the customer. The utilisation charge is included within cost of sales. Judgement is applied to determine this period, for example whether this expected period would be the contract term or a longer period such as the estimated life of the
customer relationship for a particular contract if, say, renewals are expected.
A contract fulfilment asset or capitalised costs to obtain a contract is derecognised either when it is disposed of or when no further economic benefits are expected to flow from its use or disposal.
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Management is required to determine the recoverability of contract related assets within property, plant and equipment,
intangible assets as well as contract fulfilment assets, capitalised costs to obtain a contract, accrued income and trade receivables. At each reporting date, the Group determines whether or not the contract fulfilment assets and capitalised
costs to obtain a contract are impaired by comparing the carrying amount of the asset to the remaining amount of
consideration that the Group expects to receive less the costs that relate to providing services under the relevant contract.
In determining the estimated amount of consideration, the Group uses the same principles as it does to determine the
contract transaction price, except that any constraints used to reduce the transaction price will be removed for the
impairment test.
Where the relevant contracts or specific performance obligations are demonstrating marginal profitability or other
indicators of impairment, judgement is required in ascertaining whether or not the future economic benefits from these
contracts are sufficient to recover these assets. In performing this impairment assessment, management is required to
make an assessment of the costs to complete the contract. The ability to accurately forecast such costs involves estimates around cost savings to be achieved over time, anticipated profitability of the contract, as well as future performance
against any contract-specific KPIs that could trigger variable consideration, or service credits. Where a contract is
anticipated to make a loss, these judgements are also relevant in determining whether or not an onerous contract
provision is required and how this is to be measured.
18 CONTRACT FULFILMENT ASSETS
£m
As at 1 January 2016
277.6
Additions
76.5
Derecognition
(59.3)
Utilised during the year – underlying
(54.2)
As at 31 December 2016
240.6
Additions
101.2
Impairment and derecognition
(24.0)
Utilised during the year – underlying
(65.3)
As at 31 December 2017
252.5
In preparing these financial statements, the Group undertook a comprehensive review of its major contracts to identify
indicators of impairment of contract fulfilment assets. The Group determined whether or not the contract fulfilment
assets were impaired by comparing the carrying amount of the asset to the remaining amount of consideration that the
Group expects to receive less the costs that relate to providing services under the relevant contract. In determining the estimated amount of consideration, the Group used the same principles as it does to determine the contract transaction
price, except that any constraints used to reduce the transaction price were removed for the impairment test.
In line with the Group’s accounting policy, as set out in note 2, if a contract or specific performance obligation exhibited marginal profitability or other indicators of impairment, judgement was applied to ascertain whether or not the future
economic benefits from these contracts were sufficient to recover these assets. In performing this impairment
assessment, management is required to make an assessment of the costs to complete the contract. The ability to
accurately forecast such costs involves estimates around cost savings to be achieved over time, anticipated profitability of the contract, as well as future performance against any contract-specific KPIs that could trigger variable
consideration, or service credits.
Following this review, management has taken the decision to impair costs capitalised as contract fulfilment assets of
£14.1m (2016: £nil) within underlying cost of sales
The review also resulted in the derecognition of £9.9m (2016: £59.3m) of contract fulfilment assets as no further
economic benefits are expected to flow from the Group’s use of the assets.
2322 Chapter 28
Of these assets derecognised, £5.5m (2016: £42.3m) is included within non-underlying cost of sales. The Group’s life and
pensions business has developed a platform to support an existing life and pensions contract, but which could provide
services to multiple clients in the future. The Group’s transformation plan has identified there is no longer a market for this platform and accordingly the carrying value of this and associated assets has been written off. The impact on the financial statements is a non-underlying charge of £61.2m (£54.7m property, plant and equipment – see note 14; £1.0m capitalised
software intangible assets – see note 15; and £5.5m contract fulfilment assets) representing the write-off of the non-current assets. The change has been included within non-underlying as the assets have no further value to the Group. In 2016,
£42.3m of the charge relates to the impact of the dispute with The Co-operative Bank plc representing the write-off of
contract fulfilment assets relating to the transformation plan. Refer to note 6 for full details of the non-underlying events.
11.4.4 Practical
expedients
The standard allows entities to use several practical expedients. Paragraph 129 of
IFRS 15 requires entities to disclose their use of two practical expedients: (a) the
practical expedient in paragraph 63 of IFRS 15 associated with the determination of
whether a significant financing component exists (see 6.5 above); and (b) the expedient
in paragraph 94 of IFRS 15 for recognising an immediate expense for certain
incremental costs of obtaining a contract with a customer (see 10.3.1 above). [IFRS 15.129].
