IFRS 15 Full Guide - Everything You Need to Know About Revenue Recognition

Introduction to IFRS 15

IFRS 15 Revenue from Contracts with Customers requires revenue to be recognised when control of a promised good or service transfers to the customer, at an amount reflecting the consideration the entity expects to be entitled to. A single five-step model applies to every contract in every industry, replacing the risks-and-rewards thinking of IAS 18 and IAS 11 with a control-based framework supported by detailed application guidance on variable consideration, financing, licences, warranties, principal versus agent arrangements and contract costs.

Revenue is not recognised at 100% of the contract price at inception simply because a contract has been signed, and it is not necessarily equal to the amount written in the contract. Revenue is recognised in a pattern that depicts the transfer of goods or services, at an amount that reflects what the entity expects to be entitled to after discounts, rebates, refunds, financing and amounts collected on behalf of others.

IFRS 15 has applied to annual periods beginning on or after 1 January 2018. It superseded IAS 18 Revenue, IAS 11 Construction Contracts, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers and SIC-31 Revenue: Barter Transactions Involving Advertising Services. The IASB completed its Post-implementation Review in September 2024 and concluded that there were no fundamental flaws in the standard, leaving the core model unchanged.

This guide is a hub. Each section states the principle, shows how it is applied, and points to the detailed treatment where a specialist article exists.

Scope and Exclusions

IFRS 15 applies to all contracts with customers, where a contract is an agreement between two or more parties that creates enforceable rights and obligations, and a customer is a party that has contracted to obtain goods or services that are an output of the entity's ordinary activities.

The following are excluded from scope:

Two scope points shape how a contract is analysed:

• Partially in scope. A contract can fall partly under IFRS 15 and partly under another standard. The other standard is applied first — it is separated and measured under that standard — and the residual consideration is accounted for under IFRS 15. If the other standard contains no separation or measurement guidance, IFRS 15 is used for the whole contract.
• Disposals of non-financial assets. Where an entity sells an item of property, plant and equipment, an intangible asset or investment property that is not an output of its ordinary activities, the gain or loss is not revenue, but IAS 16, IAS 38 and IAS 40 require the control and measurement principles of IFRS 15 to be used in determining when to derecognise the asset and at what amount.

A counterparty is not a customer if it has contracted to participate in an activity in which the parties share the risks and benefits jointly, such as a collaboration or development arrangement. Those arrangements fall outside IFRS 15.

The Five-Step Model

The debit side of the revenue entry is decided by the same analysis. Revenue is recognised against bank if cash is received immediately, against a contract asset if the performance obligation is satisfied but payment is not yet due, and against trade receivables if the obligation is satisfied and payment is unconditionally due. Where consideration is received or becomes due before the obligation is satisfied, a contract liability is credited.

Step 1: Identify the Contract

A contract with a customer is accounted for under IFRS 15 only when all five criteria are met:

1. The parties have approved the contract (in writing, orally, or in accordance with customary business practices) and are committed to performing their obligations.
2. The entity can identify each party's rights regarding the goods or services to be transferred.
3. The entity can identify the payment terms.
4. The contract has commercial substance — the risk, timing or amount of the entity's future cash flows is expected to change.
5. It is probable that the entity will collect the consideration to which it will be entitled.

The collectability criterion is assessed against the consideration the entity expects to be entitled to, which may be less than the stated price if the entity intends to offer a price concession. That distinction matters: an expected concession is variable consideration under Step 3, not a credit loss.

Contracts that fail the criteria

If the criteria are not met but consideration has been received, the entity recognises a liability for that consideration. Revenue is recognised only once one of the following occurs: the entity has no remaining obligations and substantially all the consideration has been received and is non-refundable; the contract has been terminated and the consideration received is non-refundable; or the criteria are subsequently met, at which point the contract is assessed afresh.

Combining contracts

Two or more contracts entered into at or near the same time with the same customer (or related parties of that customer) are accounted for as a single contract if any one of the following applies:

• The contracts are negotiated as a package with a single commercial objective;
• The consideration in one contract depends on the price or performance of the other; or
• Some or all of the goods or services promised across the contracts form a single performance obligation.

Contract modifications

A modification is a change in scope, price, or both, that the parties approve and that creates or changes enforceable rights and obligations. Accounting follows one of three routes:

A single modification may need to be split across routes where a contract contains both distinct and non-distinct remaining promises.

