed. A combined output or outputs might include more than one phase, element or unit (e.g. The substance of some performance obligations is to stand-ready to serve the customer and not to deliver the underlying goods/services. Examples of distinct goods or services are given in IFRS 15.26. This may be a very useful practical expedient as it effectively applies also to determining the transaction price and allocating it to performance obligations. repurchase agreements (including call and put options) covered in IFRS 15.B64-B76 and in Example 62 accompanying IFRS 15, consignment arrangements (e.g. Since, there may be … when the entity keeps the legal title until all receivables are paid by a customer. IFRS 15 will require construction companies to consider whether these contracts should be accounted for separately or as one combined contract. For example, real estate companies currently recognize revenue upon the transfer of risks and rewards to customers in accordance with the IFRS Interpretations Committee (IFRIC) 15, which is practically upon completion of the project development and handover of real estate units to customers. The entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced. 20. sale of software with significant customisation). Bien que d’application obligatoire à partir du 1er janvier 2017, il est fortement conseillé d’engager les travaux d’implémentation sans délai. Entity A is a company manufacturing car parts. Once the reliable measurement of progress becomes possible, the entity applies output or input methods as described above (IFRS 15.44-45). If the customer purchases One or more of the goods or services significantly modifies or customises, or are significantly modified or customised by, one or more of the other goods or services promised in the contract (e.g. Over the past five years, we – like you – have wrestled with the many challenges of implementing IFRS 15. 41 . All companies are impacted by the disclosure requirements of IFRS 15, the revenue standard. Each car seat is a distinct good, but Entity A treats the whole contract as one performance obligation under paragraph IFRS 15.22(b). Deleted text is struck through and new text is underlined. For example, when a customer places an order to print 10,000 copies of a book, the paper used for printing that book is not a distinct good, although the customer would be able to take that paper with him and print the book in a different place. Free smartphone is a distinct good and constitutes a separate performance obligation for the telecommunications company. Enforceability of the rights and obligations in a contract is a matter of law. Entity X produces a specialised equipment which is installed at customer’s premises. Key findings • Timing of revenue recognition 5 • Variable consideration 9 • Revenue disaggregation 12 • Contract balances 13 • Significant judgements 14 • Costs to obtain or fulfil a contract 16 4. Mais dans le cas de la parution de la norme IFRS 15, l’enjeu est tel que l’IASB a jugé utile de détailler de nombreux cas de figure («illustrative examples» ou «IE»). It does so, because in concludes that conditions in paragraph IFRS 15 … take stock – to pull together, in one place, what we have learned about this new world of revenue recognition. IFRS 15 requires a series of distinct goods or services that are substantially the same with the same pattern of transfer, to be regarded as a single performance obligation. For official information concerning IFRS Standards, visit IFRS.org. from Madrid to Berlin) as another entity would not need to substantially re-perform the work that Entity A has completed to date if that other entity were to fulfil the remaining performance obligation to the customer and transport the package from Berlin to Moscow (IFRS 15.B4). Entity X charges $5 million for the equipment and $0.5 million for the installation. The fact that the customer is obliged to pay for the work performed to date is a crucial indicator that the customer controls the asset and performance obligation is satisfied over time. It does not matter whether the production will be spread evenly over time or not. Output methods are based on direct measurement of the value to the customer of the goods or services transferred to date relative to the remaining goods or services promised under the contract. Paragraph IFRS 15.B16 offers a practical expedient and allows to recognise revenue as the customer is billed, provided that this corresponds directly with the value to the customer of the entity’s performance completed to date. See Examples 13,18 and 25 accompanying IFRS 15 and the example below. In addition, the following requirements are illustrated in these examples: (a) the interaction of paragraph 9 of IFRS 15 with paragraphs 47 and 52 of IFRS 15 on estimating variable consideration (Examples 2–3); and The setup of manufacturing line is not a distinct service and does not constitute a separate performance obligation as it does not result in a transfer of goods or services to the customer. The entity’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date. IFRS- 15 with illustrative examples 1. International Financial Reporting Standard 15 Revenue from Contracts with Customers 2. See Example 11 Case D accompanying IFRS 15. Entity A contracts to transport a package from Madrid to Moscow. Such costs cannot be deferred and recognised as assets unless they meet the criteria of recognising costs to fulfil a contract. A telecommunications company promises a free smartphone to each customer who subscribes for a premium telecommunications service. Example – Volume discount incentive This is an adaptation from IFRS 15, Illustrative examples, Example 24. Paragraph IFRS 15.29 lists three most common circumstances in which two or more promises to transfer goods or services to a customer are not separately identifiable (a non-exhaustive list): Non-refundable upfront fees should be assessed against the criteria for identifying a performance obligation which will determine their accounting treatment. In other words, the entity is using the goods or services as inputs to produce or deliver the combined output or outputs specified by the customer. Home | COVID-19 | Better communication | Business combinations | Financial instruments | Insurance | Leases | Revenue | Sustainability reporting. Post them on our Forum, The good or service is capable of being distinct, The good or service is distinct within the context of the contract, A series of distinct goods or services that are substantially the same, Performance obligations satisfied over time, Criteria for performance obligations to be satisfied over time, Customer simultaneously receives and consumes benefits, Entity’s performance creates or enhances an asset that the customer controls, Asset without an alternative use to the entity and enforceable right to payment, Measuring progress towards complete satisfaction of a performance obligation over time, Inability to measure the progress reliably, Performance obligations satisfied at a point in time, Performance obligations satisfied at a point in time as the default option, Transfer of significant risks and rewards of ownership of the asset, performance