In addition, entities are required to disclose the use of the disclosure practical expedient
in paragraph 121 of IFRS 15 (which permits an entity not to disclose information about
remaining performance obligations if one of the conditions in the paragraph are met,
see 11.4.1.C above). IFRS 15 provides other practical expedients. Entities need to
carefully consider the disclosure requirements of any other practical expedients it uses.
In Extract 28.19, FIFA discloses that it elected to use the practical expedient in
paragraph 94 of IFRS 15 relating to incremental costs of obtaining a contract. It also
discloses its application of paragraph 121 of IFRS 15 in relation to the remaining
performance obligation disclosure requirement.
Extract 28.19: Fédération Internationale de Football Association (2016)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS [Extract]
SIGNIFICANT ACCOUNTING POLICIES [Extract]
E REVENUE RECOGNITION [Extract]
Practical expedients [Extract]
FIFA has elected to make use of the following practical expedients:
• Contract costs incurred related to contracts with an amortisation period of less than one year have been
expensed as incurred.
• FIFA applies the practical expedient in paragraph 121 of IFRS 15 and does not disclose information about
remaining performance obligati
ons that have original expected durations of one year or less.
11.5 Transition disclosure requirements
IFRS 15 requires retrospective application. However, the Board decided to allow either
full retrospective adoption in which the standard is applied to all of the periods
presented or a modified retrospective adoption. The transition disclosure requirements
differ for entities depending on the transition method selected. See 2.3 above for
additional discussion on transition, including the disclosure requirements.
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11.6 Disclosures in interim financial statements
IAS 34 requires disclosure of disaggregated revenue information, consistent with the
requirement included in IFRS 15 for annual financial statements. [IAS 34.16A(l)]. See
11.4.1.A above for further discussion on this disclosure requirement and 2.3.5 above in
relation to disclosures in interim periods in the year of adoption.
Although none of the other annual IFRS 15 disclosure requirements apply to condensed
interim financial statements, entities need to comply with the general requirements in
IAS 34. For example, an entity is required to include sufficient information to explain
events and transactions that are significant to an understanding of the changes in the
entity’s financial position and performance since the end of the last annual reporting
period. [IAS 34.15]. Information disclosed in relation to those events and transactions must
update the relevant information presented in the most recent annual financial report.
IAS 34 includes a non-exhaustive list of events and transactions for which disclosure
would be required if they are significant, and which includes recognition of impairment
losses on assets arising from contracts with customers, or reversals of such impairment
losses. [IAS 34.15B].
The required interim disclosures differ under IFRS and US GAAP. While the IASB
requires only disaggregated revenue information to be disclosed for interim financial
statements, the FASB requires the quantitative disclosures about revenue required for
annual financial statements to also be disclosed in interim financial statements.
12
OTHER INCOME AND OTHER REVENUE
As income and revenue are defined broadly, not all income-generating transactions are
in the scope of IFRS 15. As discussed at 3 above, an entity applies IFRS 15 only to a
contract in which the counterparty to the contract meets the definition of a customer
(unless the contract is specifically excluded from the scope of IFRS 15 (see 3 above for
a list of scope exclusions)).
Below, we highlight some other items of income that are not within the scope of
IFRS 15 and note whether they are covered by another standard. Some of these
items of income may represent other revenue (i.e. non-IFRS 15 revenue) if part of
the entity’s ordinary activities.
12.1 Income and distributable profits
In general, IFRS does not address the issue of the distribution of profit. Whether or not
revenue and gains recognised in accordance with IFRS are distributable to shareholders
of an entity will depend entirely on the national laws and regulations with which the
entity needs to comply. Thus, income reported in accordance with IFRS does not
necessarily imply that such income would either be realised or distributable under a
reporting entity’s applicable national legislation.
12.2 Interest and dividends
Entities (e.g. financial institutions) may earn interest or dividends in the course of their
ordinary activities and, therefore, present these transactions as revenue. The relevant
2324 Chapter 28
recognition and measurement requirements are included in IFRS 9. These transactions
are recognised as follows:
• Interest: calculated by using the effective interest method [IFRS 9 Appendix A,
IFRS 9.5.4.1, B5.4.1-B5.4.7] as discussed in Chapter 46 at 3;
• Dividends: when the shareholder’s right to receive payment is established, it is probable
that the economic benefits associated with the dividend will flow to the entity and the
amount of the dividend can be measured reliably. [IFRS 9.5.7.1A]. See Chapter 46 at 2.