Step 2: Identify the Performance Obligations

At contract inception the entity assesses all goods and services promised and identifies as a performance obligation each promise to transfer:

• a good or service (or a bundle of goods or services) that is distinct; or
• a series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer.

The two-part distinct test

A good or service is distinct only if both parts are satisfied:

(a) Capable of being distinct. The customer can benefit from the good or service on its own or together with other resources that are readily available. A readily available resource is one sold separately (by the entity or another entity), one the customer has already obtained from the entity under the contract, or one obtained from other transactions or events. Benefit means the item can be used, consumed, sold for more than scrap value, or otherwise held in a way that generates economic benefits.

(b) Distinct within the context of the contract. The promise to transfer the item is separately identifiable from other promises. Indicators that it is not separately identifiable are:

• the entity provides a significant service of integrating the goods or services into a combined output;
• the good or service significantly modifies or customises another promised good or service; or
• the good or service is highly dependent on, or highly interrelated with, other promised goods or services.

A construction contract that also supplies specialised plant shows why both parts matter. The plant is sold separately by other vendors, so it is capable of being distinct — but where the contractor is integrating it into a single combined output, it is not distinct within the context of the contract, and the contract is a single performance obligation recognised over time rather than a plant sale plus a build.

The series guidance

Where an entity promises a series of distinct goods or services that are substantially the same and have the same pattern of transfer, the entire series is treated as a single performance obligation. This matters most for repetitive service contracts — cleaning, transaction processing, managed IT — where identifying each daily service as its own obligation would be unworkable. The same measure of progress is then applied across the series.

Promises that are not performance obligations

• Administrative or setup activities that do not transfer a good or service to the customer are not performance obligations, and the associated effort is excluded when measuring progress.
• Implied promises arising from customary business practices, published policies or specific statements are performance obligations if they create a valid expectation in the customer, even where they are not written into the contract.

Step 3: Determine the Transaction Price

The transaction price is the amount of consideration to which the entity expects to be entitled in exchange for transferring promised goods or services, excluding amounts collected on behalf of third parties. It is determined assuming the goods or services will be transferred as promised and the contract will not be cancelled, renewed or modified.

Five elements must be considered.

Variable consideration

Consideration is variable where it can change because of discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, penalties or similar items, or where entitlement is contingent on a future event. Consideration is also variable in substance where the entity has a customary practice of offering price concessions.

The estimate uses whichever method better predicts the amount to which the entity will be entitled:

• Expected value — the probability-weighted sum of possible amounts. Appropriate where there are many possible outcomes or a large portfolio of similar contracts.
• Most likely amount — the single most likely amount in the range. Appropriate where there are only two possible outcomes, such as an all-or-nothing performance bonus.

The chosen method is applied consistently throughout the contract, and the estimate is updated at each reporting date.

Constraining estimates of variable consideration

Variable consideration is included in the transaction price only to the extent that it is highly probable that a significant reversal of cumulative revenue will not occur when the uncertainty is subsequently resolved. Both the likelihood and the magnitude of a potential reversal are considered. Factors that increase the risk of reversal, and therefore point towards constraining the estimate, include:

• the amount is highly susceptible to factors outside the entity's influence, such as market volatility, weather or third-party actions;
• the uncertainty is not expected to be resolved for a long period;
• the entity's experience with similar contracts is limited or has limited predictive value;
• the entity has a practice of offering a broad range of price concessions or changing payment terms; and
• the contract has a large number and broad range of possible outcomes.

A separate rule applies to sales-based and usage-based royalties on licences of intellectual property, discussed under application guidance below.

Significant financing component

If the timing of payments gives either party a significant benefit of financing, the promised consideration is adjusted to the cash selling price, and the difference is recognised as interest.

• If the customer receives the financing benefit (goods transferred before payment), interest income accrues on the receivable or contract asset.
• If the entity receives the financing benefit (payment before transfer), interest expense accrues on the contract liability.

The discount rate is the rate that would be reflected in a separate financing transaction between the parties at contract inception, reflecting the credit characteristics of the party receiving the financing. It is not updated for subsequent changes in interest rates or credit risk.

There is no significant financing component if:

• the customer paid in advance and the timing of transfer is at the customer's discretion (for example, a prepaid gift card or loyalty points);
• a substantial amount of the consideration is variable, with the amount or timing depending on a future event not substantially within the control of either party (such as a sales-based royalty); or
• the difference between the promised consideration and the cash selling price arises for reasons other than financing, such as protection against non-performance by either party, or marketing.

