Revenue from contracts with customers - clarifications to IFRS 15
15 February 2016
The IASB has now concluded its deliberations on the proposed clarifications to IFRS 15 Revenue from Contracts with Customers. We discussed these proposed clarifications initially in September 2015 and the broader requirements of IFRS 15 itself in July 2014. IFRS 15 is effective for periods beginning on or after 1 January 2018 but has yet to be endorsed for use in the EU.
The IASB’s proposals related to:
- Identifying the performance obligations in a contract - amending the illustrative examples
- Determining whether a party involved in a transaction is the principal or the agent - amending the application guidance and the illustrative examples
- Determining whether a licence provides the customer with a right to access or a right to use the entity’s intellectual property - amending the application guidance and the illustrative examples
- Transitional provisions.
The original transitional rules for IFRS 15 provide that it should be applied either:
- Retrospectively to each reporting period presented with restatement of comparative periods (the full retrospective method), or
- With the cumulative effect of initially applying the standard recognised at the date of initial application (the modified retrospective method). The date of initial application is the start of the reporting period in which an entity first applies IFRS 15 (eg 1 January 2018 if first applied in 2018).
The IASB’s proposals also suggested the introduction of two new transitional provisions to:
- Permit an entity to use hindsight in:
- Identifying the satisfied and unsatisfied performance obligations in a contract that was modified before the beginning of the earliest period presented
- Determining the transaction price.
- Permit an entity that has elected to use the full retrospective method not to apply IFRS 15 retrospectively to contracts that were completed by the beginning of the earliest period presented.
In addressing comments received on their proposals, the IASB agreed to make some further changes, including:
- Clarifying the factors that indicate when two or more promises to transfer goods or services are not separately identifiable
- Permitting an entity using the modified retrospective transition method to apply IFRS 15 either to all contracts or to contracts that are not completed contracts at the date of initial application
- Permitting an entity using the modified retrospective transition method and electing to apply the contract modifications practical expedient noted above, to apply that expedient either at:
- The beginning of the earliest period presented in the financial statements in which IFRS 15 is first applied, or
- The date of initial application of IFRS 15.
The changes will apply to periods beginning 1 January 2018 (ie the same mandatory effective date as IFRS 15), with early adoption permitted. The changes are to be applied retrospectively. The finalised amendments are expected to be published later this year.
IFRS 15 was developed jointly with the US standard setter, the FASB, with the original version of the US standard (Topic 606) being substantially the same. The FASB has proposed clarifications to Topic 606, which are more extensive than those proposed by the IASB. The principal differences between the IASB’s and FASB’s clarifications relate to collectability, the measurement of non-cash consideration and the operation of sales taxes.
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