Chunikhina T. Yu., ACCA

When assessing the financial condition of an organization, revenue, along with net profit, is the most important item in financial reporting. However, it cannot be determined without assessing revenue, which, as a rule, represents the most significant item in the statement of comprehensive income.

The second part addresses the following questions:

- How should costs be recognized under contracts with customers?

- What information disclosures are required by IFRS 15?

- What requirements for the presentation of information does IFRS 15 establish?

- What standards and clarifications does IFRS 15 replace?

- When does IFRS 15 come into force and what options exist for transition to IFRS 15?

- What impact will IFRS 15 have on the reporting of organizations?

- What actions should be taken and when to apply the new standard?

15. How should costs be recognized under contracts with customers?

Costs under contracts with customers are additional (incremental) costs associated with concluding contracts with customers and costs associated with the execution of such contracts.

Such costs are recognized as assets when the conditions specified below are met. These assets are depreciated on a systematic basis over a period that is consistent with the pattern of transfer of the goods or services to which they directly relate.
IFRS 15 applies to the accounting for costs associated with fulfilling a contract only if they are not within the scope of other applicable standards (for example, IAS 2 Inventories, IAS 16 Property, Plant and Equipment, IAS 38 "Intangible assets").

For information

Incremental costs associated with entering into contracts are those costs that would not have been incurred if the contract had not been entered into, such as sales commissions.

In relation to incremental costs associated with entering into contracts with customers, IFRS 15 states that if an entity expects to recover such costs at a later date, they are recognized as assets if their amortization period is more than one year. If their amortization period is less than a year, they are recognized as an expense.

Example 20

An organization providing consulting services has won a tender to provide consulting services to a new buyer. The following costs were incurred:

legal services for preparing a tender proposal - 100;

travel expenses - 200;

commissions paid on employee sales - 150.
Total costs: 450.

According to IFRS 15, the organization recognizes an asset in the amount of 150 as additional costs associated with the conclusion of the contract, since it assumes future reimbursement of these costs through the receipt of cash for consulting services.

Legal fees for the preparation of the tender proposal and travel expenses were incurred regardless of whether the tender was won or not, therefore they are not capitalized, but are recognized as expenses in the period in which they were incurred.

The organization also pays an annual bonus to employees responsible for sales, based on the achieved quantitative indicators - sales volume, overall profitability and individual performance indicators. Such costs are not capitalized because they are not incremental costs associated with entering into contracts and cannot be directly attributed to specific contracts with customers.

Costs associated with fulfilling contracts with customers are recognized as assets if they satisfy all of the following:
criteria:

they are directly related to an existing or proposed contract that the organization can specifically identify;
they generate or improve the organization’s resources, which will be used in the future to fulfill obligations under contracts;
reimbursement of these costs is expected subsequently.

Examples of such costs may be: direct material costs; labor costs; distribution of overhead costs directly related to the contract; costs that are subject to reimbursement by the buyer; other costs that were incurred solely because a contract was entered into with the buyer.

16. What disclosures are required by IFRS 15?

IFRS 15 provides disclosures designed to enable users of financial statements to understand the nature, amount and timing or period of recognition of revenue, as well as the uncertainty associated with revenue and cash flows arising from the performance of obligations under contracts with customers. These disclosures are:

revenue recognized under contracts with customers, including the breakdown of revenue into components;
balances under contracts, including:
- incoming and outgoing balances of accounts receivable, contract assets and contract liabilities;
- revenue recognized in the reporting period that was included in opening balances of contractual obligations;
- revenue recognized in the reporting period for contractual obligations fulfilled in previous periods;
obligations under contracts with customers to be performed, including a description of how the entity typically satisfies the obligations, including:
- significant terms of payment;
- the type of goods and services promised to be transferred under contracts;
- obligations for returns, refunds and other similar obligations;
- types of guarantees and other similar obligations;
the transaction price, which is distributed among the remaining obligations under the contract;
significant judgments and changes thereto regarding requirements of contracts with customers, including:
- the time period for fulfilling obligations under contracts with customers;
- the transaction price and amounts allocated to obligations to be fulfilled under the contracts;
recognized assets for costs associated with concluding and executing contracts with customers, including:
- a description of the judgment used to determine cost amounts and the depreciation method used in each reporting period;
- closing balances of recognized assets at costs;
- the amount of depreciation and any impairment losses recognized in the reporting period.

17. What requirements for the presentation of information does IFRS 15 establish?

An entity presents information about the performance of contracts with customers in the statement of financial position as a contract asset or a contract liability, depending on the extent to which the entity has fulfilled its obligations and the customer has made payment under the contract.

Any unconditional right to remuneration is presented separately as .

If the customer makes an advance payment before the entity transfers control of the relevant good or service to the customer, a contractual liability is presented in the statement of financial position.

If the buyer has not yet paid the appropriate consideration for the transfer of goods or services, the statement of financial position presents:

contractual asset (the right of an organization to consideration in exchange for goods or services transferred to the buyer, which is due to a reason other than the passage of time - for example, the future performance of obligations under the contract by the organization (see also the example in question 2);
or accounts receivable (an unconditional right to remuneration that does not depend on the passage of time).

The contract asset and receivable and any impairment relating to them must be accounted for in accordance with IFRS 9 Financial Instruments.

The difference between the amount of receivables initially recognized and the amount of revenue should be recognized as an impairment charge.

18. What standards and interpretations does IFRS 15 replace?

With the entry into force of IFRS 15, the following IFRSs will no longer be valid:

IAS 18 Revenue;
IAS 11 Construction Contracts;
IFRIC 13 Customer Loyalty Programs;
IFRIC 15 “Agreements for the construction of real estate”;
IFRIC 18 Transfers of Assets from Customers;
Clarification of the SIC 31 “Revenue - barter transactions, including advertising services.”

