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Revenue Recognition

Summary: The revenue standards, IASB and FASB (the Boards) issued in May 2014, were largely converged and superseded virtually all legacy revenue recognition requirements in IFRS and US GAAP, respectively.  

The standards provide accounting requirements for all revenue arising from contracts with customers. They affect all entities that enter into contracts to provide goods or services to their customers, unless the contracts are in the scope of other IFRSs or US GAAP requirements, such as those for leases. The standards also specify the accounting for costs an entity incurs to obtain and fulfil a contract to provide goods or services to customers and provide a model for the measurement and recognition of gains and losses on the sale of certain non-financial assets, such as property, plant or equipment. IFRS 15 replaced all of the legacy revenue standards and interpretations in IFRS, including 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 and SIC-31 Revenue – Barter Transactions Involving Advertising Services. After issuing the standards, the Boards have issued converged amendments on certain topics (e.g., principal versus agent considerations) and different amendments on other topics (e.g., licences of intellectual property). The FASB has also issued several amendments that the IASB has not issued (e.g., noncash consideration, consideration payable).



Revenue Recognition Steps:

  1. Identify contracts with customers Identify performance obligations in contracts

  2. Calculation of transaction prices

  3. Distribution of transaction prices to performance obligations

  4. Recognize revenue


Implementation and operational processes of revenue recognition: 

Initial year: 

  1. Narrowing down the survey to identify contracts

  2. Contract classification

  3. Documentation

  4. Create a database

Subsequent years:

  1. Understanding and classifying new transaction contracts

  2. Document new contracts

  3. Check for changes in existing contracts

  4. Update the database

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