2.1.5.A Determining the presentation of contract assets and liabilities for contracts that contain multiple performance obligations

At the October 2014 TRG meeting, the TRG members were asked how an entity would determine the presentation of contract assets and liabilities for contracts that contain multiple performance obligations. The TRG members generally agreed that contract assets and liabilities would be determined at the contract level and not at the performance obligation level. That is, an entity does not separately recognise an asset or liability for each performance obligation within a contract, but aggregates them into a single contract asset or liability.²

This question arose in part because, under the standard, the amount and timing of revenue recognition is determined based on progress toward complete satisfaction of each performance obligation. Therefore, some constituents questioned whether an entity could have a contract asset and a contract liability for a single contract. An example is when the entity has satisfied (or partially satisfied) one performance obligation in a contract for which consideration is not yet due, but has received a prepayment for another unsatisfied performance obligation in the contract. The TRG members generally agreed that the discussion in the Basis for Conclusions was clear that contract asset or contract liability positions are determined for each contract on a net basis. This is because the rights and obligations in a contract with a customer are interdependent – the right to receive consideration from a customer depends on the entity's performance and, similarly, the entity performs only as long as the customer continues to pay. The Board decided that those interdependencies are best reflected by accounting and presenting contract assets or liabilities on a net basis. [IFRS 15.BC317].

After determining the net contract asset or contract liability position for a contract, entities consider the requirements in IAS 1 on classification as current or non-current in the statement of financial position, unless an entity presents its statement of financial position on a liquidity basis (see 2.1 above).

2.1.5.B Determining the presentation of two or more contracts that are required to be combined under the standards

At the October 2014 TRG meeting, the TRG members considered how an entity would determine the presentation of two or more contracts that are required to be combined under the standard. The TRG members generally agreed that the contract asset or liability would be combined (i.e. presented net) for different contracts with the same customer (or a related party of the customer) if an entity is otherwise required to combine those contracts under the standard (see Chapter 28 at 2.3 for discussion of the criteria for combining contracts).³ When two or more contracts are required to be combined under the standard, the rights and obligations in the individual contracts are interdependent. Therefore, as discussed at 2.1.5.A above, this interdependency is best reflected by combining the individual contracts as if they were a single contract. However, the TRG members acknowledged that this analysis may be operationally difficult for some entities because their systems may capture data at the performance obligation level in order to comply with the recognition and measurement aspects of the standard.

2.1.5.C Offsetting contract assets and liabilities against other statement of financial position items (e.g. accounts receivable)

At the October 2014 TRG meeting, the TRG members considered when an entity would offset contract assets and liabilities against other statement of financial position items (e.g. accounts receivable). The TRG members generally agreed that, because the standard does not provide requirements for offsetting, entities need to apply the requirements of other standards to determine whether offsetting is appropriate (e.g. IAS 1, IAS 32 – Financial Instruments: Presentation).⁴ For example, if an entity has recorded a contract asset (or a receivable) and a contract liability (or refund liability) from separate contracts with the same customer (that are not required to be combined under the standard), the entity needs to look to requirements outside IFRS 15 to determine whether offsetting is appropriate.

2.1.5.D Is a refund liability a contract liability (and, thus, subject to the presentation and disclosure requirements of a contract liability)?

An entity needs to determine whether a refund liability is characterised as a contract liability based on the specific facts and circumstances of the arrangement. We believe that a refund liability typically does not meet the definition of a contract liability. When an entity concludes that a refund liability is not a contract liability, it presents the refund liability separately from any contract liability (or asset) and the refund liability is not subject to the disclosure requirements in paragraphs 116‑118 of IFRS 15 discussed at 3.2.1 below.