19. When does IFRS 15 come into force and what are the options for transition to IFRS 15?

IFRS 15 is effective for reporting periods beginning on or after 1 January 2017, with earlier application permitted. Thus, it will need to be applied when preparing interim reports in 2017, as well as annual reports for 2017 and thereafter.

It applies to new contracts entered into since the effective date of IFRS 15, as well as to existing contracts that are not completed on the effective date.

You have the choice of retrospective application, retrospective application with partial exemptions (capital adjustment date - January 1, 2016) or use of a modified approach upon transition to the new standard.

Under the modified approach, data for comparative periods is not restated. Instead, the entity recognizes the cumulative effect of the first adoption of IFRS as an adjustment to the opening balance of retained earnings at January 1, 2017.

Comparative figures for the year ended 31 December 2016 are not restated. It is necessary to disclose revenue in accordance with previously applied accounting principles, as well as the amount by which each financial statement line item changed during the reporting period compared to the amounts determined in accordance with previously applied revenue accounting standards.

For example, if a contract with a buyer was concluded in 2015 and is valid until mid-2018, then in the annual reports for 2017:

in case of applying the retrospective approach, the balance of accumulated profit as of 01/01/2016 (for 2015) and 01/01/2017 (for 2016) is recalculated;
in case of applying the modified approach, data for 2015 and 2016 are not recalculated; an adjustment is made to the incoming accumulated profit as of 01/01/2017 to reflect the accumulated effect as of this date, which represents the amount of change in the accumulated profit compared to the indicators determined in accordance with previously applicable revenue accounting standards.

All entities will be required to disclose the impact of changes in accounting policies resulting from the adoption of the new standard.

In the 2014 annual accounts, IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors will require disclosure of an assessment of the potential impact of IFRS 15 on financial statements when it becomes effective.

20. What impact will IFRS 15 have on corporate reporting? What actions should be taken and when to implement the new standard?

IFRS 15 will affect all entities, but in different ways depending on their type of activity.

For example, credit institutions are expected to be less affected as interest income, which makes up the majority of banks' income, and dividend income are not subject to IFRS 15.

IFRS 15 is expected to have the greatest impact on activities related to asset management, construction, franchising, pharmaceuticals, real estate transactions, software development, and telecommunications, including mobile networks and cable lines.

The level of disclosures may also vary depending on the type of activity of the selling organization.

The most significant impact of IFRS 15 will be on multiple delivery contracts, multi-element contracts that include delivery, customization, design development, post-contract servicing and the supply of upgrades. These components may represent separate performance obligations to which the transaction price will need to be allocated based on the individual selling price of the component.

Contracts that provide for changes in price based on the occurrence of events, the existence of a right of return, pricing based on discounts or the rate of achievement of objectives will need to be assessed for variable consideration using judgment and estimates, included in the overall transaction price and reflected in reporting as an element of revenue.

In terms of costs, it will be necessary to identify the costs of loss of material and labor resources due to ineffective activities that cannot be capitalized, as well as capitalized costs - for example, learning curve costs, activation and installation. It will be necessary to determine and include in the information system the basis for the amortization of these costs - for example, depending on the duration of the contract, while distinguishing between contracts with a validity period of more than a year and up to a year (in this case, the costs are not capitalized, but are expensed).

It seems appropriate to first evaluate:

the most significant types of revenue streams, as well as analyze the main types of contracts that generate this revenue, paying particular attention to rolling long-term contracts, in terms of the need to amend them and the potential integration of their material terms that affect the recognition of contract assets, contract liabilities and revenue, in accounting system; Additional knowledge of national and international laws regarding enforceable obligations under contracts with customers may be required;
the need to make changes to information systems for contract data that are important for revenue recognition purposes in accordance with IFRS 15, as well as to internal control systems, key performance indicators (KPIs), remuneration and bonus programs, and dividend policy;
the need to change the level of interaction and information exchange between accounting employees and employees responsible for sales, which is required for the correct and timely recognition of revenue at a specific point in time or as obligations under the contract are fulfilled, making the necessary disclosures, including in terms of contractual assets and contractual obligations;
the impact of new approaches to revenue recognition on financial results, assets and liabilities, performance indicators, including from the point of view of investors, as well as compliance with covenants.

Revenue recognition rules have changed dramatically over the past few years with the advent of the new IFRS standard. Companies face many challenges and additional work to properly implement this standard. Let's consider its basic rules and principles.

What is the purpose of IFRS 15?

IFRS 15 sets out the principles that apply when reporting:

character;
size;
timing; and
uncertainty

revenue and cash flows under the contract with the buyer.

It must be especially emphasized that we are talking about "agreements with the buyer". If you have a contract with a party other than the buyer, IFRS 15 does not apply.

Sometimes it is quite difficult to determine whether you are dealing with a buyer or just a collaborator (for example, mutual development projects with other organizations), so be careful!

Also, keep in mind that there are some exceptions to IFRS 15, namely:

Leases (IAS 17 or IFRS 16);
Financial instruments and other rights and obligations under IFRS 9, IFRS 10, IFRS 11, IAS 27, IAS 28;
Non-monetary payments between organizations within the same business to service sales.

5 steps to recognize revenue under IFRS 15.

The main objective of IFRS 15 is to recognize revenue in a manner that reflects the transfer of goods/services to customers, at the amount of the expected consideration, in exchange for those goods or services.

This seems clear and very easy at first glance, and this is true in many cases. But Why is IFRS 15 so extensive?

Probably because many situations in practice are not simple, and companies recognize income differently in such cases, for example:

Buy 1 product + get 1 product free;
Buy a monthly prepaid mobile plan + get a free phone;
Earn loyalty points and receive free goods in exchange for them later;
Receive bonuses for delivery; and so on.

To systematize various situations, IFRS 15 requires the use of 5-step model for revenue recognition.

This model is shown in the following diagram:

Let's describe it in more detail.

Step 1: Identification of the contract with the buyer.

Agreement is between two or more parties that creates legally enforceable rights and obligations
[cm. definition in IFRS 15:Annex A].

