Forecasting Revenue Disclosures — Storm Brewing?


Published on June 28, 2017



In implementing the IFRS 15, Revenue from Contracts with Customers (IFRS 15), the new revenue standard, some entities will need to make wholesale changes to their income statements as a result of the new recognition and measurement requirements. For other entities, the impact of those requirements will be less significant. However, all entities will need to carefully consider the standard’s new and modified quantitative and qualitative disclosure requirements.

This article discusses certain of the disclosure requirements that may be particularly challenging for entities to implement. For additional information regarding the adoption of the new standard, refer to the IFRS 15 publications on Deloitte’s Center for Financial Reporting.


The Importance of an Entity’s Disclosure Implementation Strategy

Some entities may not intend to consider the revenue standard’s new disclosure requirements until perhaps early 2018, after the new standard becomes effective (i.e., as part of the first interim reporting process for public entities). However, such a strategy might be risky for a number of reasons.

Significant Increase in Necessary Information

The new standard will require entities to disclose much more information about revenue activities and related transactions than they do currently. Consequently, they will need time to implement and test appropriate processes, internal controls, and disclosure controls and procedures (including the identification of relevant personnel and information systems throughout the organization) for (1) data-gathering activities, (2) the identification of applicable disclosures on the basis of relevance and materiality, and (3) the preparation and review of disclosures, including the information that supports such disclosures.

Disclosures Needed in Interim Filings

Although the only IFRS 15 disclosure specifically applicable to interim financial statements is the disclosure related to the disaggregation of revenue, reporting issuers should consider the guidance in National Instrument 51-102 and other standards within IFRS (i.e. IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors and IAS 34, Interim Financial Reporting) to determine the appropriate disclosures to include in interim financial statements in the year of initial adoption.

Reporting Deadlines, Compliance, and Internal Controls

The requirement to consider disclosures as part of preparing interim or year-end financial statements most likely will significantly affect an entity’s ability to meet reporting deadlines that are already tight (particularly for public company filings). In addition, an entity may be unable to obtain the information it needs to satisfy the disclosure requirements (e.g., because of problems related to the collection, preparation, or review of data needed for disclosures), which could result in late filings and the identification of deficiencies in internal controls (e.g., material weaknesses).


Disclosures That May Be Challenging to Implement

Performance Obligations (Including Remaining Performance Obligations)

In contrast to current guidance, the new revenue standard introduces a series of quantitative and qualitative disclosure requirements related to performance obligations that will be partially or entirely new for many entities. Under these requirements, entities must disclose:

  • Qualitative information about the types of performance obligations, the nature of goods and services promised, and when the obligations are typically satisfied.
  • Qualitative information about significant payment terms, including information about significant financing components and variable consideration.
  • Qualitative information about warranties, returns, refunds and other similar obligations.
  • Quantitative and qualitative information about amounts allocated to remaining performance obligations (i.e. performance obligations that are unsatisfied or partially unsatisfied), and when such remaining amounts will be recognized as revenue.
  • Performance obligations for which the entity acts as an agent.

It may be difficult for entities to determine the level at which to present information about their performance obligations and the nature of goods or services. Complying with the requirements related to remaining performance obligations (commonly referred to as “backlog disclosures”) may be particularly challenging because of difficulties associated with identifying the remaining performance obligations. Further, determining when remaining performance obligations are expected to be satisfied is a matter of judgment, and the information disclosed may therefore be subjective.

It is worth noting however that as a practical expedient an entity is not required to disclose information about amounts allocated to remaining performance obligations if certain conditions are met.  Entities may wish to consider the applicability of the practical expedient to their circumstances.

Other aspects of the disclosure requirements related to performance obligations that may pose difficulties in an entity’s implementation include:

  • Identifying amounts and related drivers of variable consideration associated with performance obligations (including information regarding the estimation of variable consideration and any related constraints on the variable consideration and their potential effects on future cash flows).
  • Assessing whether material rights exist, and the manner in which those rights would be disclosed within the context of other distinct performance obligations.

Significant Judgments and Estimates

An entity is required to make significant judgments and estimates as it applies the new revenue standard’s five-step model (e.g., the determination of variable consideration and whether to constrain variable consideration). Accordingly, the new standard requires disclosures about those judgments and estimates, including the following:


Qualitative Information About Determining the Timing of: Qualitative and Quantitative Information(Including Methods, Inputs, and Assumptions Used) About:
  • Performance obligations satisfied over time (e.g., methods of measuring progress, why methods are representative of transfer of goods or services, judgments used in the evaluation of when a customer obtains control of goods or services).
  • Performance obligations satisfied at a point in time — specifically, the significant judgments used in the evaluation of when a customer obtains control.
  • Determining the transaction price (e.g., estimating variable consideration, adjusting for the time value of money, noncash consideration).
  • Constraining estimates of variable consideration.
  • Allocating the transaction price, including estimating stand-alone selling prices and allocating discounts and variable consideration.
  • Measuring obligations for returns, refunds, and other similar obligations.

