Introduction to PwC's IFRS 15: Understanding the Basics

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This article is a summary of a YouTube video "PwC's IFRS 15 the basics – Introduction to the standard" by PwC's Viewpoint
TLDR IFRS 15 is a new revenue recognition standard that provides a five-step process for recognizing revenue and focuses on performance obligations and the transfer of control to the customer.

Key insights

  • 💰
    IFRS 15 combines multiple revenue recognition standards into one, providing a unified approach for recognizing revenue from contracts with customers.
  • 💡
    IFRS 15 provides a lot more guidance than the existing standards on issues such as separating elements, allocating the transaction price, licenses, contract modifications, and much more, which is likely to impact existing practice.
  • 💰
    The core principle of the revenue recognition model under IFRS 15 is to recognize revenue based on the transfer of goods or services to customers and the consideration expected in exchange for them.
  • 📝
    A promise is distinct if the customer is able to benefit from the goods or services either on their own or together with other resources that are readily available to the customer.
  • 💰
    Variable consideration in contracts, such as discounts and incentives, can add complexity to determining the transaction price in revenue recognition under IFRS 15.
  • 💰
    IFRS 15 provides detailed guidance on how to determine the standalone selling price, including using observable prices or estimating when there is no observable price.
  • 🔄
    The same model is applied to both goods and services, with revenue recognized either over time or at a point in time depending on when control transfers.
  • 📊
    The disclosures required under IFRS 15 have significantly increased compared to previous standards.

Q&A

  • What is IFRS 15?

    — IFRS 15 is a new revenue recognition standard that provides a five-step process for recognizing revenue and focuses on performance obligations and the transfer of control to the customer.

  • How does IFRS 15 define transactions?

    — IFRS 15 does not differentiate between sales of goods, services, and construction contracts, but instead defines transactions based on performance obligations.

  • When is revenue recognized under IFRS 15?

    — Revenue is recognized when control of a good or service is transferred to a customer, with IFRS 15 providing more guidance on key practice issues compared to existing standards.

  • How is revenue recognized over time?

    — Revenue is recognized over time if the customer simultaneously receives and consumes the benefits, or if the entity's performance creates or enhances an asset controlled by the customer.

  • When is revenue recognized at a point in time?

    — Revenue is recognized at a point in time if the customer does not simultaneously receive and consume the benefits, and the entity's performance does not create or enhance an asset controlled by the customer.

Timestamped Summary

  • 📝
    00:00
    IFRS 15 is a new revenue recognition standard that combines two existing standards and applies to contracts with customers, excluding interests and dividends which are now covered by IAS 39.
  • 📊
    01:14
    IFRS 15 standard treats all transactions equally and focuses on performance obligations, recognizing revenue when control is transferred to the customer, providing more guidance than previous standards.
  • 💡
    03:28
    The revenue recognition model under IFRS 15 requires entities to follow a five-step process to recognize revenue, which includes identifying the contract with the customer, determining performance obligations, allocating the transaction price, and recognizing revenue when each obligation is met.
  • 📝
    04:52
    A contract is an agreement between parties that creates enforceable rights and obligations, and in order to recognize revenue, the key steps are to identify the performance obligations, determine the distinct promises, and establish the transaction price.
  • 💡
    06:37
    The transaction price can be complex and include variable considerations, such as discounts and incentives, which are included in the revenue only if there is a high probability of no significant revenue reversal in the future, and other factors like financing components and non-cash considerations should also be taken into account.
  • 📝
    08:03
    IFRS 15 provides detailed guidance on allocation based on the relative standalone selling price of each performance obligation, allowing management to use observable prices or estimate standalone selling prices using various methods, with revenue recognized when goods or services are transferred to the customer.
  • 💰
    09:22
    Revenue is recognized when control of goods or services is transferred, either over time or at a point in time, based on criteria provided by IFRS 15.
  • 📅
    11:17
    IFRS 15 provides two transition methods: full retrospective (applying the standard to all periods) and modified retrospective (applying the standard with cumulative effect recognized at initial application), with increased disclosure requirements.
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This article is a summary of a YouTube video "PwC's IFRS 15 the basics – Introduction to the standard" by PwC's Viewpoint
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