When a customer pays consideration (or consideration is unconditionally due) and the entity has an obligation to transfer goods or services to the customer, the entity recognises a contract liability. When the entity expects to refund some or all of the consideration received (or receivable) from the customer, it recognises a refund liability. A refund liability generally does not represent an obligation to transfer goods or services in the future. Similar to receivables (which are considered a subset of contract assets), refund liabilities could be considered a subset of contract liabilities. We believe refund liabilities are also similar to receivables in that they are extracted from the net contract position and presented separately (if material). This conclusion is consistent with the standard's specific requirement to present the corresponding asset for expected returns separately. [IFRS 15.B25].

If an entity concludes, based on its specific facts and circumstances, that a refund liability represents an obligation to transfer goods or services in the future, the refund liability is a contract liability subject to the disclosure requirements in paragraphs 116‑118 of IFRS 15. In addition, in that situation, the entity presents a single net contract liability or asset (i.e. including the refund liability) determined at the contract level, as discussed at 2.1.5.A above.

2.1.5.E Accounting for a contract asset that exists when a contract is modified if the modification is treated as the termination of an existing contract and the creation of a new contract

The FASB TRG members generally agreed that a contract asset that exists when a contract is modified would be carried forward into the new contract if the modification is treated as the termination of an existing contract and the creation of a new contract.

Some stakeholders questioned the appropriate accounting for contract assets when this type of modification occurs because the termination of the old contract could indicate that any remaining balances associated with the old contract must be written off.

FASB TRG members generally agreed that it is appropriate to carry forward the related contract asset in such modifications because the asset relates to a right to consideration for goods or services that have already been transferred and are distinct from those to be transferred in the future. As such, the revenue recognised to date is not reversed and the contract asset continues to be realised as amounts become due from the customer and are presented as a receivable. The contract asset that remains on the entity's statement of financial position at the date of modification continues to be subject to evaluation for impairment.⁵

While the FASB TRG members did not discuss this point, we believe a similar conclusion would be appropriate when accounting for an asset created under IFRS 15, such as capitalised commissions which exists immediately before a contract modification, that is treated as if it were a termination of the existing contract and creation of a new contract. See Chapter 31 at 5.1.6 for further discussion.

2.1.5.F Determining when an entity has an unconditional right to payment if it has not transferred a good or service

The standard states in paragraph 108 of IFRS 15 that a receivable is an entity's right to consideration that is unconditional. In general, we believe it may be difficult to assert that the entity has an unconditional right to payment when it has not transferred a good or service. [IFRS 15.108]. However, an entity may enter into non-cancellable contracts that provide unconditional rights to payment from the customer for services that the entity has not yet completed providing or services it will provide in the near future (e.g. amounts invoiced in advance related to a service or maintenance arrangement). When determining whether it is acceptable (or required) to recognise accounts receivable and a corresponding contract liability, the contractual terms and specific facts and circumstances supporting the existence of an unconditional right to payment should be evaluated. Factors to consider include:

• Does the entity have a contractual (or legal) right to invoice and receive payment from the customer for services being provided currently (and not yet completed) or being provided in the near future (e.g. amounts invoiced in advance related to a service or maintenance arrangement)?
• Is the advance invoice consistent with the entity's normal invoicing terms?
• Will the entity commence performance within a relatively short time frame of the invoice date?
• Is there more than one year between the advance invoice and performance?

3.2.1.A Disaggregation of revenue

Entities are required to disclose disaggregated revenue information to illustrate how the nature, amount, timing and uncertainty about revenue and cash flows are affected by economic factors. [IFRS 15.114]. This is the only revenue disclosure requirement that is required in both an entity's interim and annual financial statements.

As noted above, an entity is required to separately disclose any impairment losses recognised in accordance with IFRS 9 on receivables or contract assets arising from contracts with customers. However, IFRS 15 does not require entities to further disaggregate such losses for uncollectible amounts.

