Material Right. Say goodbye to the arm’s length principle. There seems to be very specific guidance in IFRS 15 related to licences and the initial starting point is to determine whether a licence is distinct. 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. 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. 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. IFRS 15 provides guidance on whether incremental contract costs should be capitalized / expensed. At the end of May 2014, IFRS 15: Revenue from Contracts with Customers (IFRS 15) was released. This guidance sets out the basis for the public-sector interpretations and provides illustrative examples to support the interpretations and disclosure requirements. Contract combination happens when you need to account for two or more contract as for 1 contract and not separately. IFRS 15: Revenue from Contracts with Customers. Are you good to go? But where should you start? 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. However, agencies still need to review AASB 15 in detail to ensure they understand its requirements. The new revenue standard (AASB 15 Revenue from Contracts with Customers) applies to every industry and every business from 1 January 2018. [3] The IASB also believed that its guidance for revenue was not sufficiently detailed. When does the consumer products company recognise revenue in accordance with IFRS 15? View our video series A digital platform with timely, relevant accounting … Uncertainty is mounting for technology, media and telecommunications (TMT) businesses amidst a turbulent economic and political backdrop, according to the latest research from Grant Thornton. IFRS 15 contains specific, and more precise guidance to be applied in determining whether revenue is recognised over time (often referred to as ‘percentage of completion’ under existing standards) or at a point in time. [4] The final standard was issued on 28 May 2014. XEBEC – A world powered by clean energy. After a slow and tentative start, the OECD’s push for a solution on how to allocate and tax the profits from digital business is gathering momentum. Practical guide to Phase 2 amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 for interest rate benchmark (IBOR) reform The IASB has issued amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 that address issues arising during the reform of benchmark interest rates including the replacement of one benchmark rate with an alternative one. Variable consideration can be included in projected cash inflow based on e.g. 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. As well as selling computers, it also supplies and installs the software to its customers and provides a technical support package over two years. Agencies should review the illustrative examples in … Firstly, an entity has to measure the amount of non-cash consideration in a contract in terms of IFRS 13: fair value measurement. June 2017 [4], An entity can recognize revenue when performance obligations have been settled, a performance obligation has been settled when the customer has received all the benefits associated with the performance obligation, and is able to use and enjoy the asset to his or her own discretion. • 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. IFRS 15 does not include any application guidance on this distinction as IASB believed it would not be feasible to develop application guidance that would apply uniformly to various industries (IFRS 15.BC54). Of course, you need to perform your analysis and I tell you – your conclusion might be pretty different from this example, based on specifics in the contract. IFRS 15 provides a guidance about contract combinations and contract modifications, too. Effective date IFRS 15 is effective for annual periods beginning on or after 1 January 2017 with early application permitted. 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. IFRS 15 the basics – Introduction to the standard. IFRS 15 does not include the same specific guidance; however, IFRS reporters should consider the application of materiality concepts when identifying performance obligations. Attached: IFRS … . "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. [10][11], Identify all the individual performance obligations within the contract, Recognize revenue as the performance obligations fulfilled (Service), Performance obligations settled over time, International Financial Reporting Standards, International Financial Reporting Standard, "IASB confirms deferral of effective date by issuing formal amendment to the revenue Standard", "IASB and FASB issue new revenue recognition standard — IFRS 15", "IASB and FASB issue converged Standard on revenue recognition", "IASB and AccountingFASB issue new, converged revenue standards", "First Impressions: Revenue from contracts with customers", "A closer look at the new revenue recognition standard", "IFRS 15: Contract Assets and Contract Liabilities", "In brief: FASB finalizes one-year deferral of the new revenue standard", "In brief: IASB proposes changes to revenue standard - more FASB proposals coming soon", International Accounting Standards Committee, https://en.wikipedia.org/w/index.php?title=IFRS_15&oldid=995988958, Creative Commons Attribution-ShareAlike License, Allocate the price to the performance obligations, Recognize revenue as the performance obligations are fulfilled. 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. 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. TMT outlook: Can tech spend buoyancy keep the industry airborne? 21. The IFRS 9 and IFRS 15 application guidance forms part of this collection. Biogas Upgrading; BGX Biostream™ Application guidance. It provides detailed guidance, illustrative examples and extensive discussion of the areas that companies have found most complex. Home; Cleantech Solutions. 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. Some industries will experience greater changes than others. Cyber threats continue to soar. IFRS 15 requires contracts to have all of the following attributes: The contract has been approved The rights and payment terms regarding goods and services to be transferred can be identified Consequently, some entities that were applying IFRS referred to parts of This first video covers the basic principles including the 5 step model as an introduction to IFRS 15. In addition, IFRS 15 provides more specific guidance on when to combine contracts than IAS 18, and combining of contracts is required when those conditions are met. Background Relevant guidance Paragraph 31 of IFRS 15: “an entity shall recognize revenue when the entity satisfies the performance obligation by transferring a promised good or service (that is, an asset) to a customer. 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. How is this assessment made? Services are delivered by the member firms. 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. [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 new standard is designed to deal with customer contracts and evolving business models, including contracts that bundle goods and services, contingent pricing arrangements, goods or services that are delivered over time, licensing agreements and other complex … 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. 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. Our special edition newsletter on IFRS 15 explains all you need to know about the changes and how your business can prepare for them. In some areas the changes may be very significant and will require careful planning, both for reporting and the wider commercial effects. 26 Mar 2015. GTIL and its member firms are not agents of, and do not obligate, one another and are not liable for one another’s acts or omissions. 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. Contract modification is the change in the contract’s scope, price or both. EXAMPLE: LICENSE OF INTELLECTUAL PROPERTY 45 . Here are the Our advice is to build a wider ‘digital risk’ function which integrates data privacy and cyber security. The International Financial Reporting Standards Foundation is a not-for-profit corporation incorporated in the State of Delaware, United States of America, with the Delaware Division of Companies (file no: 3353113), and is registered as an overseas company in England and Wales (reg no: FC023235 instructions how to enable JavaScript in your web browser 43 . [3], A main purpose of the project to develop IFRS 15 was that, although revenue is a critical metric for financial statement users, there were important differences between the IASB and FASB definitions of revenue, and there were different definitions of revenue even within each board's guidance for similar transactions accounting for under different standards. to share our experience with you in our IFRS 15 handbook: Revenue. This first video covers the basic principles including the 5 step model as an introduction to IFRS 15. Under IFRS 15.18, contract modification is a change in the scope or price of a contract, or both. 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