3 July 2018

IFRS 15 Revenue from Contracts with Customers, effective for 2018 financial statements: What will be different for users of financial statements?


The new Standard:

IFRS 15 replaces all previous revenue requirements in IFRS (mainly IAS 11 Construction Contracts, IAS 18 Revenue, and related IFRICs IFRIC/SIC) and applies to all revenue arising from contracts with customers, unless the contracts are in the scope of other standards, such as IAS 17/IFRS 16 “Leases”.

The standard outlines the principles an entity must apply to measure and recognize revenue. The principle is that an entity will recognize revenue at an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to a customer.

The principles in IFRS 15 must be applied using a five-step model:

1. Identify the contracts with a customer

2. Identify the performance obligations in the contract

3. Determine the transaction price

4. Allocate the transaction price to the performance obligations in the contract

5. Recognize revenue when (or as) the entity satisfies a performance obligation

The standard requires entities to exercise judgement, taking into consideration all of the relevant facts and circumstances when applying each step of the model to contracts with their customers.

The standard also specifies how to account for costs of obtaining a contract and the costs directly related to fulfilling a contract.

All in all IFRS 15 is more prescriptive than former IFRS-rules for revenue recognition and provides more application guidance. The disclosure requirements are also more extensive. The standard affects entities across all industries.

What will be new for users of financial statements?

The Financial Statements of entities will be affected more or less due to the implementation of IFRS 15 in respect of industry and business the entities operate in. What will be the most important effects on financial performance and new disclosed information in the perspective of a user of an IFRS financial statement?

Disclosures for revenues by IFRS 15 are much more extensive than disclosures had to be before. Disclosures aim to generate sufficient qualitative and quantitative information regarding nature, amount and timing and uncertainty of revenues and related cash-flows. This effort ends in disclosures dealing with disaggregation of revenues, contract balances, performance obligations, judgements, assets recognized for the costs to obtain or fulfil a contract and general disclosures regarding accounting policy.


Disaggregation of revenue:

To meet obligations of disaggregated discussion of revenue within the financial statements, quantitative disclosures regarding categories (e.g. regions, product lines, customers, markets, contract duration, sales-channels) have to be made. In case of companies with relevance of segment reporting (IFRS 8), the disaggregation in revenue categories is to be made in combination with the reportable segment structure.


Contract balances:

Entities are permitted to disclose information about contract balances, and changes therein. In addition entities have to disclose the amount of revenue recognized in the period that relates to amounts allocated to performance obligations that were satisfied (or partially satisfied) in previous periods (e.g., due to a change in transaction price or in estimates related to the constraint on revenue recognized).


Performance obligations

To help users of financial statements to understand the nature, amount, timing and uncertainty about revenue and cash flows arising from contracts with customers, disclosures about an entity’s performance obligations  have to be made (e.g. the amount and expected timing of revenue to be recognized from the remaining performance obligations in existing contracts; trends relating to the amount and expected timing of revenue to be recognized from the remaining performance obligations in existing contracts; risks associated with expected future revenue; or the effect of changes in judgements or circumstances on an entity’s revenue).


Assets recognized from the costs to obtain or fulfil a contract

IFRS 15 requires entities to disclose information about the assets recognized to help users understand the types of costs recognized as assets and how those assets are subsequently amortized or impaired.

Michael Greiner, Auren Germany

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