While the standard does not specify precisely how revenue should be disaggregated, the application guidance suggests categories for entities to consider. The application guidance indicates that the most appropriate categories for a particular entity depend on its facts and circumstances, but an entity needs to consider how it disaggregates revenue in other communications (e.g. press releases, information regularly reviewed by the chief operating decision maker) when determining which categories are most relevant and useful. These categories could include, but are not limited to: [IFRS 15.B87-B89]

• type of good or service (e.g. major product lines);
• geographical region (e.g. country or region);
• market or type of customer (e.g. government and non-government customers);
• type of contract (e.g. fixed-price and time-and-materials contracts);
• contract duration (e.g. short-term and long-term contracts);
• timing of transfer of goods or services (e.g. revenue from goods or services transferred to customers at a point in time and revenue from goods or services transferred over time); and
• sales channels (e.g. goods sold directly to consumers and goods sold through intermediaries).

As noted in the Basis for Conclusions, the Board decided not to prescribe a specific characteristic of revenue as the basis for disaggregation because it intended for entities to make this determination based on entity-specific and/or industry-specific factors that are the most meaningful for their businesses. The Board acknowledged that an entity may need to use more than one type of category to disaggregate its revenue. [IFRS 15.B87, BC336].

We believe that, when determining categories for disaggregation of revenue, entities need to analyse specific risk factors for each of their revenue streams to determine the appropriate level of revenue disaggregation that will be beneficial to users of the financial statements. If certain risk factors could lead to changes in the nature, amount, timing and uncertainty of revenue recognition and cash flows, those factors will need to be considered as part of the evaluation. Different risk factors for revenue streams may indicate when disaggregation is required.

Paragraph 112 of IFRS 15 clarifies that an entity does not have to duplicate disclosures required by another standard. [IFRS 15.112]. For example, an entity that provides disaggregated revenue disclosures as part of its segment disclosures, in accordance with IFRS 8 – Operating Segments, does not need to separately provide disaggregated revenue disclosures if the segment-related disclosures are sufficient to illustrate how the nature, amount, timing and uncertainty about revenue and cash flows from contracts with customers are affected by economic factors and are presented on a basis consistent with IFRS.

However, segment disclosures may not be sufficiently disaggregated to achieve the disclosure objectives of IFRS 15. The IASB noted in the Basis for Conclusions that segment disclosures on revenue may not always provide users of financial statements with enough information to help them understand the composition of revenue recognised in the period. [IFRS 15.BC340]. If an entity applies IFRS 8, it is required under paragraph 115 of IFRS 15 to explain the relationship between the disaggregated revenue information and revenue information that is disclosed for each reportable segment. [IFRS 15.115]. Users of the financial statements believe this information is critical to their ability to understand not only the composition of revenue, but also how revenue relates to other information provided in the segment disclosures. Entities can provide this information in a tabular or a narrative form.

Regulators may review publicly provided information (e.g. investor presentations, press releases) in order to evaluate whether entities have met the objectives of this disclosure requirement. In accordance with paragraph B88 of IFRS 15, an entity needs to consider how information about its revenue has been presented for other purposes, including information disclosed outside the financial statements, information regularly reviewed by the chief operation decision maker (e.g. chief executive officer or chief operating officer) and other similar information used by the entity or users of the financial statements to evaluate the entity's financial performance or to make resource allocation decisions.

It is important to note that IFRS 15 and IFRS 8 have different objectives. The objective of the segment reporting requirements in IFRS 8 is to enable users of the financial statements to ‘evaluate the nature and financial effects of the business activities in which an entity engages and the economic environment in which it operates’. [IFRS 8.20]. These disclosure requirements are largely based on how the chief operating decision maker allocates resources to the operating segments of the entity and assesses their performance. [IFRS 8.5(b)]. They also permit aggregation in certain situations. In contrast, IFRS 15 disclosure requirements focus on how the revenues and cash flows from contracts with customers are affected by economic factors and do not have similar aggregation criteria. As noted above, if an entity concludes that it is necessary to provide disaggregated revenue disclosures along with the segment disclosures required under IFRS 8, it is required under IFRS 15 to explain the relationship between the disclosures.

