Cover note (Agenda Paper 6)

The IASB is undertaking the post-implementation review (PIR) of IFRS 15. IASB members and staff have been performing outreach with the purpose to assist the IASB in identifying matters to gather further information on in the Request for Information (RFI).

Next steps

• The IASB will be asked to approve the publication of, and set a comment period for, the RFI at a future meeting, after IASB members have reviewed a pre-publication.
• The staff expect the RFI will be published around the end of June 2023.

This paper was not discussed.

Background (Agenda Paper 6A)

In November 2021, the IASB decided to begin the PIR of IFRS 15 in the second half of 2022. In September 2022, the IASB discussed the plan for Phase 1 of the PIR (identification of matters to be examined).

To meet the objective of the PIR, the staff asked stakeholders questions which would enable the IASB to assess whether: 

• There are fundamental questions (i.e., ‘fatal flaws’) about the clarity and suitability of the core principle and the revenue recognition model in IFRS 15
• The benefits to users of financial statements of the information arising from applying the IFRS 15 requirements are significantly lower than expected (for example, there is significant diversity in application)
• The costs of applying the IFRS 15 requirements and auditing and enforcing their application are significantly greater than expected (or there is a significant market development since the requirements were issued for which it is costly to apply them consistently)

This paper was not discussed.

Analysis of outreach feedback—Standard as a whole and convergence with Topic 606 (Agenda Paper 6B)

This paper analysed feedback from outreach in Phase 1 of the PIR of IFRS 15. The staff summarised feedback on:

• The Standard as a whole, including the costs and benefits related to the implementation and application of the Standard
• Convergence between IFRS 15 and the US Financial Accounting Standard Board’s (FASB’s) Accounting Standards Codification® Topic 606 Revenue from Contracts with Customers

Staff recommendation

The staff recommended that the IASB ask questions in the RFI about:

• Whether the overall objective of IFRS 15 is being met and whether the core principle of the Standard and the supporting five-step revenue recognition model are clear and suitable for making revenue accounting decisions
• Suggestions for specific narrow-scope improvements that could improve the understandability of IFRS 15 without causing substantial cost and disruption to entities already applying the Standard
• Suggestions for lessons learned from the implementation of IFRS 15 that the IASB could consider in improving the understandability and accessibility of its future Standards
• Ongoing costs and benefits of applying the requirements in IFRS 15
• The importance of retaining convergence between IFRS 15 and Topic 606

IASB discussion

During the discussion, IASB members focused mainly on the question to be included in the RFI about the suggestions on specific narrow-scope improvements that could improve the understandability of IFRS 15. The IASB suggested that the wording of such question should not raise the expectation to the users that the IASB is seeking to change IFRS 15.

Moreover, on the convergence between IFRS 15 and Topic 606, IASB members acknowledged that there are already differences between the two standards. IASB members considered that the wording of the question to be included in the RFI should lead the users to comment on why the convergence between IFRS 15 and Topic 606 is useful for them.

IASB decision

When asked to vote on the staff proposal, including some minor modifications on the terminology to be used in the RFI, all 13 IASB members voted in favour of the staff recommendation.

Analysis of outreach feedback—Requirements for the five steps of revenue recognition (Agenda Paper 6C)

This paper analysed feedback from outreach in Phase 1 of the PIR on the requirements for the five steps of the revenue recognition model as required by IFRS 15. The paper provided staff analysis and recommendations on whether to cover the area in the RFI and if so, which matters to ask questions about.

Staff recommendation

The staff recommended that the IASB ask questions in the RFI about:

• Identifying the performance obligations in a contract—fact patterns in which requirements are applied inconsistently, lead to outcomes not reflecting the underlying economic substance or lead to significant ongoing costs
• Determining the transaction price:
  • Diversity in practice in the presentation of consideration payable to a customer, in particular in relation to incentives paid by an agent to the end consumer and incentives that exceed revenue from a contract
  • Diversity in practice in the presentation of sales-based taxes
• Determining the timing of revenue recognition: fact patterns in which the guidance is unclear or may be applied inconsistently, in particular when applying the criteria for over time revenue recognition

IASB discussion

IASB members were concerned about the question related to the diversity in practice in the presentation of sales-based taxes. Differences in jurisdictions could restrict the ability for the IASB to provide additional guidance on this topic. Some IASB members suggested not to add a question in the RFI to avoid situations in which no answers could be provided by the IASB on this topic, while other IASB members asked to maintain the question, albeit being careful on the wording to be included in the RFI.

The IASB members also discussed the inconsistent practices related to the timing of revenue recognition and other minor issues on variable consideration and modifications (e.g. licencing).