You need to apply IFRS 15 to all contracts that meet the following 5 characteristics [see IFRS paragraph 15:9):

The parties to the agreement have approved it and undertake to fulfill it;
The rights of each party to the transferred goods/services are determined;
Payment terms are determined;
The agreement has a commercial content; and
There is a high probability that the company will receive a refund - here it is necessary to assess the client's ability and intention to pay.

Thus, if the contract does not meet all 5 criteria, then you apply a standard other than IFRS 15.

Therefore, be careful with intra-group transactions, as they are often non-commercial in nature (as these companies often transfer inventory and other goods to each other at prices other than market prices).

IFRS 15 provides guidance on combining and modifying contracts.

Merger of contracts occurs when you need to account for two (or more) contracts not separately, but as 1 contract. IFRS 15 sets out the criteria for combined accounting.
[cm. IFRS paragraph 15:17]
Modification of the contract is a change in quantity, nomenclature, price, or both. In other words, when you add certain goods or services or provide an additional discount, you are essentially dealing with a modification of the contract.
[cm. IFRS paragraphs 15:9 - 16]

IFRS 15 sets out different accounting methods for individual contract modifications, depending on certain conditions.

Step 2: Determine the performance obligations in the contract.

Performance obligation- this is any product or service that an enterprise undertakes to transfer to a client (supply a product or provide a service) under a contract.

As defined in IFRS 15:Appendix A, a performance obligation is:

A distinctive good or service, or a package of them ( English "bundle"); or
A series of distinct goods or services that are substantially the same and have the same pattern of delivery to the customer.

An essential characteristic of a performance obligation is "distinctness". Simply put, distinctiveness means that a good or service can be identified separately from other contractual obligations.

IFRS 15 sets out the criteria by which you must determine whether a performance obligation is distinct or not.

It's worth noting that this is extremely important and you must do it correctly.

This is because in later steps you will account for the distinct performance obligations and their revenue separately according to their selling price, and if you fail to correctly identify the distinct performance obligations, then the entire accounting for the contract will be incorrect.

Performance obligations may be: obvious(for example, specified in the contract), and implicit(for example, implied trade practices).

In addition, if there is no transfer of goods or services to the customer, then there are no performance obligations.

For example, imagine that you are constructing a building for your client. Before you start construction, you will install a small mobile toilet for your workers. Since it will not be transferred to your client, it will not be a distinct performance obligation.

Step 3: Determining the transaction price.

Transaction price represents the amount of consideration a company expects to receive in exchange for the transfer of promised goods or services to a customer, excluding amounts received on behalf of third parties [see definition in IFRS 15:Annex A].

This is the definition from the standard, in other words, it says what you expect to receive from your customer in exchange for your supplies.

The transaction price is not always the price specified in the contract. This is what you expect to receive.

This means you need determine the transaction price.

First, you need to take the contract price as some basis (if possible).

Then you need to consider some factors such as:

Variable compensation- are there any bonuses or discounts, for example, a volume discount?
(See also: IFRS 15 - How to account for variable consideration?)
Is it defined procedure for assessing and receiving variable compensation- you should only include variable consideration in the transaction price when there is a high probability that you will be able to collect it (this is a gross oversimplification);
Significant funding component- if your clients pay you late, will the payments reflect the time value of money?
(see also: IFRS 15 - Significant financing components in contracts)
Non-monetary compensation- do you receive any goods or services from your buyer in exchange for your goods or services?
Remuneration paid to the client- Do you provide vouchers or discount coupons to your customers?
And other factors.

Step 4: Allocate the transaction price to the performance obligations.

Once you have identified the performance obligations under the contract and determined the transaction price, you need to allocate that transaction price to the individual obligations.

The general principle is to do this based on relative stand-alone selling prices English "relative stand-alone selling prices"), but there are 2 exceptions where you do the allocation differently:

When distributing discounts and
When distributing variable compensation.

Stand-alone selling price- this is the price at which an enterprise would sell a product or service to a customer separately (and not together with other items).

The best way to determine a standalone selling price is to simply use known selling prices, and if these are not available, you need to estimate them.

IFRS 15 provides several methods for estimating stand-alone selling price, such as adjusted market measurement, etc.

Step 5: Recognize revenue at a point in time or as the entity satisfies the performance obligation.

A performance obligation is satisfied (and revenue is recognized) when the promised good or service is transferred to the customer. In this case, control over the product or service is transferred to the buyer.

The performance obligation can be fulfilled:

During the period- in this case, control is transferred to the client for a certain period of time (for example, the term of the contract); or
(See also IFRS 15 - How to measure revenue recognized during a period?)
At a certain point in time- in this case, control is retained by the supplier until the object is transferred at some point.

IFRS 15 sets out several criteria by which you must recognize revenue over time. In all other cases, revenue is recognized at a specific point in time.

Apart from these 5 steps, IFRS 15 regulates several other areas such as contract costs.

Contract costs.

IFRS 15 contains rules for two types of contract costs:

1. Costs of concluding a contract. These are additional costs associated with concluding a contract. For example, legal fees, etc. These expenses are not expensed in profit or loss.

Instead, they are recognized as an asset if they are expected to be amortized (except for contract costs associated with entering into a contract for a term of less than 12 months).

2. Costs of fulfilling the contract. If these costs are within the scope of IAS 2, IAS 16, IAS 38, then you must account for them in accordance with the relevant standard. If not, you should expense them only if certain criteria are met.

Polina Sungurova Deputy Director of the International Reporting Department at FBK
Magazine "Actual Accounting"

The start date for the mandatory application of IFRS 15 Revenue from Contracts with Customers in Russia (hereinafter referred to as IFRS 15) has yet to be agreed upon. The fact is that the International Accounting Standards Board (IASB) recently issued clarifications, according to which the start date of its general application has been postponed from January 1, 2017 to January 1, 2018. At the same time, no clarifications have yet been made in Russian legislation (Order of the Ministry of Finance of Russia dated January 21, 2015 No. 9n).

