Lecture Notes: Introduction to IFRS 15 - Revenue Recognition

Introduction

• Presenter: Sylvia from cpdbbox.com
• Purpose: Introduction to IFRS 15, a standard for revenue recognition.
• Importance: Addresses when and how to recognize revenue, especially in long-term or complex contracts.

Background

• Pre-2014: Revenue recognition guidance was spread across various standards (e.g., IAS 8, IAS 11, SIC 31).
• 2014: Major change with the introduction of IFRS 15 to streamline revenue recognition across different contracts.
• Collaboration: Developed in coordination with the FASB (Financial Accounting Standards Board in the U.S.).
• Implementation: Effective from January 1, 2018. Previous guidance was superseded.

Scope of IFRS 15

• Applies to all contracts with customers except:
  • Certain transactions (e.g., barter transactions between companies in the same business).
  • Contracts with collaborating parties (e.g., pharmaceutical companies).

Five-Step Model for Revenue Recognition (IFRS 15)

1. Identify the Contract

   • Agreement must create enforceable rights and obligations, can be written or oral.
   • Challenges: Combination of contracts, contract modifications.

2. Identify Performance Obligations

   • Promise to deliver goods/services that are distinct or part of a series.
   • Consider explicit (stated in contract) and implicit (customary practices) obligations.
   • Importance of assessing whether obligations are distinct for accounting.

3. Determine Transaction Price

   • Expected consideration for goods/services.
   • Consider variable considerations (discounts, bonuses, rebates), significant financing components, and non-cash considerations.

4. Allocate Transaction Price

   • Allocate based on relative standalone selling prices of goods/services.
   • Important for timing of revenue recognition when obligations are satisfied at different times.

5. Recognize Revenue

   • Revenue recognized when performance obligation is satisfied (over time or at a point in time).
   • Criteria for over time recognition include real estate projects or construction contracts.

Additional Guidance

• Contract Costs
  • Costs to obtain a contract (e.g., sales commissions) and costs to fulfill a contract.
  • Specific requirements for capitalization and amortization based on expected recovery.

Conclusion

• IFRS 15 provides a comprehensive framework for revenue recognition with detailed guidance on each step.
• Additional resources available at cpdbbox.com for further learning and examples.

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