IFRS 15 - Revenue from Contracts with Customers

There are two international accounting frameworks around the globe: IFRS and US GAAP.

From 1 january 2005, all publicly listed companies in the European Union were required to prepare their financial statements in conformity with IFRS. Since then, more than 120 countries around the world have adopted IFRS.

IFRS 15 is about revenue recognition. The standard is effective for accounting periods commencing on or after 1 January 2018 and will supersede IAS 11 and IAS 18.

The objective of this standard is to establish the principles that an entity shall apply to account and to report to users of financial statements the nature, amount, timing and uncertainty of revenue and cash flows arising from a contract with customers.

An entity shall apply this Standard to all contracts with customers, except lease contracts (IFRS16), insurance contracts (IFRS4), financial instruments within the scope of IFRS 9, IFRS 10, IFRS 11, IAS 27, IAS 28 ; and non-monetary exchanges between entities in the same lines of business that agree to an exchange of goods and/or services to fulfill demand from customers or potential customers.

Five steps should be applied to recognize revenue :

• Identify the contract.

• Identify the "performance obligations" in the contract.

• Determine the transaction price.

• Allocate the transaction price to each "performance obligations".

• Recognize revenue, over time or at a point in time.

Key points to consider :

• Five specified criterias have to be met for a contract with a customer to be regarded as a valid contract in the scope of IFRS 15.

• The performance obligations in a contract are not limited to the goods or services that are explicitly stated in it, promises implied that create an expectation that goods or services will be transferred, have to be included.

• To determine the transaction price, variable amounts, significant financing component, non-cash consideration, and consideration payable to a customer, are considered.

• Revenue recognition is based on the principle of control by transferring a promised good or service to a customer.