IFRS 15 Revenue from Contracts with Customers — Complete Guide

What is IFRS 15?

IFRS 15 Revenue from Contracts with Customers is the international accounting standard governing how and when companies recognise revenue. It replaced IAS 18 (Revenue) and IAS 11 (Construction Contracts) and applies to virtually all industries — making it one of the most important standards in financial reporting.

IFRS 15 is a core topic in ACCA Financial Reporting (FR), Strategic Business Reporting (SBR), and the US CMA Part 1 Financial Reporting section.

The Five-Step Model

IFRS 15 uses a single five-step model for all revenue recognition:

Step 1: Identify the Contract with the Customer

A contract exists when it is approved by both parties, rights and obligations can be identified, payment terms are clear, the contract has commercial substance, and it is probable the entity will collect the consideration. Contracts can be written, oral, or implied.

Step 2: Identify the Performance Obligations in the Contract

A performance obligation is a promise to transfer a distinct good or service. A good or service is distinct if: (a) the customer can benefit from it on its own or together with other readily available resources, AND (b) the promise is separately identifiable from other promises in the contract.

Bundled contracts: A sale of a phone with a two-year service contract = two performance obligations (handset + service) if both criteria are met.

Step 3: Determine the Transaction Price

Transaction price = amount of consideration the entity expects to be entitled to in exchange for satisfying performance obligations. Includes variable consideration (discounts, rebates, refunds, incentives) — estimated using expected value or most likely amount methods. Variable consideration is constrained — only include to the extent it is highly probable a significant reversal will not occur.

Step 4: Allocate the Transaction Price to Performance Obligations

Allocate on the basis of relative standalone selling prices (SSP). If SSP is not directly observable, estimate using adjusted market assessment, expected cost plus margin, or residual approaches.

Step 5: Recognise Revenue When (or As) Performance Obligations are Satisfied

Revenue is recognised when (or as) control of the good or service transfers to the customer:

• Over time: if the customer simultaneously receives and consumes the benefits, the entity creates/enhances an asset the customer controls, or the asset has no alternative use AND the entity has an enforceable right to payment for work completed to date
• At a point in time: all other cases — recognise when control transfers (consider: right to payment, legal title, physical possession, risks and rewards, customer acceptance)

Key IFRS 15 Concepts for Exams

• Contract modifications: Treat as new contract or modification of existing depending on whether new goods/services are distinct and priced at standalone selling price
• Principal vs agent: Principal recognises revenue gross; agent recognises net (commission). Key question: who controls the good/service before it is transferred to the customer?
• Licences: Right to access (recognise over time) vs right to use (recognise at point in time)
• Sales with right of return: Recognise revenue only for goods not expected to be returned; recognise refund liability for expected returns
• Warranties: Assurance warranties are provisions (IAS 37); service warranties are separate performance obligations

Preparing for ACCA FR or SBR? Learnsignal's ACCA courses cover IFRS 15 in depth with exam-focused practice and expert tutors.

Further Reading

• IFRS 16 Leases — Complete Guide for Finance Students
• IFRS 9 Financial Instruments — Complete Guide
• IAS 38 Intangible Assets — Complete Guide
• IAS 36 Impairment of Assets — Complete Guide

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