However, this standard can be applied ahead of schedule - from the moment of its official publication by the IASB in May 2014.

Early application is supported by the fact that the new standard creates unified approaches to accounting for revenue for different types of contracts and replaces IAS 11 Construction Contracts (hereinafter referred to as IAS 11) and IAS 18 "Revenue" (hereinafter referred to as IAS 18).

IFRS 15 offers a more structured approach to revenue accounting, providing universal criteria for different contracts, avoiding all the vagueness and overly general provisions of previous standards. If previously there were different accounting models depending on what exactly was the subject of the contract - the sale of goods, the provision of services or construction, now all this is linked into a single mechanism with more detailed accounting details.

Features of application of IFRS 15

The new standard proposes several basic steps to be followed to recognize revenue for a specific contract. Let's look at them.

Step 1. First you need to understand whether all the criteria for recognition of the contract are met:

the contract must be approved in any form by all parties;
the contract must define the rights of the parties in relation to the transferred goods, works, services and the terms of payment for them;
payment must be probable.

At this stage, differences between the old and new standards that may affect accounting most often do not arise. However, because IFRS 15 requires consideration of the buyer's ability and intention to pay the consideration when payment becomes due, an entity needs to consider criteria such as the buyer's solvency and interest in the outcome of the work.

Step 2. Next, the obligations under the contract are determined, that is, what exactly the company sells. Typically, it is a good, work or service that is distinguishable from others. It is the sale of a distinct item that will be the unit of accounting for revenue.

Distinctive goods, works or services (products) are defined in the contract only if two conditions are simultaneously met:

the buyer can independently use these products separately from other products under the contract;
these products can be separately identified.

For most operations, revenue accounting under the old and new standards will not differ in the composition of the products sold. However, in cases where the contracts provide for the sale of combined products (for example, the provision of services with the simultaneous provision of equipment for their use; the provision of a discount on one product in the event of the purchase of another product; the sale of a license agreement for a product with the simultaneous provision of services for its promotion; the sale of equipment with additional services for its post-warranty maintenance), differences will arise that can significantly change the reporting indicators.

Step 3. Upon completion of the process of identifying obligations under the contract, the total price of the contract is determined, that is, the proceeds from its conclusion are estimated. At this stage, the company needs to consider the following nuances:

variable component of the contract cost;
significant funding component;
non-monetary compensation.

Let's look at each point in more detail.

Variable component of the contract value (discounts, credits, product returns, bonuses). IAS 18 asked only to determine whether it was probable that future economic benefits would flow from the transaction and whether all the risks and rewards of ownership of the product had been transferred to the buyer, and if these criteria were not met, then revenue should not be recognized.

IFRS 15 uses the concept of “transfer of control” instead of “transfer of risks and rewards” and sets out in detail the criteria for assessing the likelihood of the occurrence of those events that determine the recognition of revenue. Revenue can now be recognized if, based on experience and statistics, the company can determine the minimum amount that will be received with a high degree of probability.

It turns out that in some cases revenue recognition can be done at an earlier stage than suggested by IAS 18.

Significant financing component. IAS 18 addressed the issue of providing so-called trade credit only from the seller.

The reverse situation, where the buyer finances the seller, was not considered, since according to IAS 18, revenue should be measured at the fair value of the consideration received. It turns out that the situation with financing from the buyer - essentially a mirror one - is reflected in accounting in a completely different way.

IFRS 15 significantly changed the approach to recording the financing component. The amount of revenue reflects the price that the buyer would pay in cash at the time the promised goods or services were transferred to him. A new term has appeared - the “cash” selling price.

Let's look at an example.

Example

According to IAS 18. If the company sold goods for RUB 1,210,000. with payment in two years, it was necessary to discount the amount of revenue (assuming a discount rate of 10%) for a period of two years.

The company could record revenue in the amount of:

RUB 1,210,000 : (1 + 10%) x 2 years = RUB 1,000,000, and then recognize interest income in the amount of RUB 210,000 for two years. (for the entire period).

If the buyer paid an advance in the amount of 1,000,000 rubles, and the goods were delivered to him only two years later, first the seller recognized the accounts payable for the advance in full (1,000,000 rubles), and then, after two years, revenue in the same size.

According to IFRS 15. The situation with the provision of a trade loan to a buyer under IFRS 15 will be reflected in the same way.

In the case of advance delivery, if the buyer paid an advance two years before receipt of the goods, then a contractual obligation (advance payable) in the amount of 1,000,000 rubles must first be recognized, and then, within two years, interest expenses will be recognized, increasing this contractual obligation to RUB 1,210,000. After two years, revenue will be recognized to the extent of the resulting liability. The result will be recognition of revenue in the amount of RUB 1,210,000. and interest expenses in the amount of RUB 210,000.

Note that the difference between the amount under the contract and the monetary sale price may not be the result of financing, but may be caused by other factors, for example, a reflection of the risks of failure to fulfill obligations under the contract for one of the parties. In such a situation, the effect of financing should not be reflected.

For non-monetary compensation, the requirements of the old and new standards do not differ in essence. If payment for a good or service under a contract is not in the form of cash consideration, then revenue should be reflected at the fair value of the assets received.

Step 4. IFRS 15 introduced a new stage - the allocation of price per unit of accounting for revenue. As we discussed above, a single contract may provide for the supply of goods and services that are distinct from each other. The timing of revenue recognition for these distinct components may vary. Among other things, the new standard determines how general discounts under the contract should be distributed for each component separately.

IAS 18 does not prescribe how discounts should be allocated. The only provision of the standard that can be relied upon when making an allocation is that revenue must be measured at the fair value of the consideration received. Thus, in each individual case it is necessary to analyze the sale transaction and write down the details in the accounting policy.

IFRS 15 clearly states that the selling price must be allocated to each performance obligation, that is, to each distinct product in proportion to the stand-alone selling price. The stand-alone selling price is the price at which a company would sell the promised product or service to a customer separately. Its best evidence is the observable price of the distinguishable good or service, including the list price.