In a manner similar to the accounting related to significant estimates and the exercise of judgment under other areas of IFRS, an entity may need to revise its original revenue estimates. Therefore, it is crucial for the entity to maintain effective internal controls and documentation that support the assumptions and judgments that underpin its estimates. Disclosures about out-of-period revenues that result from changes in estimates of variable consideration (i.e., whether actual revenue earned is more or less than what was originally estimated) are likely to attract attention from stakeholders (e.g., investors and analysts) because, for analysts and investors that use 20/20 hindsight to gauge the reliability of an entity’s revenue estimates, they highlight the entity’s ability to make estimates and the effectiveness of its related controls.

Contract Balances (Contract Assets and Liabilities)

Along with guidance that requires entities to recognize contract assets and liabilities in certain circumstances, the new standard adds disclosure requirements related to such contract balances. The required information is essentially a roll forward of contract assets and liabilities (i.e., the standard requires disclosure of the beginning and ending balances as well as significant movements in the balances). Disclosures of significant movements would include performance obligations that have been satisfied in the period and qualitative and quantitative information that results from out-of-period revenues (e.g., changes to estimates of variable consideration). However, the standard does not prescribe a specific format, and therefore presentation may be in the form of a true roll forward or in a narrative or other format.

To comply with the disclosure requirements related to contract balances — particularly those that apply to capturing out-of-period revenues — an entity may need to develop processes and controls for identifying and tracking the following information:

Disaggregation of Revenue

Entities should consider the standard’s overall disaggregation principle in paragraph 114 of IFRS 15. The guidance in paragraphs 114 and 115 of IFRS 15 does not prescribe either the methods of aggregation or disaggregation nor the form or format of disclosures, but it does indicate that aggregation or disaggregation of revenue information should occur so that “useful information is not obscured by either the inclusion of a large amount of insignificant detail or the aggregation of items that have substantially different characteristics.” More specifically, the new standard contains guidance on the disaggregation of entities’ contracts with their customers that requires entities to (1) disaggregate revenue into categories that depict how revenue and cash flows are affected by economic factors and (2) provide sufficient information to understand the relationship between disaggregated revenue and revenue information disclosed for each reportable segment.

Categories that might be appropriate include, but are not limited to, the following:

  • type of good or service;
  • geographical region;
  • market or type of customer;
  • type of contract;
  • timing of transfer of goods or services (e.g., overtime or at a point in time).

When determining the categories to disclose, IFRS 15 indicates that entities must consider how revenue information is presented for other purposes outside the financial statements (i.e. earnings releases, annual reports or information regularly reviewed by the chief operating decision maker).  When making these decisions, entities should not lose sight of the requirement to “reconcile”  the disclosure of disaggregated revenue and the revenue information disclosed for each reportable segment, as applicable.

Because there is no prescribed format or method for applying the new standard’s disaggregation principles, disclosures will be entity-specific and, accordingly, an entity will need to exercise significant judgment in determining the appropriate level of disaggregation. Consequently, it will be important for an entity to determine what information will be useful for key stakeholders such as investors, lenders, and regulatory bodies and which form of presentation (e.g., tabular or text) will be more effective in achieving the disclosure principles.


Next Steps

For entities with a calendar-year-end, there is less than a year before the new revenue standard is effective. In addition, many entities still have much work to do to implement the standard’s recognition and measurement guidance and little time left to do it. Therefore, entities are encouraged not to wait but to assess the disclosure requirements simultaneously with their implementation of the standard’s recognition and measurement principles.

As an entity analyzes each disclosure requirement, it should consider materiality, relevance, the information that will be needed, how to get that information, and the controls necessary for the preparation and review of the disclosures and the related underlying data. Because an entity can use similar information (or information from similar sources) to comply with some of the disclosure requirements (e.g., information related to performance obligations and estimates of variable consideration), the entity should develop a comprehensive strategy to collect the information and draft disclosures that effectively and efficiently describe its revenue “story.”

The following article was adapted from Deloitte’s Heads Up publication ‘Forecasting Revenue Disclosures - Storm Brewing?’ published on February 22, 2017. As always, should you have any questions or concerns, or need help with any aspects of the new standards implementation, feel free to reach out to your Deloitte contact.



Kerry Danyluk Kerry Danyluk
Kerry joined Deloitte in 2006 with over 20 years of experience in industry, public practice and standard setting. She is currently the National Director of Accounting Services at Deloitte, with overall responsibility for accounting consultations. She serves clients in a variety of sectors, most significantly resources, financial services, retail, public sector and utilities.
Maryse Vendette Maryse Vendette
Maryse is a partner for Deloitte Canada’s National Office and co-leader of the IFRS Canadian Centre of Excellence. She is recognized nationally as a specialist in revenue recognition, business combinations and IFRS in general, and contributes to the development of the firm’s views on complex accounting issues. Prior to joining the National office, Maryse was a member our advisory group, where she provided financial reporting services to clients in a variety of industries.





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