customers of the entity. For some arrangements, multiple parties could all be considered
customers of the entity. However, for other arrangements, only some of the parties
involved are considered customers.
Example 28.7 below shows how the party considered to be the customer may differ,
depending on the specific facts and circumstances. The identification of the
performance obligations in a contract (discussed further at 5 below) can have a
significant effect on the determination of which party is the entity’s customer. Also see
the discussion of the identification of an entity’s customer when applying the
application guidance on consideration paid or payable to a customer at 6.7 below.
Example 28.7: Identification of a customer
An entity provides internet-based advertising services to companies. As part of those services, the entity
purchases banner-space on various websites from a selection of publishers. For certain contracts, the entity
provides a sophisticated service of matching the ad placement with the pre-identified criteria of the
advertising party (i.e. the customer). In addition, the entity pre-purchases the banner-space from the
publishers before it finds advertisers for that space. Assume that the entity appropriately concludes it is acting
as the principal in these contracts (see 5.4 below for further discussion on this topic). Accordingly, the entity
identifies that its customer is the advertiser to whom it is providing services.
2004 Chapter 28
In other contracts, the entity simply matches advertisers with the publishers in its portfolio, but the entity does
not provide any sophisticated ad-targeting services or purchase the advertising space from the publishers before
it finds advertisers for that space. Assume that the entity appropriately concludes it is acting as the agent in these
contracts. Accordingly, the entity identifies that its customer is the publisher to whom it is providing services.
3.3 Collaborative
arrangements
In certain transactions, a counterparty may not always be a ‘customer’ of the entity.
Instead, the counterparty may be a collaborator or partner that shares in the risks and
benefits of developing a product to be marketed. [IFRS 15.6]. This is common in the
pharmaceutical, bio-technology, oil and gas, and health care industries. However,
depending on the facts and circumstances, these arrangements may also contain a
vendor-customer relationship component. Such contracts could still be within the
scope of IFRS 15, at least partially, if the collaborator or partner meets the definition of
a customer for some, or all, aspects of the arrangement.
The IASB decided not to provide additional application guidance for determining
whether certain revenue-generating collaborative arrangements would be within the
scope of IFRS 15. In the Basis for Conclusions, the IASB explained that it would not be
possible to provide application guidance that applies to all collaborative arrangements.
[IFRS 15.BC54]. Therefore, the parties to such arrangements need to consider all of the
facts and circumstances to determine whether a vendor-customer relationship exists
that is subject to the standard.
However, the IASB did determine that, in some circumstances, it may be appropriate for
an entity to apply the principles in IFRS 15 to collaborations or partnerships (e.g. when
there are no applicable or more relevant requirements that could be applied). [IFRS 15.BC56].
Under legacy IFRS, identifying the customer could be difficult, especially when multiple
parties were involved in the transaction. This evaluation may have required significant
judgement and IFRS 15 does not provide additional factors to consider.
Furthermore, transactions among partners in collaboration arrangements are not within
the scope of IFRS 15. Therefore, entities need to use judgement to determine whether
transactions are between partners acting in their capacity as collaborators or reflect a
vendor-customer relationship.
3.4
Interaction with other standards
The standard provides requirements for arrangements partially within the scope of
IFRS 15 and partially within the scope of other standards. IFRS 15 states that if the other
standards specify how to separate and/or initially measure one or more parts of the
contract, then an entity shall first apply the separation and/or measurement requirements
in those standards. An entity shall exclude from the transaction price (as discussed at 6
below) the amount of the part (or parts) of the contract that are initially measured in
accordance with other standards and shall apply the allocation requirements in IFRS 15
(as discussed at 7 below) to allocate the amount of the transaction price that remains (if
any) to each performance obligation within the scope of IFRS 15. If the other standards
do not specify how to separate and/or initially measure one or more parts of the contract,
then the entity shall apply IFRS 15 to separate and/or initially measure the part (or parts)
of the contract. [IFRS 15.7]. Figure 28.3 illustrates these requirements.
Revenue
2005
Figure 28.3:
Interactions with other standards
Is the contract entirely in the scope of other standards?
No
Yes
Is the contract with a customer
Apply the requirements in the other standards
partially within the scope of
other standards?
No
Apply IFRS 15 to the entire contract
Yes
Do the other standards specify
No
how to separate and/or initially
Apply IFRS 15 to separate and/or initially
measure one or more parts of
measure the part (or parts) of the contract
the contract?