Example

Let's consider accounting for the sale by a mobile operator of a “service + product” package (mobile communications for a year and a smartphone). The total cost of the package is 5,000 rubles. The cost of a smartphone if purchased separately is 2,990 rubles, and the monthly cost of the service package after the first year is 400 rubles. per month. Thus, when purchasing a package, the discount is:

2990 rub. + 400 rub. x 12 months - 5000 rub. = 2790 rub.

It is necessary to distribute a discount of 2790 rubles. for both components.

The individual price of a smartphone is:

2990 rub. : (2990 rubles + 400 rubles x 12 months) x 100% = 38% of the total cost.

The separate cost of mobile communication service for one year is:

(400 rub. x 12 months): 7790 rub. x 100% = 62% of the total cost.

Thus, the company must recognize one-time revenue from the sale of a smartphone in the amount of:

5000 rub. x 38% = 1900 rub.

and monthly revenue from the sale of mobile communication services in the amount of:

(5000 - 1900) : 12 months. = 258.33 rub.

Another fairly common situation is when companies provide services, while providing the buyer with free equipment to use these services, for example, a modem when providing Internet connection services. For IAS 18, the sale of such a component is invisible, the revenue from its sale is zero, only revenue from the Internet connection service will be recognized. According to IFRS 15, revenue will be distributed in proportion to the stand-alone selling price.

Step 5. It is necessary to determine the moment of revenue recognition. At the final stage, the company decides the question: will revenue be recognized simultaneously or over a certain period of time?

IAS 18 requires revenue to be recognized when or as the firm satisfies its performance obligation by delivering a promised good or service to a customer. The asset is transferred at or as the buyer gains control of it. However, in some cases, revenue must be recognized over a certain period of time using the results method or the resource method, depending on the nature of the goods or services sold. Such cases arise when:

the buyer simultaneously receives and consumes the benefits associated with the seller's performance of the obligation as it is fulfilled, that is, it provides periodic recurring services;
in the process of the seller's performance of its obligation, an asset is created or improved, over which the buyer gains control as the asset is created or improved, for example, constructs a building;
the product being created has no alternative use, and the seller’s right to receive payment for the completed part of the work is protected, for example, he creates unique software for the client’s needs.

In all other cases, revenue is recognized immediately.

IFRS 15 clarifies the possibility and features of revenue recognition for different situations (right of return, guarantees, options, repurchase agreements, etc.). For example, to account for the transfer of products with a right of return, the selling company must recognize:

revenue from products transferred to the extent of the consideration to which it expects to be entitled (thus, no revenue will be recognized for products that are expected to be returned);
refund obligation;
asset (and corresponding adjustment to cost of sales) for the right to receive products from customers upon satisfaction of the refund obligation.

Example

According to IAS 18, if a wholesale company sells goods to a retail store and, after purchasing the goods, the store had the opportunity to return unsold goods within a month, the wholesale company's reporting recognized revenue only at the moment when the return of goods from the store became impossible .

Similarly, when an investor sold apartments at an early stage of construction, revenue was recognized in the financial statements only when the buyer signed the act of transferring the apartment, and this happened only after the house was completely built and accepted by the state commission.

Under IFRS 15, a wholesale company can recognize revenue based on returns from a retail store. Revenue for those goods that with a high degree of probability will not be returned can be recognized at the moment they are transferred to the retail store for sale. And for those goods for which a possible return is expected, recognize a liability. For example, if a company sells goods for only 120 rubles, of which it is sure that goods worth 100 rubles will not be returned, then revenue for 100 rubles should be recognized in the reporting. and a return obligation of 20 rubles.

In many cases, an investor can reflect the sale of apartments to an individual at the moment when, having analyzed the experience and statistics of sales and acceptance of similar objects by the state commission, he has the right to assert that with a very high degree of probability the act of transferring the apartment in the future will be signed by the buyer.

The new standard also provides much more detailed guidance on accounting for areas such as contract costs (including, for example, contract costs), warranties and licenses. At the same time, companies will have to provide information in disclosures in more detail.

In conclusion, the accounting for revenue when applying IFRS 15 instead of IAS 11 and IAS 18 will change significantly for many organizations. Companies involved in the licensing and sale of software, telecommunications, construction, the defense industry, and asset management are at risk. They will have to form new estimates and professional judgments, and possibly rebuild accounting processes, as the timing and general ability to recognize revenue and its measurement will change.

IFRS ( IFRS ) 15 is the new revenue recognition standard. Companies that have decided to apply IFRS starting from the new financial year ( IFRS ) 15, it will be necessary to formulate new estimates, professional judgments, and in some cases, restructure accounting processes.

The start date for the mandatory application of IFRS 15 Revenue from Contracts with Customers in Russia (hereinafter referred to as IFRS 15) has yet to be agreed upon. The fact is that the International Accounting Standards Board (IASB) recently issued clarifications, according to which the date of commencement of its general application has been postponed from January 1, 2017 to January 1, 2018. At the same time, no clarifications have yet been made in Russian legislation (Order of the Ministry of Finance of Russia dated January 21, 2015 No. 9n).

However, this standard can be applied ahead of schedule - from the moment of its official publication by the IASB in May 2014.

Features of application of IFRS 15

The new standard proposes several basic steps to be followed to recognize revenue for a specific contract. Let's look at them.

Step 1 . First you need to understand whether all the criteria for recognition of the contract are met:

The contract must be approved in any form by all parties;

The contract must define the rights of the parties in relation to the transferred goods, works, services and the terms of payment for them;

Payment must be probable.

Step 2 . Next, the obligations under the contract are determined, that is, what exactly the company sells. Typically, it is a good, work or service that is distinguishable from others. It is the sale of a distinct item that will be the unit of accounting for revenue.