The Board provided some examples of the disclosures for disaggregation of revenue, as follows. [IFRS 15.IE210-IE211].

Since entities are encouraged to tailor their disclosure of disaggregated revenue, they are unlikely to follow a single approach.

Consistent with the approach illustrated in Example 32.3 above, some entities provide disaggregated revenue information within their segment reporting disclosure. As shown in Extract 32.6 below, Capita plc discloses both revenue by major product line and segment revenue by contract type in its segment note (Note 6). In the summary of significant accounting policies (Note 2), it specifically states that this approach is consistent with the objective of the IFRS 15 disclosure requirement and explains differences in the terminology used in previous financial statements.

already provide adequate information that allows users to understand the composition of revenue. However, this information might be based on non-GAAP information (i.e. the revenue that is reported to the chief operating decision maker may be calculated on a basis that is not in accordance with IFRS 15). In such a situation, an entity may need to disclose additional information to meet the objective in paragraph 114 of IFRS 15.

In Extract 32.7 below, SNCF Mobilités discloses disaggregated revenue by main types of services provided, by type of customer, and by timing of transfer of services in the revenue note (Note 3.2) of its 2018 annual financial statements. The disaggregated revenue table below includes a column for SNCF Mobilités' reportable segments and the amount of total revenue reconciles with the total revenue disclosed in the segment note. This is important because it helps users to understand the relationship between the disclosure of disaggregated revenue in the revenue note and the revenue information that is disclosed for each reportable segment in the segment note.

In Extract 32.8, Fédération Internationale de Football Association (FIFA) splits its disclosure of disaggregated revenue between the primary financial statements and the notes. In the statement of comprehensive income, FIFA presents revenue on a disaggregated basis, by the type of service. In the notes, FIFA further disaggregates each type of revenue into different categories, depending on the nature of the revenue. For example, in Note 1, FIFA disaggregates ‘Revenue from television broadcasting rights’ by geographical region, while presenting ‘Revenue from marketing rights’ by type of customer. Since FIFA does not need to comply with IFRS 8, it provides all disaggregation disclosures in accordance with paragraph 114 of IFRS 15 and the requirements in paragraph 115 of IFRS 15 do not apply.

3.2.1.B Contract balances

The Board noted in the Basis for Conclusions that users of the financial statements need to understand the relationship between the revenue recognised and changes in the overall balances of an entity's total contract assets and liabilities during a particular reporting period. [IFRS 15.BC341]. As a result, an entity is required to disclose: [IFRS 15.116]

• the opening and closing balances of receivables, contract assets and contract liabilities from contracts with customers, if not otherwise separately presented or disclosed;
• revenue recognised in the reporting period that was included in the contract liability balance at the beginning of the period; and
• revenue recognised in the reporting period from performance obligations satisfied (or partially satisfied) in previous periods (e.g. changes in transaction price).

In addition, an entity is required to explain how the timing of satisfaction of its performance obligations (see (a)(i) below at 3.2.1.C) relates to the typical timing of payment (see (a)(ii) below at 3.2.1.C) and the effect that those factors have on the contract asset and the contract liability balances. This explanation may use qualitative information. [IFRS 15.117].

An entity is also required to provide an explanation of the significant changes in the contract asset and the contract liability balances during the reporting period. This explanation is required to include both qualitative and quantitative information. The standard identifies the following examples of changes in the entity's balances of contract assets and contract liabilities: [IFRS 15.118]

• changes due to business combinations;
• cumulative catch-up adjustments to revenue that affect the corresponding contract asset or contract liability, including adjustments arising from a change in the measure of progress, a change in an estimate of the transaction price (including any changes in the assessment of whether an estimate of variable consideration is constrained) or a contract modification;
• impairment of a contract asset;
• a change in the time frame for a right to consideration to become unconditional (i.e. for a contract asset to be reclassified to a receivable); and
• a change in the time frame for a performance obligation to be satisfied (i.e. for the recognition of revenue arising from a contract liability).