12.3 Disposal of non-financial assets not in the ordinary course of
business
When an entity disposes of an asset that is within the scope of IAS 16, IAS 38 and IAS 40
and that disposal is not part of the entity’s ordinary activities, the transaction is within
the scope of those standards, not IFRS 15. However, IAS 16, IAS 38 and IAS 40 were
consequentially amended when IFRS 15 was issued to require entities to use certain of
the requirements of IFRS 15 when recognising and measuring gains or losses arising
from the sale or disposal of non-financial assets.
IAS 16, IAS 38 and IAS 40 require that the gain or loss arising from the disposal of a non-
financial asset be included in profit or loss when the item is derecognised, unless IFRS 16
(or IAS 17) requires otherwise on a sale and leaseback. IAS 16 and IAS 38 specifically
prohibit recognition of any such gain as revenue, [IAS 16.68, IAS 38.113, IAS 40.69]. However,
IAS 16 mentions an exception in the case of entities that are in the business of renting
and selling the same asset (discussed at 12.3.1 below). [IAS 16.68A]. IFRS 16 (or IAS 17)
applies to disposal via a sale and leaseback. [IAS 16.69, IAS 38.113, IAS 40.67].
The gain or loss on disposal of a non-financial asset is the difference between the net
disposal proceeds, if any, and the carrying amount of the item. [IAS 16.71, IAS 38.113,
IAS 40.69]. Under IAS 16, this means that any revaluation surplus relating to an item of
PP&E disposed of is transferred within equity to retained earnings when the asset is
derecognised and not reflected in profit or loss when applying the revaluation model
for measurement after recognition. [IAS 16.41].
As noted above, IAS 16, IAS 38 and IAS 40 provide a consistent model for the
measurement and recognition of gains and losses on the sale or disposal of non-financial
assets to non-customers (i.e. not in the ordinary course of business) by referring to the
requirements in IFRS 15. For sales of non-financial assets to non-customers, IAS 16,
IAS 38 and IAS 40 requires entities to:
• determine the date of disposal (and, therefore, derecognition of the asset) using the
requirements in IFRS 15 for determining when a performance obligation is satisfied
(i.e. Step 5 requirements, see 8 above); and
• measure the consideration that is included in the calculation of the gain or loss on
disposal in accordance with the requirements for determining the transaction price
(i.e. Step 3 requirements, see 6 above). Any subsequent changes to the estimate of
the consideration (e.g. updates of variable consideration estimates, including
reassessment of the constraint) are recognised in accordance with the requirements
for changes in the transaction price. For example, if variable consideration is
Revenue
2325
constrained at the time of disposal, it would not be recognised in profit or loss until
it is no longer constrained, which could be in a subsequent period.
The measurement of any gain or loss resulting from the consequential amendments may
differ from the
gain or loss measured by following the legacy requirements in IAS 18.
IFRS
5 provides additional requirements for assets held for disposal. These
requirements include measurement rules, which affect the measurement of the amount
of the gain on disposal to be recognised. These are discussed in Chapter 4 at 2.2.
IFRS 10 specifies how a parent accounts for the full or partial disposal of a subsidiary
(see Chapter 7 for further discussion).153 The accounting treatment may, therefore, differ
depending on whether a non-financial asset is sold on its own (in which case IAS 16,
IAS 38 or IAS 40 would apply) or included within a full or partial disposal of a subsidiary
(in which case IFRS 10 would apply). Where there is a retained interest in a former
subsidiary, other IFRSs (such as IAS 28, IFRS 11 or IFRS 9) may also apply in accounting
for the transaction.
Similar considerations apply to disposals of assets held in a corporate wrapper that are
in the ordinary course of business, since IFRS 15 excludes transactions within the scope
of IFRS 10. Judgement may be needed in determining whether a transaction via the
disposal of shares is within the scope of IFRS 10, particularly in situations where an asset
is transferred into an entity shortly before and as part of a series of planned steps for the
disposal transaction, as this would require that the entity disposed of is controlled by
the seller prior to the disposal.
The FASB’s ASC 610-20 – Other Income – Gains and Losses from Derecognition of
Nonfinancial Assets – provides guidance on how to account for any gain or loss resulting
from the sale of non-financial assets or in-substance non-financial assets that are not an
output of an entity’s ordinary activities and are not a business. This includes the sale of
intangible assets and PP&E, including real estate, as well as materials and supplies.
ASC 610-20 requires entities to apply certain recognition and measurement principles
of ASC 606. Thus, the accounting for a contract that includes the sale of a non-financial
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 462