Distinctive goods, works or services (products) are defined in the contract only if two conditions are simultaneously met:

The buyer may independently use these products separately from other products under the contract;

These products can be separately identified.

Step 3 . Upon completion of the process of identifying obligations under the contract, the total price of the contract is determined, that is, the proceeds from its conclusion are estimated. At this stage, the company needs to consider the following nuances:

Variable component of the contract value;

Significant funding component;

Non-monetary compensation.

Let's look at each point in more detail.

Variable component of contract value(discounts, credits, product returns, bonuses). IAS 18 asked only to determine whether it was probable that future economic benefits would flow from the transaction and whether all the risks and rewards of ownership of the product had been transferred to the customer, and if these criteria were not met, then no revenue should be recognized.

It turns out that in some cases revenue recognition can be done at an earlier stage than suggested by IAS 18.

Significant funding component. IAS 18 addressed the issue of providing so-called trade credit only from the seller.

Let's look at an example.

EXAMPLE

The company could record revenue in the amount of:

RUB 1,210,000 : (1 + 10%) x 2 years = RUB 1,000,000, and then recognize interest income in the amount of RUB 210,000 for two years. (for the entire period).

According to IFRS 15. The situation with the provision of a trade loan to a buyer under IFRS 15 will be reflected in the same way.

At non-monetary compensation the requirements of the old and new standards are essentially the same. If payment for a good or service under a contract is not in the form of cash consideration, then revenue should be reflected at the fair value of the assets received.

Step 4 . IFRS 15 introduced a new stage - the allocation of price per unit of accounting for revenue. As we discussed above, a single contract may provide for the supply of goods and services that are distinct from each other. The timing of revenue recognition for these distinct components may vary. Among other things, the new standard determines how general discounts under the contract should be distributed for each component separately.

EXAMPLE

2990 rub. + 400 rub. x 12 months - 5000 rub. = 2790 rub.

It is necessary to distribute a discount of 2790 rubles. for both components.

The individual price of a smartphone is:

2990 rub. : (2990 rubles + 400 rubles x 12 months) x 100% = 38% of the total cost.

The separate cost of mobile communication service for one year is:

(400 rub. x 12 months): 7790 rub. x 100% = 62% of the total cost.

Thus, the company must recognize one-time revenue from the sale of a smartphone in the amount of:

5000 rub. x 38% = 1900 rub.

and monthly revenue from the sale of mobile communication services in the amount of:

(5000 - 1900) : 12 months. = 258.33 rub.

Step 5 . It is necessary to determine the moment of revenue recognition. At the final stage, the company decides the question: will revenue be recognized simultaneously or over a certain period of time?

The buyer simultaneously receives and consumes the benefits associated with the seller's performance of the obligation as it is fulfilled, that is, it provides periodic recurring services;

In the process of the seller's performance of its obligation, an asset is created or improved, over which the buyer gains control as the asset is created or improved, for example, constructs a building;

The product being created has no alternative use, and the seller’s right to receive payment for the completed part of the work is protected, for example, he creates unique software for the client’s needs.

In all other cases, revenue is recognized immediately.

Revenue from products transferred to the extent of the consideration to which it expects to be entitled (thus, no revenue will be recognized for products expected to be returned);

Refund Obligation;

An asset (and corresponding adjustment to cost of sales) for the right to receive products from customers upon satisfaction of the refund obligation.

EXAMPLE

2015-02-24 30

IFRS 15 Revenue from Contracts with Customers: Summary of the New Standard

KFO No. 9 2014
Asadova E.V.,
Director of PwC Russia

The article was provided by the editors of the journal “Corporate Financial Reporting. International Standards" within the framework of the joint project "IFRS Methodology for Companies and Experts" of the Publishing House "Methodology" and the Financial Academy "Asset" for experts in the field of IFRS.

The entire IFRS methodology, expert comments, practical developments, and industry recommendations are available with an annual and semi-annual subscription to the magazine.

IFRS 15 “Revenue from Contracts with Customers” (hereinafter IFRS 15) contains a new model for revenue recognition and involves a significant increase in the scope of disclosure requirements. The standard will certainly impact, and in many cases significantly change, companies' current approaches to revenue recognition. The purpose of this article is to review individual theoretical provisions of the standard and analyze how they will affect companies' existing approaches to revenue recognition.

IFRS 15 introduces a fundamentally new concept for revenue recognition. A number of new concepts and new guidance are introduced on certain revenue recognition issues, for example:

separate obligations for the execution of the contract;
new guidance regarding timing of revenue recognition;
the concept of variable consideration, which is used to determine the amount of revenue recognized when the amount of revenue may change;
new guidance regarding the allocation of transaction prices among individual obligations;
accounting for the time value of money.

FOR REFERENCE

The new IFRS 15 standard is the result of many years of efforts to bring IFRS and US GAAP closer together. Probably due to this circumstance, the new revenue standard turned out to be quite voluminous - it is about 350 pages, which is an order of magnitude more impressive than the current guidance regarding revenue recognition.

Current guidance on revenue recognition is contained in two standards: IAS 18 Revenue and IAS 11 Construction Contracts - and a number of interpretations: IFRIC 13 Customer Loyalty Programs, IFRIC ( IFRIC) 15 “Agreements for the construction of real estate”, RPC (SIC) 31 “Revenue - barter transactions, including advertising services.”

Given the large amount of work, a working group on the transition to IFRS 15 was created, which will monitor implementation practices, determine the need to develop additional guidance, act as a platform for discussing complex issues of the practical application of the new standard between various user groups, etc.

The standard is effective for annual periods starting January 1, 2017 , and requires retrospective application; however, the standard provides for a number of practical exceptions. Alternatively, a simplified approach to retrospective application is possible.

In accordance with the simplified approach, comparative data is revised only for contracts in force (not completed) as of January 1, 2017.

Thus, companies are given significant time to prepare and switch to the new standard. This is primarily due to a completely different revenue recognition model, which could potentially entail the need for significant changes to existing IT solutions and business processes.

