Check you’re ready for 2021. Lastly IFRS 15 requires that the entity should test for the existence of a “significant financing component” in the contract, this will occur if: “the timing of payments agreed by the parties to the contract provides the customer or the entity with a significant benefit of financing the transfer of goods or services to the customer”[6], If the above-mentioned is applicable, the transaction price will be adjusted to eliminate the effect of this benefit. The stipulated item can be consumed by the customer, either on its own, or in combination with other items that are regularly available to the customer; and. Some industries will experience greater changes than others. Firstly, an entity has to measure the amount of non-cash consideration in a contract in terms of IFRS 13: fair value measurement. IFRS 15 the basics – Introduction to the standard. However, agencies still need to review AASB 15 in detail to ensure they understand its requirements. Effective date IFRS 15 is effective for annual periods beginning on or after 1 January 2017 with early application permitted. instructions how to enable JavaScript in your web browser, Mergers and acquisitions – Accounting for business combinations, Corporate reporting – IFRS Financial Statements, Leasing – A new era of accounting under IFRS 16. IFRS 15 includes specific guidance for licensing arrangements. both parties have to approve the contract and are committed to perform; and the entity can identify each party’s rights and obligations in terms of the contract; and. IFRS 15 is prudent when it comes to recognition of variable consideration, but we don’t have to follow the same approach in assessing whether a contract is onerous. EXAMPLE: LICENSE OF INTELLECTUAL PROPERTY 45 . Looking forward, as your business grows and evolves – whether by developing Biogas Upgrading; BGX Biostream™ At the end of May 2014, IFRS 15: Revenue from Contracts with Customers (IFRS 15) was released. 43 . June 2014 marked a landmark achievement when the International Accounting Standards Board (IASB) issued IFRS 15 ‘Revenue from Contracts with Customers’. Under IFRS 15.18, contract modification is a change in the scope or price of a contract, or both. IFRS 15 and ASC 606, are largely aligned with one another, although there are some nuanced differences, that your BDO representative can assist you in considering. Standards set by the Board's predecessor body, the International Accounting Standards Committee, are called IAS ® … IFRS 15 At A Glance A high-level ‘key facts’ document, outlining the requirements for each of the 5 steps under IFRS 15, the key application guidance, definitions and the practical expedients available. TMT outlook: Can tech spend buoyancy keep the industry airborne? [4] The boards released their first discussion paper describing their views on accounting for revenue in 2008, and they released exposure drafts of a proposed standard in 2010 and 2011. The impact to your business, systems, data needs and financial reporting will be far reaching. [9], (Kit) IFRS 15, as amended, is effective for the first interim period within annual reporting periods beginning on or after January 1, 2018, with early adoption permitted. IFRS 15 contains quite a good guidance about warranties. A key consideration is whether a licence gives the customer: The right to use the software as it exists when the licence is granted, or Access to software which will be updated during the licence period. IFRS 15 . It specifies that there are two basic types of warranties: Assurance-type warranties – those are warranties that promise to customer that the delivered product is as specified in the contract and will work as specified in the contract. [4] The final standard was issued on 28 May 2014. Are you good to go? Our special edition newsletter on IFRS 15 explains all you need to know about the changes and how your business can prepare for them. The difference (between the amount recognized after adjustment for a significant financing component and amount of consideration to be received) is simply recognized as interest income/ expense in terms of the accrual basis of accounting as mentioned in IAS 1. In addition, IFRS had limited guidance on important topics such as revenue recognition for multiple-element arrangements. This is evidenced by the fact that the entity provides a … Contract Modifications under IFRS 15. IFRS 15 does not include the same specific guidance; however, IFRS reporters should consider the application of materiality concepts when identifying performance obligations. For full functionality of this site it is necessary to enable JavaScript. 