IFRS 15: Revenue recognition | Highlights Tax (Accounting) implications
IFRS 15 is the new standard on revenue recognition and it specifies how and when an IFRS reporter will recognize revenue. Implementation as of January 1, 2018. Consider the Tax implications in time as IFRS 15 might impact the Tax position.
Before the publication of IFRS 15, IFRS contained limited specific guidance in relation to revenue recognition policies. IFRS 15 is applicable for entities reporting in accordance with IFRS for periods beginning on or after January 1, 2018. The standard provides guidance on how and when revue should be recognized.
IFRS 15 applies to all contracts, except for those that are within the scope of other IFRS standards, for example IFRS 16 Leases, IFRS 17 Insurance contract and IFRS 9 Financial instruments. The new revenue recognition standard may significantly impact revenue and profit recognition.
Roundtable Tax Accounting and IFRS developments
Highlights IFRS 15
- Core principle is that an entity should recognize revenue in a manner that depicts the patterns of transfer of goods and services to customers. The amount recognized should reflect the amount to which the entity expect to be entitled in exchange for those goods and services.
- IFRS 15 has defined a five step model to apply the core principle: (i) Identify the contract(s) with a customer, (ii) Identify the performance obligations in the contract, (iii) determine the transaction price (iv), Allocate the transaction price to the performance obligations in the contract, (v) recognise revenue when (or as) the entity satisfies a performance obligation.
- IFRS 15 is expected to have an impact to the following situations (not limited to): bundled products, milestone payments, non-refundable upfront fees, rights of return, bill and hold arrangements.
- warranty, Customer loyalty programs, modification of customer contracts during the contract term, slotting fees, contract manufacturing, financing arrangements and real estate development.
The implementation of IFRS 15 requires an assessment of the accepted tax treatment for revenue recognition per jurisdiction and the corresponding tax accounting to be reported in the financial statements. In addition, an assessment should be performed to determine any impact in relation to previous years.
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