creation of a new contract. See 10.3.1.F above for further discussion.
11.1.1.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
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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?
11.2 Other presentation considerations
The standard also changes the presentation requirements for products expected to be
returned and for those that contain a significant financing component. See 6.4 and 6.5.3
above for presentation considerations related to rights of return and significant
financing components, respectively. Also see
10.3.3.F above for presentation
considerations related to capitalised contract costs to obtain and fulfil a contract.
11.2.1
Classifying shipping and handling costs in the income statement
Under IFRS 15, an entity needs to determine whether shipping and handling is a separate
promised service to the customer or if they are activities to fulfil the promise to transfer
the good (see 5.1 above). Shipping and handling activities that are performed before the
customer obtains control of the related good will be activities to fulfil its promise to
transfer control of the good. If shipping and handling activities are performed after a
customer obtains control of the related good, shipping and handling is a promised
service to the customer and an entity needs to determine whether it acts as a principal
or an agent in providing those services.
If an entity determines that the shipping and handling activities are related to a promised
good or service to the customer (either the promise to transfer control of the good or
the promise to provide shipping and handling services) and the entity is the principal
(rather than the agent), we believe the related costs should be classified as cost of sales
because the costs would be incurred to fulfil a revenue obligation. However, if the entity
determines that shipping and handling is a separate promised service to the customer
and it is acting as an agent in providing those services, the related revenue to be
recognised for shipping and handling services would be net of the related costs.
We believe entities need to apply judgement to determine how to classify shipping and
handling costs when it is not related to a promised good or service to the customer. This
is because IFRS does not specifically address how entities should classify these costs.
While not a requirement of IFRS 15, we would encourage entities to disclose the amount
of these costs and the line item or items on the income statement that include them, if
they are significant.
Revenue
2291
11.3 Disclosure objective and general requirements
In response to criticism that the legacy revenue recognition disclosures are inadequate,
the Board sought to create a comprehensive and coherent set of disclosures. As a result,
IFRS 15 described the overall objective of the disclosures, consistent with other recent
standards, as detailed below.
The objective is for an entity to ‘disclose 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’. To achieve that
objective, an entity is required to disclose qualitative and quantitative information about
all of the following: [IFRS 15.110]
(a) its contracts with customers (discussed further at 11.4.1 below);
(b) the significant judgements, and changes in the judgements, made in applying the
standard to those contracts (discussed further at 11.4.2 below); and
(c) any assets recognised from the costs to obtain or fulfil a contract with a customer
(discussed further at 11.4.3 below).
The standard requires that an entity consider the level of detail necessary to satisfy the
disclosure objective and how much emphasis to place on each of the various
requirements. The level of aggregation or disaggregation of disclosures requires
judgement. Entities are required to ensure that useful information is not obscured by
either the inclusion of a large amount of insignificant detail or the aggregation of items
that have substantially different characteristics. [IFRS 15.111].
An entity does not need to disclose information in accordance with IFRS 15 if it discloses
that information in accordance with another standard. [IFRS 15.112].
As explained in the Basis for Conclusions, many preparers raised concerns that they
would need to provide voluminous disclosures at a cost that may outweigh any
potential benefits. [IFRS 15.BC327, BC331]. As summarised above, the Board clarified the
disclosure objective and indicated that the disclosures described in the standard are
not meant to be a checklist of minimum requirements. That is, entities do not need
to include disclosures that are not relevant or are not material to them. In addition,
the Board decided to require qualitative disclosures instead of tabular reconciliations
for certain disclosures.
Entities should review their disclosures to determine whether they have met the
standard’s disclosure objective to enable users to understand the nature, amount, timing
and uncertainty of revenue and cash flows arising from contracts with customers. For
example, some entities may make large payments to customers that do not represent
payment for a distinct good or service and therefore reduce the transaction price and
affect the amount and timing of revenue recognised. Although there are no specific
requirements in the standard to disclose balances related to consideration paid or
payable to a customer, an entity may need to disclose qualitative and/or quantitative
information about those arrangements to meet the objective of the IFRS 15 disclosure
requirements in the standard if the amounts are m
aterial.
The disclosures are required for (and as at) each annual period for which a statement of
comprehensive income and a statement of financial position are presented.
