Expense recognition principle

IFRS 15 became mandatory for accounting periods beginning on or after 1 January 2018. As entities and groups using the international accounting framework leave the old regime behind, let’s look at the more prescriptive new standard.

Changes, which include replacing the concept of transfer of ‘risks and rewards’ with ‘control’ and the introduction of ‘performance obligations’ alongside extensive disclosures, are likely to put more pressure on accountants and auditors to closely evaluate client contracts and challenge directors' judgements.

Here, we summarise the following five steps of revenue recognition and illustrative practical application for the most common scenarios: 

1. Identify the contract
2. Identify separate performance obligations
3. Determine the transaction price
4. Allocate transaction price to performance obligations
5. Recognise revenue when each performance obligation is satisfied.