Entities are permitted to disclose information about contract balances, and changes therein, as they deem to be most appropriate, which would include a combination of tabular and narrative information. The IASB explained in the Basis for Conclusions that these disclosures are intended to provide financial statement users with information they requested on when contract assets are typically transferred to accounts receivable or collected as cash and when contract liabilities are recognised as revenue. [IFRS 15.BC346].

In addition to the disclosures on contract balances and changes, the standard requires entities to disclose the amount of revenue recognised in the period that relates to amounts allocated to performance obligations that were satisfied (or partially satisfied) in previous periods (e.g. due to a change in transaction price or in estimates related to the constraint on revenue recognised). This disclosure requirement applies to sales-based and usage-based royalties received from a customer in exchange for a licence of intellectual property that are recognised as revenue in a reporting period, but relate to performance obligations satisfied (or partially satisfied) in previous periods (e.g. sales-based royalties recognised in the current period that are related to a right-to-use licence previously transferred to a customer). As noted in the Basis for Conclusions, the Board noted that this information is not required elsewhere in the financial statements and provides relevant information about the timing of revenue recognised that was not a result of performance in the current period. [IFRS 15.BC347].

The example below is an example of how an entity may fulfil these requirements.

Paragraph 116(a) of IFRS 15 requires entities to separately disclose contract balances from contracts with customers. Therefore, it is necessary for entities that have material receivables from non-IFRS 15 contracts to separate these balances for disclosure purposes. For example, an entity may have accounts receivable relating to leasing contracts that would need to be disclosed separately from accounts receivable related to contracts with customers. Entities need to make sure they have appropriate systems, policies and procedures and internal controls in place to collect and disclose the required information.

Before providing its disclosure of significant changes in contract balances, Airbus SE provides the accounting policies for its contract balances in Extract 32.9 below. It then provides in a table the significant changes in the contract asset and the contract liability balances during the reporting period. The opening and closing balances are included in the primary financial statements.

ProSiebenSat.1 Media SE explains, in Extract 32.10 below, the nature of its contract assets and contract liabilities. In Note 5, it discloses the opening and closing balances of contract assets and contract liabilities in a table. Below the table, it explains significant changes in the contract asset and contract liability balances during the reporting period using a narrative format. In the same note, ProSiebenSat.1 Media SE discloses revenue recognised that was included in the contract liability balance at the beginning of the period.

As shown in Extract 32.11 below, ASML Holding N.V. included a roll-forward of contract assets and contract liabilities to disclose significant changes in the balances during the reporting period. Although such a roll-forward is not required under IFRS 15, it may be an effective way to provide the disclosures required by paragraph 118 of IFRS 15. The requirement of the standard to disclose the ‘revenue recognised in the reporting period that was included in the contract liability balance at the beginning of the period’ was incorporated in the roll-forward. In addition, ASML Holding N.V. also provided a narrative explanation of the significant changes in the net contract balances during the reporting period.

3.2.1.C Performance obligations

To help users of financial statements analyse the nature, amount, timing and uncertainty about revenue and cash flows arising from contracts with customers, the Board decided to require disclosures about an entity's performance obligations. As noted in the Basis for Conclusions, legacy IFRS required entities to disclose their accounting policies for recognising revenue, but users of financial statements had commented that many entities provided a ‘boilerplate’ description that did not explain how the policy related to the contracts they entered into with customers. [IFRS 15.BC354]. To address this criticism, IFRS 15 requires an entity to provide more descriptive information about its performance obligations.

An entity is also required to disclose information about remaining performance obligations and the amount of the transaction price allocated to such obligations, including an explanation of when it expects to recognise the amount(s) in its financial statements.