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Certain interim revenue disclosures are also required for entities preparing interim
financial statements. When it issued IFRS 15, the IASB amended IAS 34 to require
disclosure of disaggregated revenue information. However, none of the other annual
disclosures are required for interim financial statements (see Chapter 37 for further
discussion on interim financial reporting).
11.4 Specific disclosure requirements
11.4.1
Contracts with customers
The majority of the standard’s disclosures relate to an entity’s contracts with customers.
These disclosures include disaggregation of revenue, information about contract asset
and liability balances and information about an entity’s performance obligations. To
provide context for the disclosures, the Board decided to require entities to disclose the
following amounts related to contracts with customers: [IFRS 15.113, BC332]
• Paragraph 113(a) of IFRS 15 requires an entity to disclose (or present in the
statement of comprehensive income) the amount of revenue recognised from
contracts with customers under IFRS 15 separately from other sources of
revenue. For example, a large equipment manufacturer that both sells and
leases its equipment should present (or disclose) amounts from these
transactions separately.
• Paragraph 113(b) of IFRS 15 also requires an entity to disclose impairment losses
from contracts with customers separately from other impairment losses if they are
not presented in the statement of comprehensive income separately. As noted in
the Basis for Conclusions, the Board felt that separately disclosing the impairment
losses on contracts with customers provides the most relevant information to users
of financial statements. [IFRS 15.BC334].
In the following extract, The Village Building Co. Limited presents a combined revenue
number on the face of the statement of profit or loss which includes revenue recognised
from contracts with customers in accordance with IFRS 15 and other revenue (e.g. rental
income, dividends) in the same line item. It then presents customer contract revenues
separately from other sources of revenue, in note 4.
Extract 28.3: The Village Building Co. Limited (2017)
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2017 [Extract]
Note 2017
2016
$’000
$’000
Revenue 4
147,826
134,999
Cost of sales
5
(107,235)
(99,565)
Gross profit
40,591 35,434
Revenue
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
30 JUNE 2017 [Extract]
NOTE 4. REVENUE [Extract]
2017
2016
$’000
$’000
CUSTOMER CONTRACT REVENUE
Land, house & land and units
142,733
134,067
Project management fees
19
358
142,752 134,425
OTHER REVENUE
Trading income – retail sales Big Banana
3,532
–
Dividends
21 15
Gain on Big Banana acquisition
623
–
Unrealised gain on investments
149
–
Rental income
298
265
Remeasurement of investment prior to business purchase
92
–
Other revenue
359
294
5,074 574
Revenue 147,826
134,999
Ferrovial, S.A. has applied a different approach by disclosing the amounts relating to
contracts with customers in a narrative within the notes. It does not disclose
comparative information as it applies the modified retrospective method to adopt
IFRS 15 (see 2.3.4 above).
Extract 28.4: Ferrovial, S.A. (2017)
F. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR 2017 [Extract]
SECTION 2: PROFIT FOR THE YEAR [Extract]
2.1. Operating income [Extract]
The detail of the Group’s operating income at 31 December 2017 is as follows:
(Millions of euros)
2017 2016
Revenue
12,208 10,759
Other operating income
(10)
7
Total operating income
12,218
10,765
The Group’s revenue at 31 December 2017 relating to contracts with customers amounted to EUR 11,872 million (see
Note 1.3.3.4, Revenue recognition).
Unless required, or permitted, by another standard, IAS 1 does not permit offsetting of
income and expenses within profit or loss or the statement of comprehensive income.
[IAS 1.32].
After applying the requirements for determining the transaction price in IFRS 15,
revenue recognised by an entity may include offsets, for example, for any trade
discounts given and volume rebates paid by the entity to its customer. Similarly, in
the ordinary course of business, an entity may undertake other transactions that do
not generate revenue, but are incidental to the main revenue-generating activities.
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When this presentation reflects the substance of the transaction or other event, IAS 1
permits an entity to present ‘the results of such transactions ... by netting any income
with related expenses arising on the same transaction’. [IAS 1.34]. An example given in
IAS 1 is the presentation of gains and losses on the disposal of non-current assets by
deducting from the amount of consideration on disposal the carrying amount of the
asset and related selling expenses. [IAS 1.34(a)].
11.4.1.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 disclosure requirement for IFRS preparers
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, entities are not required 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 (e.g. chief executive officer or chief operating
officer)) 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].
Revenue
2295
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
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 456
