Industry insights for IFRS 15
Understanding new rules on accounting for revenue arising from contracts with customers
As part of our Clearly IFRS series, we highlight changes in guidance on when to recognize revenue arising from contracts with customers.
IFRS 15: Revenue from Contracts with Customers
At the end of May 2014, IFRS 15: Revenue from Contracts with Customers (IFRS 15) was released. This standard outlines a single comprehensive model of accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance.
The core principle of IFRS 15 is that an entity will recognise revenue to reflect the transfer of goods or services, measured as the amount to which the entity expects to be entitled in exchange for those goods or services. In particular, the new standard requires distinct goods or services to be accounted for separately, which may have a significant impact on the timing of revenue and profit recognition. While the overall principles will sound familiar, IFRS 15 includes a significant amount of guidance on many issues that arise in determining the appropriate timing and measurement of revenue. Finally, the new standard also requires significant disclosures relating to the reporting of revenue, and entities will need to ensure that they can gather the appropriate information in a timely manner.
To understand the key aspects of this standard, you can download our May 28, 2014 issue of IFRS in Focus.
To access our series of financial reporting updates webcasts including The new revenue recognition standard webcast, please visit our webcast archives.
Our experts have also created nine Industry insights for IFRS 15 publications as part of Deloitte’s Clearly IFRS series. These publications highlight potential changes in timing of recognition, measurement (including allocation of revenue between goods and services provided) and disclosure.
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To learn more, download the publication relevant to your organization using the links below.
Key insight: Entities that ship goods FOB shipping point but retain some form of risk during shipment may be able to recognise revenue earlier if control passes to the customer at the point of shipment.
Key insight: The new model provides for recognition of revenue as customized products are produced, depending on the terms of the contract with the customer, and specifically, the termination provisions. Organizations may determine that revenue should be recognised earlier as compared to current practice.
Retail, wholesale and distribution
Key insight: An entity in the retail sector will have to consider if a warranty provides assurance that a product meets agreed-upon specifications only, or if it provides for additional maintenance service. The latter will require accounting for a separate performance obligation.
Key insight: Some entities in the real estate sector will find that revenue previously recognised at a point in time should now be recognised over time, or vice versa.
Key insight: Media companies often offer bundles of goods and services to their customers. For example, a multimedia advertising campaign may include more than one type of advertising placement such as print, online and television. Entities will need to assess whether the advertising services represent separate performance obligations, to which the transaction price will have to be appropriately allocated, or whether they should be accounted for as one obligation.
Key insight: IFRS 15 distinguishes between licences that represent the transfer of a right to use an entity’s intellectual property (recognised at a point in time) and licences that represent the provision of access, over a period of time, to an entity’s intellectual property (recognised over the period of access). Entities within the technology sector will need to examine licence arrangements in light of this new guidance, and may need to change their existing accounting.
Key insight: Airtime providers will now be required to recognise more revenue associated with a subsidized handset at the start of the contract and less revenue as the contract continues regardless of the pattern of billings.
Key insight: Entities in the mining sector may have to recognize revenue at a different point in time depending on its assessment of the transfer of control of goods and/or may have to allocate a portion of the transaction price to a distinct ‘shipping and insurance’ service for certain CIF contracts.
Deloitte and CPA Canada have collaborated to develop a new publication answering some common stakeholder questions relating to IFRS 15. Access IFRS 15 Revenue from Contracts with Customers: Your Questions Answered today.
Access a comprehensive list of IFRS 15 resources on our CFR web site.
Access our recent new revenue recognition standard webcast.
Access our summaries of the IASB and FASB Joint Transition Resource Group for Revenue Recognition meetings.