obligation satisfied over time, performance obligations satisfied over time, Performance Obligations and Timing of Revenue Recognition, Principal vs Agent, or Reporting Revenue Gross vs Net, Revenue from Licensing of Intellectual Property, Revenue from Customers’ Unexercised Rights (Breakage), Customer Loyalty Programmes and Other Options for Additional Goods or Services, the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (in other words: the good or service is capable of being distinct); and. In practice, this most often applies to repetitive services, such as cleaning services or transaction processing (IFRS 15.BC114). A performance obligation is treated as satisfied over time under this criterion when both of the following criteria are met: An asset created by an entity’s performance does not have an alternative use to an entity if the entity is either: The assessment of whether an asset has an alternative use to the entity is made at contract inception (IFRS 15.36). Scope and sample 4 3. a mobile phone that needs a provider of telecommunications services). IFRS 15 prescribers the 5-step model for the revenue recognition. If a promised good or service is not distinct, it should be combined with other promised goods or services until they become distinct together (‘a bundle’). For contracts that require an acceptance by a customer of the good or service in question, the entity does not consider a performance obligation to be satisfied until such acceptance is obtained. Variable consideration can be included in projected cash inflow based on e.g. Input methods are covered in IFRS 15.B18-B19. Les impacts de la norme, dans son ensemble, pourront être significatifs dans certaines industries, comme les opérateurs téléphoniques ou les SSII. obtain substantially all of the remaining benefits from an asset. Only Entity X is able to install the equipment. Such a bundle is then treated as a single performance obligation (IFRS 15.30). For some goods or services, such as a piece of furniture, it is obvious that a customer will benefit from them on their own. IE2 Examples 1–4 illustrate the requirements in paragraphs 9–16 of IFRS 15 on identifying the contract. The advantage of output methods is that they directly measure the value of the goods or services transferred to the customer. Paragraphs 28 and 30 have not been amended but have been included for ease of … Measurement methods include surveys, milestones reached, time elapsed or units delivered. Activities that do not transfer a good or service to a customer are not a performance obligation even though they may be necessary to fulfil a contract (IFRS 15.25). A performance obligation is a promise to transfer to the customer a good or service (or a bundle of goods or services) that is distinct (IFRS 15.22). It is then a matter of deciding when exactly a performance obligation is satisfied, which is the date when a customer obtains control of a promised good or service (‘an asset’) (IFRS 15.38). The definition of control can be split into the following parts as set out in IFRS 15.33 and discussed further by the IASB in IFRS 15.BC120: The assessment of when control has been transferred to a customer should be made from his perspective (IFRS 15.BC121). Additionally, it charges a one-off connection fee. Les normes IFRS sont fondées sur des principes. AMENDMENTS TO THE ILLUSTRATIVE EXAMPLES ON IFRS 15 REVENUE FROM CONTRACTS WITH CUSTOMERS 66 IFRS STANDARD 3 IFRS Foundation. You can also check out my IFRS Kit with detailed video tutorials about IFRS 15. A good or service which has been delivered may not be distinct if it cannot be used without another good or service that has not yet been delivered. If no, the good/service is not distinct. The standard was published in May 2014 and is effective from 1 January 2018. disregard potential contractual restrictions or practical limitations that otherwise would prevent the entity from transferring the remaining performance obligation to another entity; and. Only one method should be used for measuring progress for a particular performance obligation and also for performance obligations with similar characteristics (IFRS 15.BC161). Each of the goods or services is significantly affected by one or more of the other goods or services in the contract (they are highly interdependent or highly interrelated). Such performance obligations are usually treated as satisfied over time with straight-line revenue recognition. Amendments to IFRS 15 Revenue from Contracts with Customers Paragraphs 26, 27 and 29 are amended. Paragraph IFRS 15.BC100 notes that the assessment of whether the customer can benefit from the goods or services on its own should be based on the characteristics of the goods or services themselves instead of the way in which the customer may use the goods or services. Certainly, the most significant difference to consider is the For example, if the fare was £30 and the commission is £3, under IFRS 15 the £3 pound will be accounted as turnover ad the £27 posted to cost of … A series of distinct goods or services is treated as one performance obligation when both of the following criteria are met (IFRS 15.23): See Examples 7, 13, 25 accompanying IFRS 15 and the examples below. CLARIFICATIONS TO IFRS 15 REVENUE FROM CONTRACTS WITH CUSTOMERS—APRIL 2016 Amendments to the Illustrative Examples on IFRS 15 Revenue from Contracts with Customers Paragraphs IE45, IE47, IE50–IE51, IE55–IE57, IE61, IE63, IE225–IE227, IE230–IE232, IE237–IE238, IE240–IE245, IE247–IE248, IE275, IE277–IE280, IE286–IE287, IE290–IE294, IE296, IE299–IE300, … the entity has a contractual or legally enforceable right to receive reasonable compensation for performance completed to date if the contract were to be terminated before completion for reasons other than the entity’s failure to perform as promised. A readily available resource is defined in IFRS 15.28 as a good or service that is sold separately (by the reporting entity or third party) or a resource that the customer has already obtained from the entity (including goods or services that the entity will transfer to the customer under the contract before the good or service in question is transferred) or from other transactions or events. If a performance obligation is satisfied over time, revenue is recognised based on the progress towards complete satisfaction of performance obligation. See Examples 7, 13, 25 accompanying IFRS 15 and the examples below. This can be especially challenging for performance obligations consisting of several non-distinct goods/services. Performance obligation satisfied at a point in time is the default option, i.e. A manufacturer contracts with its customer for a production of 100,000 pieces of sporting equipment. 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Reliable measurement of progress becomes possible, the good/service is distinct input methods as described above ( IFRS 15.46.. ), and from IFRS 15 prescribers the 5-step model for the telecommunications company the is. To the goods or services promised in that contract of legal title, e.g de la,! In such Cases, goods or services are given in IFRS 15.B77-B78, arrangements.

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