Yes
Is the promised good or service
capable of being distinct?
(see 5.2.1.A below)
Yes
Exclude from the transaction
Apply IFRS 15 to the part (or parts) of the
price the amount of the part (or
contract within its scope
parts) of the contract that are
initially measured in accordance
Apply other standards to the part (or parts) of
with other standards
the contract within their scope
If a component of the arrangement is covered by another standard or interpretation that
specifies how to separate and/or initially measure that element, the entity needs to apply
IFRS 15 to the remaining components of the arrangement. Some examples of where
separation and/or initial measurement are addressed in other IFRS include the following:
• IFRS 9 requires that a financial instrument be recognised at fair value at initial
recognition. For contracts that include the issuance of a financial instrument and
revenue components within the scope of IFRS 15 and the financial instrument is
required to be initially recognised at fair value, the fair value of the financial instrument
is first measured and the remainder of the estimated contract consideration is allocated
among the other components in the contract in accordance with IFRS 15.
• IFRIC 4 – Determining whether an Arrangement contains a Lease – previously
required the allocatio
n of an arrangement’s consideration between a lease and
other components within a contractual arrangement using a relative fair value
approach. [IFRIC 4.13]. In March 2016, the IASB issued a new leases standard,
IFRS 16. The new leases standard became effective for annual periods beginning
on or after 1 January 2019 (i.e. one year after IFRS 15). Early adoption was
permitted for all entities, provided IFRS 15 had been applied or was applied at the
same date as IFRS 16.
2006 Chapter 28
As stated above, if a component of the arrangement is covered by another standard or
interpretation, but that standard or interpretation does not specify how to separate
and/or initially measure that component, the entity needs to apply IFRS 15 to separate
and/or initially measure each component. For example, specific requirements do not
exist for the separation and measurement of the different parts of an arrangement when
an entity sells a business and also enters into a long-term supply agreement with the
other party. See 7.6 below for further discussion on the effect on the allocation of
arrangement consideration when an arrangement includes both revenue and non-
revenue components.
Entities entering into transactions that fall within the scope of multiple standards need
to separate those transactions into components, so that each component can be
accounted for under the relevant standards. IFRS 15 does not change this requirement.
However, under legacy IFRS, revenue transactions would often be separated into
components that are accounted for under different revenue standards and/or
interpretations (e.g. a transaction involving the sale of goods and a customer loyalty
programme that fell within the scope of both IAS 18 and IFRIC 13, respectively). This is
no longer relevant as there is a single revenue recognition model under IFRS 15.
IAS 18 specified the accounting treatment for the recognition and measurement of
interest and dividends. Interest and dividend income are excluded from the scope of
IFRS 15. Instead, the relevant recognition and measurement requirements have been
moved to IFRS 9. [IFRS 9.B5.4.1-B5.4.3].
3.4.1
Implementation questions on scope
3.4.1.A
Islamic financing transactions
Islamic financial institutions (IFIs) enter into Sharia-compliant instruments and
transactions that do not result in IFIs earning interest on loans. Instead, these
transactions involve purchases and sales of real assets (e.g. vehicles) on which IFIs can
earn a premium to compensate them for deferred payment terms. Typically, an IFI
makes a cash purchase of the underlying asset, takes legal possession, even if only for a
short time, and immediately sells the asset on deferred payment terms. The financial
instruments created by these transactions are within the scope of the financial
instruments standards.10
At the January 2015 TRG meeting, the IASB TRG members discussed whether (before
applying the financial instruments standards) deferred-payment transactions that are
part of Sharia-compliant instruments and transactions are within the scope of IFRS 15.
The IASB TRG members generally agreed that Sharia-compliant instruments and
transactions may be outside the scope of the standard. However, the analysis would
depend on the specific facts and circumstances. This may require significant judgement
as contracts often differ within and between jurisdictions. The FASB TRG members did
not discuss this issue. 11
3.4.1.B
Certain fee-generating activities of financial institutions
The TRG considered an issue raised by US GAAP stakeholders whether certain fee-
generating activities of financial institutions are in the scope of the revenue standard
Revenue
2007
(i.e. servicing and sub-servicing financial assets, providing financial guarantees and
providing deposit-related services).12
The FASB TRG members generally agreed that the standard provides a framework for
determining whether certain contracts are in the scope of the FASB’s standard,
ASC 606, or other standards. As discussed above, the standard’s scope includes all
contracts with customers to provide goods or services in the ordinary course of
business, except for contracts with customers that are within the scope of certain other
ASC topics that are listed as scope exclusions. If another standard specifies the
accounting for the consideration (e.g. a fee) received in the arrangement, the
consideration is outside the scope of ASC 606. If other standards do not specify the
accounting for the consideration and there is a separate good or service provided, the
consideration is in (or at least partially in) the scope of ASC 606. The FASB staff applied
this framework in the TRG agenda paper to arrangements to service financial assets,
provide financial guarantees and provide deposit-related services.