The table summarizes the major changes to the revenue recognition model compared to current guidance.

Current guidance provides for different approaches to revenue recognition depending on the type of transaction (supply of goods, provision of services, construction contracts). IFRS 15 introduces a single model for accounting and determining when revenue is recognized, regardless of the type of transaction. This model must be applied to each individual performance obligation within the contract.

Determining when revenue is recognized in accordance with IAS 18 guidance is based on the criteria for the transfer of risks and rewards. The new standard introduces the concept of change of control. The standard states that professional judgment is required to determine when control changes and that one of the indicators of a change in control is the transfer of risks and rewards. At the same time, there are other indicators that need to be considered to resolve the issue of the moment of transfer of control: the right to payment, the rights of physical use, the fact of acceptance of the product/service by the client. In general, the concept of control is broader, and in theory, when new guidance is applied to a number of transactions, the timing of revenue recognition may be different from that required by current guidance.

Another distinctive feature of the new standard is the large number of detailed guidelines on specific issues, for example: how to identify individual performance obligations; how to allocate the transaction price among individual performance obligations; what to do in the case when the amount of remuneration may change (approach to the so-called variable compensation); how to account for revenue from the transfer of licenses, etc.

Scope of IFRS 15

The new revenue standard applies to all contracts with customers. In doing so, the standard offers guidance on what constitutes a contract and introduces a definition of client.

It establishes a closed list of operations that are outside the scope of the new standard, namely:

rent;
insurance;
financial instruments;
financial guarantees;
exchange of similar goods between companies in the same industry for the purpose of simplifying the logistics of sales to customers.

In practice, complex cases are possible when the same contract has elements that are subject to the new revenue standard and elements that should be regulated by the requirements of other standards.

New model

The new revenue recognition model under IFRS 15 consists of mandatory five steps:

Step 1. Determining the relevant customer agreement

Step 2. Determination of individual obligations to perform the contract

Step 3. Determining the transaction price

Step 4. Transaction price distribution

Step 5. Recognition of revenue at the time of fulfillment (or as fulfillment) of the obligation to perform the contract

Step 1. Defining the contract with the client

The new standard introduces the concept of the client.

Client is the party that receives goods or services that result from the company's ordinary activities.

Let's look at an example.

Example 1

A pharmaceutical company has entered into an agreement with a biotechnology company to jointly develop a new drug. As part of the application of the new standard, the question arises as to what the essence of the transaction is:

that the biotechnology company sells the substance and provides R&D services, or
is that the parties have entered into a cooperation agreement under which they share the risks of developing a new drug?

The second type of agreement is outside the scope of the new revenue standard, since the parties to the agreement are not the supplier and the client, but the collaborating parties. In contrast, in the first option, the pharmaceutical company is a client of the biotechnology company, so the contract must be accounted for in accordance with IFRS 15.

Merger of contracts

At this stage it is also necessary to determine whether it is necessary to combine several contracts into one. It is important to consider the following factors:

contracts are agreed upon as part of the entire package in order to achieve a single commercial goal;
the price is interrelated, i.e. the remuneration under one contract depends on the price or result under another contract;
goods, works and services under different contracts constitute a single performance obligation.

Changes in contract terms

In practice, there are often cases when agreements change: new services are added, volumes and prices change. In this regard, the question arises of whether it is necessary to consider a change in the contract as a new contract and reflect revenue under it separately or as a continuation of the old contract (in this case, it is possible to recalculate revenue and simultaneously recognize the results of the change as an adjustment catch-up adjustment). Changes to the terms of the contract are subject to consideration as a new separate contract if both conditions are met:

the volume of goods/services under the contract increases;
additional remuneration under the contract reflects the individual cost of selling an additional volume of goods/services, adjusted to take into account the specific agreement.

Step 2. Determine individual contract performance obligations (or individual components in accordance with current guidance)

Often, one contract may contain several components (for example, the sale of goods with the provision of installation or maintenance services).

It is necessary to determine whether the various elements of the contract constitute separate performance obligations. The importance of this decision is also determined by the fact that different performance obligations may have different timing of revenue recognition.

A separate obligation to fulfill the contract is allocated in cases where the product/service:

provides benefit to the client alone or in conjunction with other resources available to the client, and
does not depend on other elements (goods/services) under the contract and is not interconnected with them - in other words, it is a separately identifiable product/service.

A number of essentially similar goods or services can also be considered as a separate performance obligation if there is a consistent, systematically applied procedure for transferring results to the client, for example: daily cleaning of the premises, call center services.

To determine whether a product/service is separately identifiable, the standard uses indicators, for example, it is necessary to determine whether integration services.

It should be noted that in many cases the exercise of professional judgment will be necessary to resolve this issue.

Example 2

The company is building a compressor station. At the same time, the contract describes certain types of work that involve the development of the necessary technical characteristics and parameters, the supply of individual equipment units, and assembly. The key question here is the following: does the company provide services for the integration of individual parts in order to deliver the facility on a turnkey basis? If yes, then we are talking about one obligation.

Another indicator - level of customization . If a company is implementing custom software that requires a license to use, then the sale of a license is unlikely to be a separate obligation to fulfill the contract.

And finally, how interconnected are the elements, can they be purchased separately? For example, a guarantee: if it can be purchased separately, then we most likely have a separate obligation.

When, within the framework of an existing contract, the client is given the right to purchase additional goods, works, services (for example, as part of loyalty programs), then a separate obligation to fulfill the contract arises only if the buyer receives a material right that he would not have received in another situation ( i.e. without the primary transaction of purchasing a product/service).

Step 3. Determining the price of the operation

The transaction price is how much the company will receive as a result of the transaction in exchange for the work and services provided. One of the key decisions regarding the determination of the transaction price is the determination of the amount of variable consideration.

There are a large number of cases where the amount of compensation may vary, for example:

discounts;
fines;
bonuses, incentives;
bonuses for results;
other.