Both quantitative and qualitative information are required, as follows: [IFRS 15.119‑120]

1. Information about its performance obligations, including a description of all of the following:
   1. when the entity typically satisfies its performance obligations (e.g. upon shipment, upon delivery, as services are rendered or upon completion of service), including when performance obligations are satisfied in a bill-and-hold arrangement;
   2. the significant payment terms (e.g. when payment is typically due, whether the contract has a significant financing component, whether the consideration amount is variable and whether the estimate of variable consideration is typically constrained);
   3. the nature of the goods or services that the entity has promised to transfer, highlighting any performance obligations to arrange for another party to transfer goods or services (i.e. if the entity is acting as an agent);
   4. obligations for returns, refunds and other similar obligations; and
   5. types of warranties and related obligations.
2. For remaining performance obligations:
   1. the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied (or partially unsatisfied) as at the end of the reporting period; and
   2. an explanation of when the entity expects to recognise as revenue the amount disclosed in accordance with (b)(i) above. An entity discloses this in either of the following ways:
      • on a quantitative basis using the time bands that would be most appropriate for the duration of the remaining performance obligations; or
      • by using qualitative information.

In Extract 32.12 below, Spotify Technology S.A. highlighted in its revenue note that the disclosures of its performance obligations are included in its significant accounting policy disclosures. In its summary of significant accounting policies, Spotify Technology S.A. discloses information about its performance obligations for subscription and advertising services. It describes when it typically satisfies its performance obligations and the significant payment terms.

As part of its disclosure of information about its performance obligations, as presented in Extract 32.13 below, Koninklijke Philips N.V. provides information about the nature of its goods and services (e.g. consumer type-products, brand and technology licences), the timing of satisfaction of their performance obligations and the significant payment terms. It also provides information about the existence of sales returns and assurance-type warranties.

In its 2018 annual financial statements, ASML Holding N.V. provides a table that includes information about its performance obligations as shown in Extract 32.14 below. The first column details the various performance obligations. The second column provides information about the nature and satisfaction of these performance obligations and details of payment terms.

During the development of the standard, many users of financial statements commented that information about the amount and timing of revenue that an entity expects to recognise from its existing contracts would be useful in their analyses of revenue, especially for long-term contracts with significant unrecognised revenue. [IFRS 15.BC348]. In addition, the Board observed that a number of entities often voluntarily disclose such ‘backlog’ information. However, this information is typically presented outside the financial statements and may not be comparable across entities because there is no common definition of backlog. As summarised in the Basis for Conclusions, the Board's intention in including the disclosure requirements in paragraph 120 of IFRS 15 is to provide users of an entity's financial statements with additional information about the following: [IFRS 15.BC350]

• the amount and expected timing of revenue to be recognised from the remaining performance obligations in existing contracts;
• trends relating to the amount and expected timing of revenue to be recognised from the remaining performance obligations in existing contracts;
• risks associated with expected future revenue (e.g. some observe that revenue is more uncertain if an entity does not expect to satisfy a performance obligation until a much later date); and
• the effect of changes in judgements or circumstances on an entity's revenue.

This disclosure can be provided on either a quantitative basis (e.g. amounts to be recognised in given time bands, such as between one and two years and between two and three years) or by disclosing a mix of quantitative and qualitative information. In addition, this disclosure would only include amounts related to performance obligations in the current contract. For example, expected contract renewals that have not been executed and do not represent material rights are not performance obligations in the current contract. As such, an entity does not disclose amounts related to such renewals. However, if an entity concludes that expected contract renewals represents a material right to acquire goods or services in the future (and, therefore, was a separate performance obligation – see Chapter 28 at 3.6), the entity includes in its disclosure the consideration attributable to the material right for the options that have not yet been exercised (i.e. the unsatisfied performance obligation(s)).

