Chetan Suri

<p><span style="color:#000080"><strong>What&rsquo;s the effective date and transition?</strong></span></p> <p><span style="color:#000080">IFRS 15 shall be applied in the IFRS based financial statements for annual reporting period starting on or after 1<sup>st</sup> January 2018.</span> This Standard also allows for earlier application. However, where an entity chooses for earlier application, it must disclose facts for it.</p> <p>Where this Standard is applied for the first time:</p> <ol> <li>Entity should apply it in full for current period.</li> <li>In respect of prior periods, guidance allows entities an option to either:</li> </ol> <ul> <li>Apply in full to previous periods; or</li> <li>Retain prior period figures and recognise a cumulative effect of IFRS 15 as an adjustment to the opening balance of equity on date of initial application.</li> </ul> <p style="margin-left:72.0pt">&nbsp;</p> <p><span style="color:#000080"><strong>What&rsquo;s the objective, scope and superseded standards?</strong></span></p> <p>IFRS 15 <strong>establishes principles</strong> that an entity shall apply to report all the useful information to users of financial statements about the amount, nature, timing and uncertainty of revenue and cash flows arising from contract with a customer.</p> <p>The <strong>new revenue model would apply</strong> to all the contracts with customers except insurance contracts, financial instruments, leases, guarantees and certain non-monetary exchanges.</p> <p><strong>IFRS 15 supersedes:</strong> &middot; IAS 18 Revenue; &middot; IAS 11 Construction contracts; &middot; IFRIC 13 Customer Loyalty Programmes; &middot; IFRIC 15 Agreements for the Construction of Real Estate; &middot; IFRIC 18 Transfers of Assets from Customers; and &middot; SIC-31 Revenue &ndash; Barter Transactions Involving Advertising Services.</p> <p>&nbsp;</p> <p><span style="color:#000080"><strong>Key Requirements:</strong></span></p> <p>IFRS 15 establishes a single comprehensive five-step model for all entities to use in accounting for revenue arising from contracts with customers. This is as follows:</p> <ol> <li>Identify the contracts with the customers;</li> <li>Identify the performance obligation in the contract;</li> <li>Determine the transaction price;</li> <li>Allocate the transaction price to the performance obligations in the contracts;</li> <li>Recognise the revenue when or as the entity satisfies the performance obligation.</li> </ol> <p>&nbsp;</p> <p>For application of each steps of model in relation to contracts with their customers, it requires entities to take into consideration all the relevant facts and circumstances for <strong>exercising judgement</strong>.</p> <p>&nbsp;</p> <p>IFRS 15 also specifies for <strong>how to account for incremental cost</strong> of obtaining contracts and cost directly related to fulfilling a contract.</p> <p>&nbsp;</p> <p><strong>Guidance is also provided</strong> on topics such as the point in which revenue is recognised, accounting for variable consideration, costs of fulfilling and obtaining a contract and various related matters. New disclosures about revenue are also introduced.</p> <p>&nbsp;</p> <p><span style="color:#000080"><strong>Presentation in financial statements:</strong></span></p> <p>Contracts with the customers will be presented in the financial statements as contract asset or receivable, or a contract liability depending upon the relationship between entity&rsquo;s performance and the customer payment.</p> <p>A contract liability is presented where the amount of contract is received before completion of performance.</p> <p>&nbsp;</p> <p><span style="color:#000080"><strong>Disclosures:</strong></span></p> <p>An entity should disclose quantitative and qualitative both types of information about all the following:</p> <ol> <li>its contracts with customers;&nbsp;</li> <li>the significant judgments, and changes in the judgments, made in applying the guidance to those contracts; and&nbsp;</li> <li>any assets recognised from the costs to obtain or fulfil a contract with a customer.</li> </ol> <p>Thus, to achieve the disclosure requirement, Standard issued a number of new disclosures which can be found in the IFRS 15.</p> <p>&nbsp;</p> <p><span style="color:#000080"><strong>To conclude:</strong></span></p> <p>We can say that the disclosure requirements of IFRS 15 are more extensive where these are compared to current IFRS requirements. It provides more application guidance. Adoption of this standard requires exercising judgements as there would be significant potential changes in current accounting system. Thus, it is important to implement this standard successfully by assessing the changes correctly.</p>

IFRS 15- Revenue from Contracts with Customers