A practical expedient allows the effect to be ignored where, at contract inception, the period between transfer and payment is expected to be one year or less.

Where an obligation is satisfied over time and the entity holds the financing benefit, each period involves two entries: interest is accreted onto the contract liability, and revenue is released from the accreted balance in proportion to remaining performance.

Non-cash consideration

Non-cash consideration is measured at fair value at contract inception. If fair value cannot be reasonably estimated, the consideration is measured indirectly by reference to the stand-alone selling price of the goods or services promised. Subsequent changes in fair value arising from the form of the consideration are not revenue; changes arising for other reasons are treated as variable consideration.

Consideration payable to the customer

Cash, credits, coupons or vouchers payable to a customer (or to the customer's customer) are treated as a reduction of the transaction price, unless the payment is in exchange for a distinct good or service that the customer transfers to the entity. Where it is in exchange for a distinct good or service, the payment is accounted for like any other purchase, and only the excess over the fair value of that good or service reduces the transaction price.

The reduction is recognised at the later of when the entity recognises the related revenue and when the entity pays or promises to pay the consideration, including where the promise is implied by customary business practice.

Example. An entity pays a customer 15,000 for retail shelf space with a market value of 12,000. The 3,000 excess reduces the transaction price. Of that, 2,000 is allocated to performance obligations already satisfied and 1,000 to obligations not yet satisfied.

Amounts collected on behalf of third parties

Value added tax, and amounts owed to an agent or subcontractor engaged on the customer's behalf, form part of the amount billed to the customer but not part of the transaction price. Revenue is never recognised on them.

Where the amount forms part of the contract consideration but is owed onward, the practical control is to hold it in a separately named contract liability — for example Contract liability: VAT suspense or Contract liability: agent fees — and transfer it to the creditor or to VAT output when the obligation to the third party crystallises.

Example. A customer must pay 599 (including VAT of 78), payable one month after delivery. The goods are transferred immediately and the customer is invoiced a month later.

Step 4: Allocate the Transaction Price

The allocation objective is to allocate the transaction price to each performance obligation in an amount that depicts the consideration to which the entity expects to be entitled in exchange for transferring the promised goods or services. The default mechanism is relative stand-alone selling prices, with two exceptions: discounts and variable consideration.

Establishing stand-alone selling prices

The best evidence is the observable price at which the entity sells the good or service separately in similar circumstances to similar customers. Where no observable price exists, it is estimated:

The residual approach is restricted. It may be used only where the entity sells the same good or service to different customers for a broad range of amounts, or where it has not yet established a price and the item has not previously been sold on a stand-alone basis.

Allocating a discount

A discount exists where the sum of the stand-alone selling prices exceeds the contracted price. It is allocated proportionately to all performance obligations, unless there is observable evidence that it relates to only some of them. Allocation to one or more but not all obligations is permitted only where all of the following hold:

• the entity regularly sells each distinct good or service in the contract on a stand-alone basis;
• it also regularly sells, on a stand-alone basis, a bundle of some of those goods or services at a discount to their stand-alone selling prices;
• the discount attributable to that bundle is substantially the same as the discount in the contract (it need not be identical); and
• the analysis provides observable evidence of the performance obligations to which the entire discount belongs.

Where the residual approach is used to estimate a stand-alone selling price, any discount must be allocated before the residual is calculated.

Allocating variable consideration

Variable consideration may relate to the whole contract, to one or more but not all performance obligations, or even to one or more distinct goods or services within a single performance obligation (for example, a bonus tied to the second year of a two-year service series).

Variable consideration is allocated entirely to a specific obligation or distinct good or service if both:

• the variable payment terms relate specifically to the entity's efforts to satisfy that obligation or transfer that good or service; and
• allocating the entire amount to it is consistent with the overall allocation objective.

Otherwise, the general relative stand-alone selling price method applies.

Changes in the transaction price

Subsequent changes in the transaction price are allocated to performance obligations on the same basis as at contract inception — stand-alone selling prices are not re-estimated for changes after inception. Amounts allocated to obligations already satisfied are recognised immediately in revenue (or as a reduction of revenue); amounts allocated to unsatisfied obligations adjust the contract liability. A change in variable consideration is allocated only to the obligations to which that variable consideration was originally allocated.

Step 5: Recognise Revenue

Revenue is recognised when (or as) the entity satisfies a performance obligation by transferring a promised good or service to the customer. Transfer occurs when the customer obtains control — the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset, including the ability to prevent others from doing so.

