IFRS 15
IFRS 15 applies for years commencing on or after 1 January 2018 and many entities have thought through how the standard will change their revenue recognition.
When making this assessment, the disclosure implications should not be forgotten; even companies whose revenue recognition is unchanged under IFRS 15 will see a considerable enhancement in the level of disclosure.
Disclosure requirements
In common with recently issued standards, IFRS 15 sets out the objective of the disclosure requirements. This is to to '.....disclosure sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers' (IFRS 15:110). In order to achieve this qualitative and quantitative information about the following shall be disclosed:
- its contracts with customers
- the significant judgements, and changes in the judgements, made in applying the standard to those contracts
- any assets recognised from the costs to obtain or fulfil a contract with a customer
A series of disclosures that shall be given to meeting the objective are mentioned below.
Contracts with customers – separate disclosure of any sources of revenue not covered by IFRS 15 (such as leasing income) and separate disclosure of impairment losses arising on contracts with customers.
Disaggregation of revenue – split into categories that depict the nature, amount, timing and uncertainty of revenue and cashflows. Depending on circumstances, revenue could be split into multiple different categories, for example disaggregation between types of goods/services sold, types of customer (for example commercial or consumer sales), geographical region or sales channel (for example store sales and online sales). Although the level of disaggregation will depend on circumstances, the extent of the disclosures about individual revenue streams is likely to be greater than it was previously.
Contract balances – reconciliation of opening and closing balances of receivables, contract assets and contract liabilities arising from contracts with customers including an explanation of significant changes.
Performance obligations – disclosure about performance obligations in contracts including a description of when performance obligations are typically satisfied, significant payment terms, the nature of goods or services transferred, obligations for returns, refunds and similar obligations, and types of warranties and related obligations.
Transaction price allocated to the remaining performance obligations – the aggregate transaction price allocated to unsatisfied (or partly satisfied) performance obligations and when the revenue is expected to be recognised. Significant judgements in applying IFRS 15 – disclosure of significant judgements and changes in judgements in particular relating to the timing of satisfaction of performance obligations and the transaction price allocated to performance obligations:
- determining the timing of satisfaction of performance obligations – disclosure of the judgements used to determine when the customer gains control over promised goods or services or, for performance obligations satisfied over time, the methods used to recognise revenue and why that method is appropriate.
- determining the transaction price and the amounts allocated to performance obligations – disclosure methods, inputs and assumptions used to determine the transaction price, assess variable consideration, allocate the price and measure obligations for returns.
Our view
Early consideration should be given to the disclosure requirements of the standard as these are considerably extended from the requirements of IAS 11 and IAS 18. Management judgement will be required in determining, for example, the appropriate level of disaggregation of revenue. Consideration may also need to be given to ensuring the relevant information is captured to enable the disclosure to be made.