Background

On 28 May 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers. After issuing the new revenue standard, which is substantially the same as the FASB's ASU 2014-09, the IASB and the FASB formed the joint Revenue Transition Resource Group to support the implementation of the new standard. The substantial majority of the issues discussed by the TRG were resolved without the need for standard-setting activity. However, five topics (identifying performance obligations, principal versus agent considerations, licensing, collectability, and measuring non-cash consideration) were identified as requiring consideration by the Boards. In addition, some stakeholders asked for practical expedients. After considering the five topics and possible practical expedients, the IASB has decided to propose targeted amendments in three areas of IFRS 15 as well as some transition relief.

Suggested changes

The amendments proposed in ED/2015/6 Clarifications to IFRS 15 (proposed amendments to IFRS 15) address three of the five topics identified (identifying performance obligations, principal versus agent considerations, and licensing) and aim at transition relief for modified contracts and completed contracts. The IASB concluded that it was not necessary to amend IFRS 15 with respect to collectability or measuring non-cash consideration. In all its decisions, the IASB considered the need to balance helping entities with implementing IFRS 15 and not disrupting the implementation process.

Identifying performance obligations. IFRS 15 requires an entity to identify performance obligations on the basis of distinct promised goods or services. To clarify the concept of 'distinct', the IASB is proposing to amend the illustrative examples in IFRS 15.

Principal versus agent considerations. When another party is involved in providing goods or services to a customer, IFRS 15 requires an entity to determine whether it is the principal in the transaction or the agent on the basis of whether it controls the goods or services before they are transferred to the customer. To clarify how to assess control, the IASB is proposing to amend and extend the application guidance on this issue, amend some of the existing examples, and to add two more examples.

Licensing. When an entity grants a licence to a customer that is distinct from other promised goods or services, the entity has to determine whether the licence is transferred at a point in time or over time on the basis of whether the contract requires the entity to undertake activities that significantly affect the intellectual property to which the customer has rights. To clarify when an entity's activities significantly affect the intellectual property, the IASB is proposing to amend and extend the application guidance on this issue and some examples. Additionally, the IASB is proposing to extend the application guidance with respect to the application of the royalties constraint.

Transition relief. The IASB is proposing two additional practical expedients on transition to IFRS 15.

• An entity may use hindsight in identifying the satisfied and unsatisfied performance obligations in a contract that has been modified before the beginning of the earliest period presented and in determining the transaction price.
• An entity electing to use the full retrospective method does not have to apply IFRS 15 retrospectively to completed contracts at the beginning of the earliest period presented.

Other topics. In the ED the IASB expressly asks whether constituents agree with the assessment that amendments to IFRS 15 with respect to collectability, measuring non-cash consideration and a practical expedient with respect to the presentation of sales taxes are not required.

Alternative view

One Board member voted against the publication of the ED. This Board member supports all proposed clarifications and the additional transition relief, but disagrees with the proposal to require an entity to apply the amendments retrospectively.

FASB

The FASB has decided to propose more extensive amendments to its revenue standard. A first proposed Accounting Standards Update (ASU) on identifying performance obligations and on licensing was published in May 2015. A second proposed ASU relating to clarifications on principal versus agent considerations, collectability, measuring non-cash consideration and practical expedients relating to transition and the presentation of sales taxes is expected later in 2015. The Basis for Conclusions of the IASB's ED notes where differences in outcomes may arise as a consequence of the different decisions reached by both Boards.

Next steps

The IASB expects to complete its redeliberations by the end of 2015. The ED does not include a proposed an effective date, but the IASB’s objective is to finalise the proposed amendments with sufficient time to set an effective date that aligns with the revised effective date of IFRS 15.

Additional information

Please click for:

• IASB press release (link to IASB website)
• Access to the exposure draft on the IASB website
• IFRS in Focus newsletter explaining the ED
• Our IAS Plus project page on clarifications to IFRS 15