The first determination is whether the obligation is satisfied over time or at a point in time.

Over-time criteria

An obligation is satisfied over time if any one of three criteria is met:

1. The customer simultaneously receives and consumes the benefits as the entity performs. Where this is not readily apparent, the test is whether another entity would need to substantially re-perform the work completed to date if it took over the remaining obligation. Routine or recurring services — cleaning, payroll processing, security monitoring — typically qualify.
2. The entity's performance creates or enhances an asset that the customer controls as it is created or enhanced. Construction on land the customer already owns is the clearest case, because the customer controls the work in progress as it is built.
3. The entity's performance does not create an asset with an alternative use to the entity, and the entity has an enforceable right to payment for performance completed to date. Both parts must hold. The right to payment must cover costs plus a reasonable margin, not merely reimbursement of costs, and must be enforceable throughout the contract term.

Measuring progress

Where an obligation is satisfied over time, a single method is chosen for that obligation and applied consistently to similar obligations and circumstances. The objective is to depict the entity's performance in transferring control.

Two adjustments are required when using an input method such as cost-to-cost:

• Costs that do not contribute to progress — significant inefficiencies, wastage or rework not reflected in the contract price — are excluded from the measure of progress.
• Costs disproportionate to progress, most commonly uninstalled materials procured well ahead of installation, are dealt with by recognising revenue equal to the cost of those goods, producing a zero margin on that element, provided the conditions in the standard are met at contract inception.

Example. A three-year contract to develop new technology carries a fixed fee of 10,000,000. Output cannot be measured reliably, and total costs are estimated at 5,000,000. Costs of 1,000,000 are incurred in year one, so revenue of 2,000,000 is recognised (1,000,000 / 5,000,000 x 10,000,000).

If progress cannot be reasonably measured but the entity expects to recover its costs, revenue is recognised only to the extent of costs incurred until progress can be measured reliably.

Revenue Recognised at a Point in time

Where none of the over-time criteria is met, revenue is recognised at the point control transfers. Indicators include:

• the entity has a present right to payment;
• the customer has legal title;
• the entity has transferred physical possession;
• the customer has the significant risks and rewards of ownership; and
• the customer has accepted the asset.

No single indicator is determinative; they are weighed together against the control principle.

Application Guidance: Common Arrangements

The application guidance in Appendix B resolves the arrangements that arise most often in practice. Each of the following is a candidate for its own detailed treatment.

Sale with a right of return

A right of return is not a separate performance obligation — it is variable consideration. On sale the entity recognises:

• Revenue only for the products not expected to be returned, constrained to the amount for which a significant reversal is not highly probable;
• A refund liability for the consideration expected to be refunded; and
• A right to returned goods asset measured at the former carrying amount of the inventory less any expected costs of recovery, with a corresponding reduction of cost of sales.

The refund liability is remeasured at each reporting date, with corresponding adjustments to revenue.

The return asset is measured first, so cost of sales carries only the margin on goods not expected to come back. When the return period expires, the refund liability is settled in cash, credited against the receivable, or released to revenue, and the return asset is either recovered into inventory (with recovery costs capitalised) or expensed to cost of sales.

Warranties

If the customer has the option to purchase the warranty separately, it is always a distinct service and therefore a separate performance obligation. Where there is no such option, factors such as whether the warranty is legally required, its length, and the nature of the tasks promised indicate whether a service element exists. If the entity cannot reasonably separate the two, both are accounted for together as a single performance obligation.

Principal versus agent

Where another party is involved in providing goods or services, the entity determines whether its promise is to provide the specified good or service itself (principal) or to arrange for another party to provide it (agent).

The determining question is control: an entity is a principal if it controls the specified good or service before it is transferred to the customer. Indicators of control include:

• the entity is primarily responsible for fulfilling the promise, accepting responsibility for the specified good or service meeting the customer's specifications;
• the entity bears inventory risk, either before transfer or after transfer through returns; and
• the entity has discretion in establishing the price.

Activities such as inspecting, repackaging or otherwise modifying goods before onward supply indicate control. A principal recognises revenue at the gross amount of consideration; an agent recognises only the net fee or commission.

Customer options for additional goods or services

An option to acquire additional goods or services free or at a discount gives rise to a separate performance obligation only if it confers a material right that the customer would not have received without entering into that contract. A discount available to all customers in that class is not a material right.

Where the stand-alone selling price of the option is not directly observable, it is estimated as the discount the customer would obtain on exercise, adjusted for any discount available without exercising the option and for the likelihood of exercise.