The FASB TRG members generally agreed that income from servicing financial assets
(e.g. loans) is not within the scope of ASC 606. An asset servicer performs various
services, such as communication with the borrower and payment collection, in
exchange for a fee. The FASB TRG members generally agreed that an entity should look
to ASC 860 – Transfers and Servicing – to determine the appropriate accounting for
these fees. This is because ASC 606 contains a scope exception for contracts that fall
under ASC 860, which provides requirements on the recognition of the fees (despite
not providing explicit requirements on revenue accounting).
The FASB TRG members generally agreed that fees from providing financial guarantees
are not within the scope of ASC 606. A financial institution may receive a fee for
providing a guarantee of a loan. These types of financial guarantees are generally within
the scope of ASC 460 – Guarantees – or ASC 815 – Derivatives and Hedging. The FASB
TRG members generally agreed that an entity should look to ASC 460 or ASC 815 to
determine the appropriate accounting for these fees. This is because ASC 606 contains
a scope exception for contracts that fall within those topics, which provide principles
an entity can follow to determine the appropriate accounting to reflect the financial
guarantor’s release from risk (and credit to earnings).
The FASB TRG members also generally agreed that fees from deposit-related services
are within the scope of ASC 606. In contrast to the decisions for servicing income and
financial guarantees, the guidance in ASC 405 – Liabilities – that financial institutions
apply to determine the appropriate liability accounting for customer deposits, does not
provide a model for recognising fees related to customer deposits (e.g. ATM fees,
account maintenance or dormancy fees). Accordingly, the FASB TRG members
generally agreed that deposit fees and charges are within the scope of ASC 606, even
though ASC 405 is listed as a scope exception in ASC 606, because of the lack of
guidance on the accounting for these fees in ASC 405.
It should be noted that, while this was not specifically discussed by the IASB TRG, IFRS
preparers may find the FASB TRG’s discussions helpful in assessing whether certain
contracts are within the scope of IFRS 15 or other stan
dards.
2008 Chapter 28
3.4.1.C
Credit card arrangements
A bank that issues credit cards can have various income streams (e.g. annual fees) from
a cardholder under various credit card arrangements. Some of these fees may entitle
cardholders to ancillary services (e.g. concierge services, airport lounge access). The
card issuer may also provide rewards to cardholders based on their purchases. At the
July 2015 TRG meeting, the TRG members discussed a question raised by US GAAP
stakeholders regarding whether such fees and programmes are within the scope of the
revenue standard, particularly when a good or service is provided to a cardholder.13
While this question has only been raised by US GAAP stakeholders, IASB TRG
members generally agreed that an IFRS preparer would first need to determine
whether the credit card fees are within the scope of IFRS 9. IFRS 9 require that any
fees that are an integral part of the effective interest rate for a financial instrument be
treated as an adjustment to the effective interest rate. Conversely, any fees that are
not an integral part of the effective interest rate of the financial instrument will
generally be accounted for under IFRS 15.
The FASB TRG members generally agreed that credit card fees that are accounted for
under ASC 310 – Receivables – are not in the scope of ASC 606. This includes annual
fees that may entitle cardholders to ancillary services. The FASB TRG members noted
that this conclusion is consistent with legacy US GAAP requirements for credit card
fees. However, the observer from the US SEC noted that the nature of the arrangement
must truly be that of a credit card lending arrangement in order to be in the scope of
ASC 310. As such, entities will need to continue to evaluate their arrangements as new
programmes develop. Credit card fees could, therefore, be treated differently under
IFRS and US GAAP.
3.4.1.D
Credit card-holder rewards programmes
The FASB TRG members also discussed whether cardholder rewards programmes are
within the scope of ASC 606. The FASB TRG members generally agreed that if all
consideration (i.e. credit card fees discussed in 3.4.1.C above) related to the rewards
programme is determined to be within the scope of ASC 310, the rewards programme
is not in the scope of ASC 606. However, this determination has to be made based on
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 396