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. The most likely amount: the amount that of considerations that has the highest, This page was last edited on 23 December 2020, at 23:07. In most cases, there won’t be any difficulties in deciding whether a party to a contract is a customer or not. Are you struggling with IFRS 15 ' Revenue from Contracts with Customers'? Home; Cleantech Solutions. It was adopted in 2014 and became effective in January 2018. Application guidance. IFRS 15: the revenue standard All IFRS reporters will be impacted by IFRS 15 when it becomes effective in 2018. Updated with IFRS 9 Financial Instruments: Application Guidance and IFRS 15 Revenue from Contracts with Customers: Application Guidance. . [8], IFRS 15 introduced a new accounting term: contract asset. In this context a good or service is distinct if: In most cases the transaction price to be paid will be stipulated in the contract and quite easy to calculate; however certain circumstances require that a transaction price should be estimated by other methods. • IFRS 15 provides guidance on how to account for costs relating to a contract, distinguishing between costs of obtaining a contract and costs of fulfilling a contract. This guidance sets out the basis for the public-sector interpretations and provides illustrative examples to support the interpretations and disclosure requirements. IFRS 15: Revenue from Contracts with Customers. In some areas the changes may be very significant and will require careful planning, both for reporting and the wider commercial effects. The IFRS 9 and IFRS 15 application guidance forms part of this collection. • IFRS 15 also specifies the accounting treatment for certain items not typically thought of as revenue, such as certain costs associated with obtaining and fulfilling a contract and the sale of certain non-financial assets. According to IFRS 15, the following criteria have to be met before a contract can be identified; A good or service that is to be delivered in terms of a contract with a customer qualifies as a performance obligation if the good or service is “distinct”. IFRS 15 is an International Financial Reporting Standard (IFRS) promulgated by the International Accounting Standards Board (IASB) providing guidance on accounting for revenue from contracts with customers. In this case, the transaction price can be calculated by two methods: Both of the above-mentioned are estimates, and should the estimates change, the entity will apply the change prospectively in terms of the criteria of IAS 8. Contract modification is the change in the contract’s scope, price or both. IFRS 15 provides guidance on whether incremental contract costs should be capitalized / expensed. [1][2] It was the subject of a joint project with the Financial Accounting Standards Board (FASB), which issues accounting guidance in the United States, and the guidance is substantially similar between the two boards. [3] The IASB also believed that its guidance for revenue was not sufficiently detailed. the expected value. IFRS 15 includes specific requirements related to “customer options for The short series of videos "IFRS 15 the basics" will quickly help you with the key points in IFRS 15. So how can the TMT industry ride out the turbulence and thrive? At the end of May 2014, IFRS 15: Revenue from Contracts with Customers (IFRS 15) was released. Example 4 – IFRS 15 (2) LiverTech is a computer business that primarily sells computer hardware. legacy IFRS provided little application guidance. Related content © 2020 Grant Thornton International Ltd (GTIL) - All rights reserved. for airlines. IFRS 15 is an International Financial Reporting Standard (IFRS) promulgated by the International Accounting Standards Board (IASB) providing guidance on accounting for revenue from contracts with customers. • IFRS 15 also specifies the accounting treatment for certain items not typically thought of as revenue, such as certain costs associated with obtaining and fulfilling a contract and the sale of certain non-financial assets. It was adopted in 2014 and became effective in January 2018. A number of challenges will follow the new Standard. If other standards do not provide guidance on how to separate and/or initially measure one or more parts of the contract, then IFRS 15 will be applied. The standard was published in May 2014 and is effective from 1 January 2018. When this results in costs being capitalised, additional How will IFRS 15 and IFRS 16 impact the mining industry, Get Ready for IFRS 15 – Real Estate and Construction, A new global standard on revenue – life sciences, A new global standard on revenue – Manufacturing industry. The new revenue standard (AASB 15 Revenue from Contracts with Customers) applies to every industry and every business from 1 January 2018. Home; Cleantech Solutions. "Grant Thornton” refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. This standard outlines a single comprehensive model of accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance. Variable consideration can be included in projected cash inflow based on e.g. Cyber threats continue to soar. If other standards do not provide guidance on how to separate and/or initially measure one or more parts of the contract, then IFRS 15 will be applied. Published 30 January 2020 Brexit transition. sold separately by the company or another company, or a good or service the customer has already obtained. 26 Mar 2015. More about IFRS 15. Current revenue recognition guidance to the arm ’ s length principle planning, both for reporting the! That companies have found most complex the 5 step model as an introduction to the arm ’ s principle. Illustrative examples to support the interpretations and provides illustrative examples to support interpretations... 9 financial Instruments: application guidance ’ t be any difficulties in deciding whether party! 15 application guidance forms part of this site it is necessary to enable JavaScript in web... Transitional impacts transfers stipulated in the contract keep the industry airborne and contract modifications, too a. 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