Example. A customer may renew for 15,000,000. The stand-alone price of that service is 18,000,000, but new customers can obtain it for 16,500,000. The renewal probability is 80%.

The 1,200,000 is the estimated stand-alone selling price of the option, and the transaction price is allocated across the original obligations and the option accordingly. Revenue allocated to the option is recognised when the future goods or services transfer or when the option expires.

A practical expedient applies where the option gives a material right to goods or services similar to the original and provided under the terms of the original contract: rather than estimating an option price, the entity may allocate the transaction price by reference to the goods or services expected to be provided and the consideration expected to be received, effectively treating the arrangement as a single obligation satisfied over the expected renewal period.

Customers' unexercised rights (breakage)

A prepayment obliges the entity to stand ready to transfer goods or services, so a contract liability is recognised and released as obligations are satisfied. Customers frequently do not exercise all their rights, and that unexercised portion is called breakage.

• If the entity expects to be entitled to a breakage amount, it recognises that amount as revenue in proportion to the pattern of rights exercised by the customer.
• If the entity does not expect to be entitled to breakage, it recognises the amount as revenue only when the likelihood of the customer exercising the remaining rights becomes remote.

Amounts payable to another party, such as unclaimed balances remitted under unclaimed-property legislation, are recognised as a liability rather than revenue.

Non-refundable upfront fees

Activation fees, joining fees and setup fees are assessed for whether they relate to the transfer of a promised good or service. Frequently they do not — administrative setup tasks are not performance obligations — in which case the fee is an advance payment for future goods or services and is recognised as revenue as those are provided, potentially over a period longer than the stated contract term if the fee gives the customer a material right to renew. The related setup activities are excluded from any measure of progress.

Licences of intellectual property

Where a licence is distinct, the entity determines the nature of its promise:

A distinct exception applies to sales-based and usage-based royalties on licences of intellectual property: revenue is recognised at the later of when the subsequent sale or usage occurs and when the related performance obligation has been satisfied. This overrides the general variable consideration and constraint requirements, so no estimate of future royalties is recognised up front.

Repurchase agreements

A repurchase agreement is a contract in which the entity sells an asset and also promises, or has the option, to repurchase it. Treatment depends on the form of the right and the relationship between the repurchase price (RP), the original selling price (OSP) and the expected market value (MV) at repurchase, considering the time value of money.

A significant economic incentive exists where the repurchase price is expected to exceed the market value of the asset at the repurchase date, making exercise the rational choice.

Under the lease outcome, the proceeds are split between a refund liability at the repurchase price and rent received in advance for the difference, with rental income recognised over the period and the refund liability settled when the asset is repurchased. Under the financing outcome, the full proceeds are recognised as a borrowing, interest is accreted at the rate implied by the difference between the selling and repurchase prices, and the liability is extinguished on repurchase.

The related lease treatment is covered in more depth in our articles on rent-to-own arrangements under IFRS 16 and sale and leaseback transactions.

Consignment arrangements

Goods delivered to a dealer or distributor are not sold if control has not transferred. Indicators of a consignment arrangement include the entity controlling the product until a specified event occurs, the entity being able to require its return or transfer to another party, and the dealer having no unconditional obligation to pay. No revenue is recognised while goods are held on consignment.

Bill-and-hold arrangements

Revenue may be recognised on goods that remain in the entity's physical possession only where, in addition to the normal control criteria, all of the following apply:

• the reason for the arrangement is substantive, for example a customer request driven by a lack of storage space;
• the product is identified separately as belonging to the customer;
• the product is ready for physical transfer to the customer; and
• the entity cannot use the product or direct it to another customer.

Where these are met, the entity must also consider whether a remaining performance obligation for custodial services exists, to which part of the transaction price is allocated.

Customer acceptance

An acceptance clause that is a formality — where the entity can objectively determine that the agreed specifications have been met — does not delay recognition. Where acceptance is subjective, or where the goods are delivered for trial or evaluation with no consideration committed, revenue is not recognised until acceptance or the trial period lapses.

Contract Costs & Cost of Sales

IFRS 15 contains its own capitalisation model for two categories of cost.

Incremental costs of obtaining a contract

These are costs the entity would not have incurred had the contract not been obtained — a sales commission tied to a won contract is the common case. They are recognised as an asset if the entity expects to recover them. Costs incurred regardless of whether the contract is won, such as tender preparation or general bid costs, are expensed as incurred unless they are explicitly chargeable to the customer.