The disclosure of the transaction price allocated to the remaining performance obligations does not include consideration that has been excluded from the transaction price. However, the standard requires entities to disclose qualitatively whether any consideration is not included in the transaction price and, therefore, is not included in the disclosure of the remaining performance obligations (e.g. variable consideration amounts that are constrained and, therefore, excluded from the transaction price).

Bombardier Inc. uses time bands to disclose information about remaining performance obligations. In Extract 32.15, it also explicitly discloses that constrained variable consideration is excluded from the amounts disclosed. This is a helpful reminder for users of financial statements and it indicates amounts recognised in future periods may be higher than those included in the table.

In contrast to the previous extract, SAP SE uses a non-tabular approach when disclosing information about remaining performance obligations. Extract 32.16 below illustrates this. SAP SE provides information about its remaining performance obligations to provide ‘software support or cloud subscriptions and support’.

The Board also provided a practical expedient under which an entity need not disclose the amount of the remaining performance obligations for contracts with an original expected duration of less than one year or those that meet the requirements of the right to invoice practical expedient in paragraph B16 IFRS 15 (see paragraph 121 of IFRS 15). As explained in Chapter 30 at 3.1.1, the right to invoice practical expedient permits an entity that is recognising revenue over time to recognise revenue as invoiced if the entity's right to payment is an amount that corresponds directly with the value to the customer of the entity's performance to date. [IFRS 15.121]. For example, an entity is not required to make the disclosure for a three-year service contract under which it has a right to invoice the customer a fixed amount for each hour of service provided. If an entity uses this disclosure practical expedient, it is required to qualitatively disclose that fact. [IFRS 15.122].

Entities need to make sure they have appropriate systems, policies and procedures and internal controls in place to collect and disclose the required information.

ASC 606 contains optional exemptions that are consistent with the optional practical expedients included in paragraph 121 of IFRS 15. However, ASC 606 includes additional optional exemptions (that IFRS 15 does not) to allow entities not to make quantitative disclosures about remaining performance obligations in certain cases and require entities that use any of the new or existing optional exemptions (previously referred to as practical expedients) to expand their qualitative disclosures.

The standard provides the following examples of the required disclosures on remaining performance obligations. [IFRS 15.IE212-IE219].

The standard also provides an example of how an entity could make the disclosure required by paragraph 120(b) of IFRS 15 using qualitative information (instead of quantitatively, using time bands) as follows. [IFRS 15.IE220-IE221].

3.2.1.D Use of the ‘backlog’ practical expedient when the criteria to use the ‘right to invoice’ practical expedient are not met

At its July 2015 meeting, the TRG considered whether an entity can still use the disclosure practical expedient (regarding the amount of the transaction price allocated to remaining performance obligations) if it does not meet the criteria to use the ‘right to invoice’ practical expedient.

The TRG members generally agreed that the standard is clear that an entity can only use the practical expedient to avoid disclosing the amount of the transaction price allocated to remaining performance obligations for contracts: (a) with an original expected duration of less than one year; or (b) that qualify for the ‘right to invoice’ practical expedient. [IFRS 15.121]. If a contract does not meet either of these criteria, an entity must disclose the information about remaining performance obligations that is required by Paragraph 120 of IFRS 15. [IFRS 15.120]. However, under these requirements, an entity is able to qualitatively describe any consideration that is not included in the transaction price (e.g. any estimated amount of variable consideration that is constrained).

Stakeholders had questioned whether an entity can still use this disclosure practical expedient if it determines that it has not met the criteria to use the right to invoice practical expedient (e.g. because there is a substantive contractual minimum payment or a volume discount).⁶

3.2.2.A Determining the timing of satisfaction of performance obligations

IFRS 15 requires entities to provide disclosures about the significant judgements made in determining the timing of satisfaction of performance obligations. The disclosure requirements for performance obligations that are satisfied over time differ from those satisfied at a point in time, but the objective is similar – to disclose the judgements made in determining the timing of revenue recognition. Entities must disclose: [IFRS 15.124]

• the methods used to recognise revenue (e.g. a description of the output methods or input methods used and how those methods are applied); and
• an explanation of why the methods used provide a faithful depiction of the transfer of goods or services.

