IFRS 15: Revenue from Contract with Customers

About IFRS 15

International Financial Reporting Standard (IFRS) 15: Revenue from Contracts with Customers was introduced by the International Accounting Standards Board to provide one comprehensive revenue recognition model for all contracts with customers to improve comparability within industries, across industries, and across capital markets.

The new rules on revenue recognition became effective from 1 January 2018 and it replaces former revenue recognition standards ( IAS 11 - Construction Contracts, IAS 18 - Revenues) and most of other revenue recognition guidance (IFRIC 13 - Customer Loyalty Programmes, IFRIC 15 - Agreements for the Construction of Real Estates, IFRIC 18 - Transfers of Assets from Customers, and SIC 31 - Revenue - Barter Transactions Involving Advertising Services).

For many companies the impact will be manageable. But for those with large numbers of customer contracts, diverse or constantly changing terms, the impact could be significant unless action has been taken to mitigate the impact of IFRS 15.

Here's what you need to know:

  • It replaces all existing revenue recognition under the International Financial Reporting Standards
  • It may result in a substantial change in the amount and timing of revenue recognition
  • Significantly more qualitative and quantitative disclosures are required


  • Revenue from bundled goods and services requires separation and may result in deferring or accelerating revenue
  • The provision of incentives to purchase (e.g. free goods or services provided as part of a sale) may require separation
  • Modifications to long term contracts are likely to take place over the contract term
  • Explicit guidance on the treatment of licenses may change the timing of revenue recognition
  • The guidance on contract costs is expected to result in the recognition of more assets

  • Your method of adoption (full retrospective or modified retrospective)
  • Stakeholders will need access to consistent historical financial records including quantification of the effect of IFRS 15 on the accounts
  • Choosing the right system for the future – system implementation can take a number of years to get right, you may need an interim solution to meet the requirements of adoption
  • Bear in mind other changes in IFRS – IFRS 9 (financial instruments) in 2018 and IFRS 16 (leases) in 2019

  • Bundled offerings - What proportion of your customer offerings are bundled products and services (e.g. equipment plus maintenance agreement, software plus updates, goods plus extended warranty)?
  • Significant financing component - Do you offer different pricing to customers based on the timing of their payment? Are payment terms significantly different from timing of when goods or services are transferred?
  • Licenses - Do you have significant license arrangements? Do those license arrangements include other services?
  • Contract profiles - What is the volume of customer contracts you enter into, and how diverse are their terms and conditions? How often do the terms of those contracts change?
  • Timing of revenue recognition - Do you construct or manufacture assets that are unique to your customers? Have you considered when you transfer control of the goods and services to your customers?

5-step model

The core principle of IFRS 15 is that revenue is recognised when the goods or services are transferred to the customer, at the transaction price. Revenue is recognised in accordance with that core principle by applying a 5-step model as shown below.

Step 1: Identify contract(s) with customer

A contract creates enforceable rights and obligations. It may be written, oral or implied by customary business practice.

Combine contracts when they are entered into at or near the same time and are negotiated as a package, payment of one depends on the other, or goods/services promised are a single performance obligation.

A contract modification is accounted for as a separate contract or continuation of the original contract prospectively or with cumulative catch-up, depending on facts and circumstances.

Step 2: Identify separate performance obligations in the contract(s)

Performance obligations are promises in a contract to transfer goods or services, including those a customer can resell or provide to its customer.

Use the model's indicators to separate the performance obligations if they are capable of being distinct and if they are distinct based on the context of the contract (separately identifiable from other promises in the contract).

Step 3: Determine the transaction price

Transaction price is the amount of the consideration an company is entitled to receive in exchange for transferring goods or services to customers.

Determining the transaction price is straightforward when the contract price is fixed: it becomes more complex when it is not fixed.

Discounts, rebates, refunds, credits, incentives, performance bonuses, and price concessions could cause the amount of consideration to be variable.

In situations where there are variable considerations, transaction price is estimated based on the expected value or the most likely amount but is constrained up to the amount that is highly probable of no significant reversal in the future.

The minimum amount that meet this criteria is included in the transaction price.

Assess your experience with similar types of performance obligations in making this determination.

Step 4: Allocate the transaction price

Transaction price should be allocated to distinct performance obligations based on relative standalone selling price.

This may be the standalone selling price of a good or service when sold separately to a customer in similar circumstances and to similar customers.

If a standalone selling price is not directly observable, estimate it by considering all information that is reasonably available, such as market conditions, specific factors, and class of customers.

Step 5: Recognise revenue when the performance obligation is satisfied

Recognise revenue when the promised goods or services are transferred to the customer and the customer obtains control.

This may be over time or at a point in time. The new standard provides indicators when control is transferred.

Additionally, the new standard introduces a new concept and revenue is required to be recognised over time when:

  • the asset being created has no alternative use to the company; and

  • the company has an enforceable right to payment for performance completed to date

Useful resources

IFRS 15: revenue reporting’s global makeover

Read our expert's insights on IFRS 15

PwC's IFRS 15 the basics – Introduction to the standard

The PwC revenue specialists have started a new series of videos covering IFRS 15: Revenue from Contracts with Customers. The short video series are intend to quickly help you understand IFRS 15. This first video covers the basic principles including the 5 step model in IFRS 15.

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Tran Hong Kien

Partner, Assurance Services, PwC Vietnam

Tel: +84 24 3946 2246