A practical expedient allows the costs to be expensed as incurred where the amortisation period of the resulting asset would be one year or less.

Costs to fulfil a contract

Where fulfilment costs are not within the scope of another standard (IAS 2 Inventories, IAS 16 Property, Plant and Equipment, IAS 38 Intangible Assets), an asset is recognised only if all of the following are met:

• the costs relate directly to a contract or to a specifically identifiable anticipated contract;
• the costs generate or enhance resources that will be used in satisfying future performance obligations; and
• the costs are expected to be recovered.

General and administrative costs, costs of wasted materials or labour, costs relating to performance obligations already satisfied, and costs where the entity cannot distinguish between satisfied and unsatisfied obligations are expensed as incurred.

Amortisation and impairment

Capitalised contract costs are amortised on a systematic basis consistent with the transfer of the goods or services to which the asset relates, which may include goods or services under an anticipated renewal. A change in the expected timing of transfer is a change in accounting estimate under IAS 8, accounted for prospectively.

An impairment loss is recognised in profit or loss to the extent that the carrying amount exceeds:

• the remaining amount of consideration the entity expects to receive for the related goods or services, less
• the costs that relate directly to providing those goods or services and that have not yet been recognised as expenses.

Impairment is tested in a defined order. Impairment losses under other standards (IAS 2, IAS 16, IAS 38) are recognised first; the IFRS 15 test is then applied to the remaining contract cost asset. Where the asset forms part of a cash-generating unit under IAS 36, the carrying amount used in the IAS 36 test is the amount after the IFRS 15 impairment.

Impairment losses are reversed in profit or loss where the impairment conditions improve or cease to exist, capped at the carrying amount that would have been determined had no impairment loss been recognised previously.

Presentation

When either party has performed, the contract is presented in the statement of financial position as a contract asset or a contract liability, depending on the relationship between the entity's performance and the customer's payment.

Presentation is determined at the contract level, not the performance obligation level, so obligations within a single contract are netted to a single contract asset or contract liability. Separate contracts with the same customer are not offset unless the contracts are combined.

Two impairment points follow:

• Contract assets are tested for impairment under IFRS 9 and the loss is measured, presented and disclosed on the same basis as a financial asset within the scope of IFRS 9.
• Trade receivables are initially measured under IFRS 9. Where the amount initially recognised for the receivable differs from the revenue recognised — for example where a significant credit loss is expected on day one — the difference is presented as an impairment expense, not as a reduction of revenue.

Revenue itself is presented in the statement of profit or loss. Under IFRS 18, revenue from contracts with customers sits in the operating category, and the standard's aggregation and disaggregation requirements interact directly with the IFRS 15 disaggregation disclosure below.

Disclosure Requirements

The disclosure objective is to enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Six areas are required.

Two practical expedients relieve the remaining performance obligations disclosure: it need not be given for contracts with an original expected duration of one year or less, or where revenue is recognised at the amount the entity has the right to invoice. Where an expedient is applied, that fact must itself be disclosed.

In practice, disaggregation is usually presented on the axes management already uses internally — for example geographical region, type of goods sold or services rendered, and contract duration:

Where revenue arises from sources outside IFRS 15 — rental income, interest income, dividends — the revenue note should separate revenue from contracts with customers from revenue from other sources, and only the former is disaggregated.

Interaction with Other Standards

IFRS 15 Compared to ASC 606

IFRS 15 and ASC 606 Revenue from Contracts with Customers were developed jointly and are substantially converged — the five steps, the control principle and the application guidance are the same. A handful of deliberate differences remain.

The pattern mirrors the lease standards, where a converged project also ended in two similar but non-identical standards — see our comparison of ASC 842 and IFRS 16.

Key Judgement Areas

Conclusion

IFRS 15 applies one control-based model to every contract with a customer: identify the contract and the promises within it, determine what the entity expects to be entitled to, allocate that amount across the promises, and recognise revenue as control passes. The five steps settle the framework; the application guidance on variable consideration, financing, principal versus agent assessments, material rights, licences and repurchase agreements is where most of the judgement sits.

Where an arrangement falls on the boundary between revenue and leasing, the analysis begins with identifying whether a contract contains a lease, and our IFRS 16 complete guide sets out the accounting that follows for both parties. How the resulting revenue is then presented and disaggregated is governed by IFRS 18, covered in our IFRS 18 transition guide.

For clarification, guidance, or feedback on our article, please reach out to us at insight@leash.co.za.