For performance obligations that are satisfied at a point in time, entities must disclose the significant judgements made in evaluating the point in time when the customer obtains control of the goods or services. [IFRS 15.125].

When an entity has determined that a performance obligation is satisfied over time, IFRS 15 requires the entity to select a single revenue recognition method for each performance obligation that best depicts the entity's performance in transferring the goods or services. Entities must disclose the method used to recognise revenue.

For example, assume an entity enters into a contract to refurbish a multi-level building for a customer and the work is expected to take two years. The entity concludes that the promised refurbishment service is a single performance obligation satisfied over time and it decides to measure progress using a percentage of completion method, based on the costs incurred. The entity discloses the method used, how it has been applied to the contract and why the method selected provides a faithful depiction of the transfer of goods or services.

When an entity has determined that a performance obligation is satisfied at a point in time, the standard requires the entity to disclose the significant judgements made in evaluating when the customer obtains control of the promised goods or services. For example, an entity needs to consider the indicators of the transfer of control listed in paragraph 38 of IFRS 15 to determine when control transfers and disclose the significant judgements made in reaching that conclusion.

In Extract 32.14 at 3.2.1.C above, ASML Holding N.V. describes the methods used to recognise its revenue over time and explains the relationship between the methods and the different types of services it provides. Koninklijke Philips N.V. recognises revenue at a point in time in relation its consumer type-products sales. Extract 32.13 at 3.2.1.C above provides a description of when control transfers to the customer for these sales.

In Extract 32.17 below, SAP SE provides disclosure of the significant judgement involved in determining the satisfaction of its performance obligations. It explains how it determines whether its software offerings provide customers with a right to use or a right to access its intellectual property. It also describes the judgement involved in identifying the appropriate method to measure the progress of its performance obligations satisfied overtime.

3.2.2.B Determining the transaction price and the amounts allocated to performance obligations

Entities often exercise significant judgement when estimating the transaction prices of their contracts, especially when those estimates involve variable consideration.

Furthermore, significant judgement may be required when allocating the transaction price, including estimating stand-alone selling prices; for example, it is likely that entities will need to exercise judgement when determining whether a customer option gives rise to a material right (see Chapter 28 at 3.6) and in estimating the stand-alone selling price for those material rights.

Given the importance placed on revenue by financial statement users, the standard requires entities to disclose qualitative information about the methods, inputs and assumptions used in their annual financial statements for all of the following: [IFRS 15.126, BC355]

• determining the transaction price – includes, but is not limited to, estimating variable consideration, adjusting the consideration for the effects of the time value of money and measuring non-cash consideration;
• assessing whether an estimate of variable consideration is constrained;
• allocating the transaction price – includes estimating stand-alone selling prices of promised goods or services and allocating discounts and variable consideration to a specific part of the contract (if applicable); and
• measuring obligations for returns, refunds and other similar obligations.

Entities with diverse contracts need to ensure they have the processes and procedures in place to capture all of the different methods, inputs and assumptions used in determining the transaction price and allocating it to performance obligations.

In Extract 32.13 at 3.2.1.C above, Koninklijke Philips N.V. explains the need to estimate variable consideration in relation to returns.

Since fee arrangements often include contingencies (e.g. No Win-No Fee arrangements), Slater and Gordon Limited estimated variable consideration when determining the transaction price as presented in Extract 32.18. Therefore, it discloses information about the method (i.e. most likely amount approach), inputs and assumptions (i.e. management's assessment and the probability of success of each case). Furthermore, Slater and Gordon Limited discloses information about the assessment of whether a significant financing component exists. The entity concludes that contracts generally comprise only one performance obligation. As such, Slater and Gordon Limited does not disclose information about the allocation of the transaction price.