Revenue

Notes

Revenue

IFRS 15 Revenue from Contracts with Customers adopts a five-step approach to revenue recognition.

Step 5 says:

Recognise revenue when (or as) the entity satisfies a performance obligation, that is when the entity transfers a promised good or service to a customer. 

The good or service is only considered as transferred when the customer obtains control of it. Some indications of control are:

  1. The entity has a present right to payment for the asset.

  2. The customer has legal title to the asset.

  3. The entity has transferred physical possession of the asset.

  4. The significant risks and rewards of ownership have been transferred to the customer.

  5. The customer has accepted the asset.

FRS 102 Chapter 23 does not have the five-step approach used in IFRS 15.

It states that revenue should only be recognised when all of the following conditions are satisfied.

  1. The entity has transferred the significant risks and rewards of ownership of the goods to the buyer.

  2. The seller no longer has management involvement or effective control over the goods.

  3. The amount of revenue can be measured reliably.

  4. It is probable that the economic benefits associated with the transaction will flow to the entity.

  5. The costs incurred in respect of the transaction can be measured reliably.

These conditions only partly address of the issue of control, which in turn is only one aspect of Step 5 under IFRS 15.

FRS 102 can therefore be viewed as less explicit than IFRS 15.

FRS 102 Chapter 23 is based on IFRS 15's predecessor, IAS 18.

It is likely that it will be amended, once the IFRS for SMEs has been amended to bring the latter into line with IFRS 15.

Note.

ACCA's examinable documents list states: 

Detailed accounting transactions for revenue will not be examined in the UK syllabus although high level principles might be examined in a narrative question.

Notes