Simply SAP: IFRS15 - Overview and Implementation approach

IFRS15 – a key note to implementation

Overview of IFRS15

IFRS 15 specifies how and when an IFRS reporter will recognise revenue as well as requiring such entities to provide users of financial statements with more informative, relevant disclosures. The standard provides a single, principles based five-step model to be applied to all contracts with customers.

IFRS 15 was issued in May 2014 and applies to an annual reporting period beginning on or after 1 January 2018. On 12 April 2016, clarifying amendments were issued that have the same effective date as the standard itself.

Superseded Standards

IFRS 15 replaces the following standards and interpretations:

· IAS 11 Construction contracts

· IAS 18 Revenue

· IFRIC 13 Customer Loyalty Programmes

· IFRIC 15 Agreements for the Construction of Real Estate

· IFRIC 18 Transfers of Assets from Customers

· SIC-31 Revenue - Barter Transactions Involving Advertising Services

Scope

IFRS 15 Revenue from Contracts with Customers applies to all contracts with customers except for: leases within the scope of IAS 17 Leases; financial instruments and other contractual rights or obligations within the scope of IFRS 9 Financial Instruments, IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IAS 27 Separate Financial Statements and IAS 28 Investments in Associates and Joint Ventures; insurance contracts within the scope of IFRS 4 Insurance Contracts; and non-monetary exchanges between entities in the same line of business to facilitate sales to customers or potential customers. [IFRS 15:5]

A contract with a customer may be partially within the scope of IFRS 15 and partially within the scope of another standard. In that scenario: [IFRS 15:7]

· if other standards specify how to separate and/or initially measure one or more parts of the contract, then those separation and measurement requirements are applied first. The transaction price is then reduced by the amounts that are initially measured under other standards;

· if no other standard provides guidance on how to separate and/or initially measure one or more parts of the contract, then IFRS 15 will be applied.

Accounting requirements for revenue: The five-step model framework

The core principle of IFRS 15 is that an entity will recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This core principle is delivered in a five-step model framework: [IFRS 15:IN7]

· Identify the contract(s) with a customer

· Identify the performance obligations in the contract

· Determine the transaction price

· Allocate the transaction price to the performance obligations in the contract

· Recognise revenue when (or as) the entity satisfies a performance obligation.

Magnitude of Impact on Various industries

Sr #	Industry	Impact
1	Automotive	High
2	Software	High
3	Healthcare & Pharma	Medium
4	Media	Medium
5	Energy	Low
6	Real Estate	Medium
7	Construction & Engineering	Medium
8	Retail	Low
9	Transportation & Logistics	Low
10	Telecommunication	High