The FRC noted in its Annual Review of Corporate Reporting that fewer substantive queries on revenue recognition and related disclosures were raised in comparison with recent years. It raised challenges where it was unclear whether the identification of performance obligations was appropriate or whether revenue should be recognised at a point in time or over time. Missing accounting policies for contract modifications or lack of entity-specific details about variable consideration were also challenged, and in some cases it was unclear how an entity had concluded whether it was acting as agent or principal. Inconsistencies were also noted where the narrative reporting suggested that certain revenue streams existed but these were not adequately explained in the financial statements.

For 2022, the FRC expects companies to ensure that inflationary features in contracts with customers are described and the accounting treatment for such clauses (that is, whether the feature is an embedded derivative or variable consideration) is explained. Accounting policies should be provided for all significant performance obligations and should address the timing of revenue recognition, the basis for recognising any revenue over time and the methodology applied. Finally, the FRC reiterates that significant judgements made in relation to revenue recognition need to be disclosed (for example, in relation to the allocation of the transaction price and the timing of satisfaction of performance obligations). 

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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