ACCA SBR September 2026: IFRS 15 Contract Modifications — The Q3 Topic Almost Nobody Answered

A contract modification in SBR is one of three things: a separate contract, a new contract for what's left, or a catch-up adjustment. Decide which before you write a word. Reciting the five-step model earns zero.

Why this matters on Thursday

The SBR examining team have said it repeatedly: Question 3 is the worst-performing question in the paper. In the March/June 2025 sitting the worst-performing part of that question was IFRS 15 contract modifications. Only a "very small number" of candidates even mentioned the definition of a modification or the concept of distinct goods or services.

What did most candidates write instead? The five steps. Identify the contract, identify the performance obligations, determine the price, allocate, recognise. The examiner's verdict: "basic and irrelevant knowledge", and no marks. Two four-year IT service contracts were modified mid-term, and the question was worth 8 marks. Most of those marks went unclaimed.

The same report flagged the wider habit: "candidates writing everything they know about a standard, rather than the relevant knowledge for the scenario." Contract modifications are where that habit costs the most, because the scenario hands you a decision to make and the five steps don't make it.

The three-way decision

1. Separate contract. The modification adds goods or services that are distinct AND the extra price reflects their standalone selling price. Account for it as a brand-new contract. Leave the original alone.

2. Terminate and replace (prospective). The extra goods or services are distinct, but the price isn't standalone (usually a discount for a loyal customer). Treat the old contract as ended. Take the unrecognised consideration from the old contract, add the new consideration, and spread the total over the remaining performance obligations going forward. No restatement of what's already been recognised.

3. Cumulative catch-up (retrospective). The remaining goods or services are not distinct from what has already been delivered, so it's still one partially-satisfied performance obligation. Update the transaction price and measure of progress, and book the difference in revenue immediately. A fixed-price construction or software build with a scope change is the classic case.

Ongoing IT services are a series of distinct periods, so modifications to them land in route 1 or route 2. That was the entire point of the exam question, and candidates who spotted "distinct" got there.

Worked example

Ments Co has a four-year IT support contract for $400,000, a single performance obligation satisfied evenly over time. At the end of year one, with $100,000 recognised, the customer extends the contract by one year for an extra $80,000. Ments normally charges $100,000 a year.

Wrong answer: "Under IFRS 15's five-step model, revenue is recognised when performance obligations are satisfied. The contract continues at $100,000 per year and the $80,000 is recognised in year five." That's route 1 without checking the conditions. The extension is distinct, but $80,000 is not the standalone price of $100,000. Route 1 fails.

Correct answer: Route 2. Remaining consideration on the old contract is $300,000. Add the $80,000. That's $380,000 over the remaining four years, so $95,000 per year from year two. The $100,000 already recognised in year one is untouched. One line of reasoning, one calculation, and you've explained why revenue drops from $100,000 to $95,000 a year, which is exactly what the marker is looking for.

Now change one fact: suppose instead the customer asks for extra features on a fixed-price software build that's 40% complete. Remaining work is not distinct from work done. That's route 3. Revise the total price, recompute 40% of the new total, and recognise the difference now.

What to do

Open with the test, not the standard. Your first sentence should say whether the added services are distinct and whether the price is standalone. That single sentence tells the marker you know the framework and earns the application marks that follow.

Show the arithmetic for the route you chose. Route 2 needs "remaining plus new, divided by remaining periods." Route 3 needs "new price times percentage complete, less revenue to date." Half of the marks sit in these two lines.

Say what happens to the past. Prospective means year one stays. Retrospective means a catch-up hits this year's profit. Candidates who state this explicitly score; candidates who leave it implicit don't.

The numbers

SBR has passed roughly 47–50% of candidates across the last five sittings. Question 3 is where the bottom half loses ground, and the examiner has told you the topic they couldn't answer.

Decide which of the three it is. Then write.