To determine the amount of variable consideration, the most probable cost or the estimated cost using expectations is used, whichever is more appropriate in the particular case.

For variable consideration, the standard is conservative: the amount of variable consideration is recognized as revenue in an amount that is probable that it will not be reversed in subsequent periods. However, the standard describes a number of factors that may negatively affect the assessment of the probability of receiving variable remuneration, for example: the presence of uncertainty over a long period, limited experience with similar contracts, exposure to uncontrollable factors, a wide range of prices and results.

Example 3

If discounts are involved for a new product line in a new market, which involves limited experience and a wide range of results, you need to determine the minimum amount that can be safely recognized and will not have to be reversed in the future.

Thus, it should be recognized "minimum amount" revenue with a high degree of probability that it will not lead to reversal, and carry out revaluation amounts at the end of each reporting period.

Please note that in many cases the exercise of professional judgment will be necessary to resolve this issue.

Example 4

The company sells equipment for 100 million conventional units (CU) with a bonus of up to 5% depending on the achievement of future efficiency targets. Bonus is taken into account if it exists high probability that there will be no significant reversal to the bonus amount.

On initial recognition there is evidence of a high probability that the bonus will be at least 3%. The transaction price is 103 million USD. i.e., that is, such amount is recognized as revenue at the time control changes.

When revalued at the reporting date, there is a high probability that the bonus will be received in full. The transaction price is 105 million USD. e. At the reporting date, an additional 2 million USD are recognized. e. revenue, even though some uncertainty remains.

Exception! As a general rule, variable consideration is recognized at an amount that, with a high degree of probability, will not need to be reversed. However, there is an exception for intellectual property licenses.

For intellectual property licenses For which royalties are based on sales or use, revenue is recognized only when the sale or use occurs. Thus, for intellectual property licenses, the “highly likely” limitation does not apply. It should be noted that this exception is not intended to apply by analogy.

Example 5

Rights to show the film. Royalty fees from screenings will only be recognized when revenue is generated from the end consumers (viewers) from ticket sales.

The next component that can affect the amount of remuneration is the financial component. Revenue should be adjusted if there is a significant financial component.

It should be noted that in many cases the exercise of professional judgment will be necessary to resolve this issue.

Note! IAS 18 also requires discounting to be taken into account when recognizing revenue if the deferred payment involves a significant financial component. However, the discounting effect was not taken into account in situations where the company received an advance payment.

Under IFRS 15, revenue is subject to adjustment for the discounting effect even if an advance payment is received (provided there is a significant financial component). In this case, the total amount of revenue recognized in relation to the performance obligation, in accordance with the guidance of the new standard, may be higher than the amount of the transaction consideration, since the income statement will separately reflect the amount of revenue taking into account the financial component and the financial expense in relation to of this financial component.

Step 4. Transaction price distribution

The distribution of the transaction price between individual obligations to fulfill the contract must be carried out according to the following algorithm:

Determine separate selling price:
- actual or estimated;
- "residual" method if the selling price is highly uncertain or variable (a change from current practice). Rather than apportioning the transaction price among individual components, the residual method involves determining the fair value of one component (for example, the fair value of loyalty points) and allocating the difference between the transaction price and the fair value of that component to the value of the remaining component.
Allocate the transaction price based on the relative individual selling prices as if the products were sold individually. Moreover, if there are compelling reasons, the amount of the discount under the contract (the difference between the transaction price and the sum of individual sales prices for individual components) can be attributed to a specific obligation to perform the contract.

Step 5: Revenue Recognition

The key question at this stage is: when does the transfer of control occur - simultaneously or over a period? At what point should revenue be recognized?

Under the new guidance, the first step is to evaluate whether revenue should be recognized during the period (essentially the same as the percent-of-completion revenue recognition model in current guidance). There are three clear criteria for this. If none of these are met, revenue is recognized immediately when control changes.

FOR REFERENCE

Three criteria for recognizing revenue during a period:

the client receives benefits as the activity is carried out, for example, from the provision of transportation or cleaning services;
the activity creates or improves an asset controlled by the client, for example: in the case of construction of a building or structure on the client's land, the right to the unfinished building almost always remains with the client (unless the terms of the contract, in the event the contract is not completed, this structure cannot be dismantled and the right to it does not pass to the contractor);
an asset is created for which there is no possibility of alternative use (that is, only the customer can use it) and the company has the right to receive payment for work performed at any time (and not just the right to reimbursement of actual costs incurred).

Diagram 1 shows the algorithm for determining the moment of revenue recognition in accordance with the provisions of IFRS 15.

Chart 1: Separate Guidance for Recognition of Revenue from Licenses

The new standard has separate guidance for reporting revenue from licenses: franchises, software rights, films, patents, etc.

If the license is a separate obligation to perform a contract, then it is necessary to determine whether the license gives the holder a right of use or a right of access.

The right of use is taken into account simultaneously. Right of access - during the period. A license granting access rights assumes that:

the object of the license - intellectual property - changes over time due to the actions of the company that provides the license;
the client is exposed to risks associated with the consequences of the activities of the licensor company;
The activity of the company providing the license is not a separate product or service.

Example 6

Granting the right to use a sports team's logo for a period is a right of access as the intellectual property changes as the sports team plays and gains popularity.

In contrast, the rights to use an existing music library are more of a right of use.

Impact of IFRS 15 on an organization's business processes

The impact of the new standard on the organization’s business processes is presented in Diagram 2.

Diagram 2. Impact of the new standard on the organization’s business processes

The impact of the standard in various industries depends on existing business models and, at a minimum, will be expressed in the following:

impact on disclosure;
the need for training and education of personnel;
the need to analyze all contracts or major types of contracts;
assessment of revenue collection, time value of money and other factors.

The expected impact of the standard on companies in various industries is presented in the table:

Impact of IFRS 15 on companies in various industries

Key aspects to consider when applying IFRS 15

When preparing to apply the new revenue standard, you should pay attention to the following aspects:

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