IASB decision

The vote on the staff proposal was split in two parts, in order to consider the results on the discussions about the sales-based taxes:

• All 13 IASB members voted in favour of the staff recommendation, excluding the question related to the sales-based taxes
• Only 4 of the 13 IASB members voted in favour of the inclusion of a specific question on sales-based taxes, with the wording to be agreed later

Analysis of outreach feedback—Other areas (Agenda Paper 6D)

This paper analysed feedback from outreach in Phase 1 of the PIR on other areas of IFRS 15, in particular with reference to contract costs, principal versus agent considerations, licensing, disclosure requirements and transition requirements. The paper provided staff analysis and recommendations on whether to cover the area in the request for information (RFI) and if so, which matters to ask questions about.

Staff recommendation

The staff recommended that the IASB ask questions in the RFI about:

• Principal versus agent considerations: fact patterns in which the guidance is unclear or may be applied inconsistently, especially when applying the principle of control and related indicators
• Licensing: fact patterns in which the guidance is unclear or may be applied inconsistently, for example, out-licensing, license renewals or software as a service (SaaS) arrangements
• Disclosure requirements:
  • Requirements, the costs of meeting which exceed the usefulness of the resulting information to users of financial statements
  • Whether the specificity of disclosure requirements is sufficient for enforcement and auditing
• Transition requirements: whether an option to use the modified retrospective method and practical reliefs offered by IFRS 15 achieved an appropriate balance between reducing the cost and burden for preparers of financial statements and providing useful information to users of financial statements

IASB discussion

The discussion was mainly focused on the disclosure requirements. In particular, some IASB members requested more clarity on the wording of the two questions about the disclosure requirements. This is to avoid leaving them too generic and open for comments. The questions on such topic should give the users the opportunity to say which disclosures are beneficial for them and which disclosures caused excessive costs compared to the actual benefits. IASB members stressed the importance of making clear that such questions are not aimed at modifying the disclosure requirements, apart from situations in which the disclosure is clearly not useful.

When asked to vote on the staff proposal, all 13 IASB members voted in favour of the staff recommendation.

Analysis of outreach feedback—Interaction with other IFRS Accounting Standards (Agenda Paper 6E)

This paper analysed feedback from outreach in Phase 1 of the PIR on the interaction between IFRS 15 and other IFRS Accounting Standards, in particular IFRS 3, IFRS 9, IFRS 10, IFRS 11, IFRS 16 and IFRIC 12. In Phase 1 outreach the staff received a lot of feedback on the interaction between IFRS 15 and other IFRS Accounting Standards. Stakeholders reported challenges, diversity in practice and potentially inappropriate accounting outcomes stemming from the interaction between IFRS 15 and other Standards. The paper provided staff analysis and recommendations on whether to cover the area in the request for information (RFI) and if so, which matters to ask questions about.

Staff recommendation

The staff recommended that the IASB ask a question in the RFI about the interaction between IFRS 15 and other IFRS Accounting Standards focusing on:

• IFRS 9:
  • Differentiating between a price concession and impairment losses
  • Circumstances in which entities are unclear about accounting for liabilities arising from IFRS 15
• IFRS 10: accounting for the sale of assets via corporate wrappers
• IFRS 16: circumstances in which entities are unclear about applying the requirements in IFRS 15 together with IFRS 16

IASB discussion

Some IASB members were concerned about the question on IFRS 10, also considering that such analysis was already discussed during the PIR of IFRS 10-12 and no changes are expected from the PIR of IFRS 15.

IASB members discussed a question to be proposed about the interaction between IFRS 3 and IFRS 15. The question would be about the fair value of contract assets and contract liabilities on the acquisition date, also considering that the FASB provided guidance on that during 2021.

IASB decision

The vote on the staff proposal was split in two parts, in order to consider the results on the discussions about the interactions between IFRS 15 and IFRS 10, and between IFRS 3 and IFRS 15:

• 12 of the 13 IASB members voted in favour of the staff recommendation, excluding the staff recommendation on the question about the interaction between IFRS 15 and IFRS 10: accounting for the sale of assets via corporate wrappers
• 9 of the 13 IASB members voted in favour of adding a question on the interaction between IFRS 3 and IFRS 15, based on the decision that the FASB has taken in 2021

Review of academic literature (Agenda Paper 6F)

This paper provided an overview of the academic literature relevant to the post-implementation review (PIR) of IFRS 15. IASB members were asked whether they have any questions or comments on the academic literature summarised in this paper.

IASB discussion

IASB members generally agreed with the review of the academic literature relevant to the PIR of IFRS 15 provided by the staff.