The FRC noted in its Annual Review of Corporate Reporting 2022/23 that the frequency of substantive queries on revenue recognition and related disclosures were lower than in preceding years, indicating that entities have become more familiar with application of the IFRS 15 recognition model.  The most common areas of challenge included variable consideration, principal/agent considerations and contract balances. Queries were mostly centred around insufficient information to demonstrate compliance with certain requirements.

For their forthcoming reporting the FRC expects companies to ensure that:

• when material variable consideration exists, sufficient company-specific information is provided to explain how it arises and how it is estimated and constrained.
• accounting policies are provided for all significant performance obligations and address in sufficient detail:
  • the timing of revenue recognition.
  • the basis for recognising any revenue over time.
  • the methodology applied.
• significant judgements made in relation to revenue recognition are disclosed (for example, in relation to whether the company is acting as agent or principal, the allocation of the transaction price and the timing of satisfaction of performance obligations).
• that inflationary features in contracts with customers and accounting for such clauses (that is whether the feature is an embedded derivative or variable consideration) are adequately disclosed and clearly explained.

The FRC encourages companies to refer to its previously issued IFRS 15 thematic review for further guidance as to its expectations in this area.

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