Cover paper (Agenda Paper 6)

The comment period for the request for information Post-implementation Review—IFRS 15 Revenue from Contracts with Customers (IFRS 15 RFI) ended on 27 October 2023.

This paper introduced the papers for this meeting and provided a reminder of the IASB’s framework for deciding whether and when to take further action in response to specific application matters.

Applying IFRS 15 with IFRS 9 (Agenda Paper 6A)

This paper summarised the feedback, staff analysis and staff recommendations on matters related to the interaction of IFRS 15 with IFRS 9 raised by respondents on Question 9 of IFRS 15 RFI and Question 7 of the IASB’s request for information Post-implementation Review—IFRS 9 Financial Instruments—Impairment (IFRS 9 RFI).

Staff recommendation

The staff recommended that the IASB take no further action on application matters related to:

• accounting for price reductions;
• accounting for liabilities arising from IFRS 15; and
• other aspects of applying IFRS 15 with IFRS 9 described in Appendix A of the paper.

IASB discussion

IASB members discussed that most issues raised by respondents related to the accounting for price reductions are judgemental in nature and adding guidance will not eliminate the need to make these judgements. As to what should be categorised as variable consideration versus expected credit losses (ECL), IASB members were of the view that both standards contain clear guidance on differentiating between variable consideration and ECL.

Regarding accounting for liabilities arising from contracts with customers, respondent’s main criticism was that it is sometimes difficult to establish whether those liabilities should be accounted for under IFRS 9 or under IFRS 15. IASB members alluded that the requirements in IFRS 15 are very clear in that liabilities arising from contracts with customers should be accounted for applying IFRS 15 unless IFRS 15 specifically says that those liabilities should be accounted for applying IFRS 9. Moreover, IFRS 9 also states that IFRS 9 does not apply to rights and obligations that are financial instruments and are within the scope of IFRS 15, except for those that IFRS 15 specifies are accounted for applying IFRS 9.

IASB decision

All 14 IASB members voted in favour of the staff recommendations.

Applying IFRS 15 with IFRS 3 (Agenda Paper 6B)

This paper summarised the feedback, staff analysis and staff recommendations on matters related to applying IFRS 15 with IFRS 3 that were raised by respondents in response to Question 9 of the IFRS 15 RFI.

Staff recommendation

The staff recommended that the IASB take no further action on application matters related to:

• measurement of contract assets and contract liabilities acquired as part of a business combination (Recommendation 1); and
• other aspects of applying IFRS 15 with IFRS 3 described in Appendix A of the paper (Recommendation 2).

IASB discussion

Respondents’ main criticism was that estimating the fair valuation of contract assets and contract liabilities at the time of a business combination is costly and does not result in providing useful information to users. It is also a difference to the US GAAP requirement. Some IASB members seemed sympathetic to the concerns raised by respondents and alluded that the IASB should research more to understand whether an exception to fair valuing IFRS 15 contract assets and liabilities should be provided for business combinations. One IASB member said that the PIR on IFRS 3 was concluded around ten years ago, and the facts and circumstances have changed significantly since. Therefore, the IASB should postpone this decision and wait to get more insights. Some IASB members, however, appeared more inclined to accept the staff recommendation to take no further action.

IASB decision

8 of the 14 IASB members voted in favour of Recommendation 1.

All IASB members voted in favour of Recommendation 2.

Applying IFRS 15 with IFRS 10 and IFRS 11 (Agenda Paper 6C)

In March 2023, the IASB tentatively decided to assess demand for resolving matters related to the interaction between IFRS 15 and IFRS 10 and IFRS 11 in the next agenda consultation. The issue is that when an entity holds a single asset (i.e. a corporate wrapper) should the sale of that entity (subsidiary) follow the requirements in IFRS 10 or IFRS 15? This paper provided a summary of respondents’ feedback related to the application of IFRS 15 with IFRS 10 and IFRS 11, a reminder of the March 2023 IASB discussion, and asked whether IASB wishes to reconsider March 2023 tentative decision to consider the priority of the matters related to applying IFRS 15 with IFRS 10 and IFRS 11 in the next agenda consultation rather than as part of this PIR.

IASB decision

There was no significant discussion on this paper and all IASB members voted in favour of not reconsidering their earlier decision.

Applying IFRS 15 with IFRS 16 (Agenda Paper 6D)

This paper summarised the feedback, staff analysis and staff recommendations on matters related to applying IFRS 15 with IFRS 16 that were raised by respondents in response to Question 9 of the IFRS 15 RFI.

Staff recommendation

The staff recommended that the IASB:

• take no further action on application matters raised by respondents in relation to:
  • accounting for contracts that contain lease and non-lease components; and
  • other aspects of applying IFRS 15 with IFRS 16 described in Appendix A of the paper; and
• gather further evidence in the forthcoming PIR of IFRS 16 on the application matters related to assessing whether the transfer of an asset is a sale in sale and leaseback transactions.

IASB discussion

Regarding the accounting for contracts that contain lease and non-lease components, one IASB member said that it is understandable that from a seller-lessor perspective it is sometimes very challenging to account for these contracts. However, she did not receive many queries on this topic and only a few respondents have raised that they are facing difficulties in applying this IFRS 15 requirement. In her view, this was reassuring that the requirements on this topic are clear in both IFRS 15 and IFRS 16.

IASB decision

All IASB members voted in favour of the staff recommendations.

Applying IFRS 15 with other IFRS Accounting Standards (Agenda Paper 6E)

This paper summarised the feedback, staff analysis and staff recommendations on matters related to applying IFRS 15 with IFRIC 12 and other IFRS standards except for those covered in the previous agenda papers that were raised by respondents in response to Question 9 of the IFRS 15 RFI.

Staff recommendation

The staff recommended that the IASB:

• classify as low priority the matter related to applying IFRIC 12 requirements on contractual obligations to maintain or restore service concession infrastructure (Recommendation 1); and
• take no further action on the matters related to applying IFRS 15 with IFRIC 12 and other IFRS standards included in Appendix A of the paper (Recommendation 2).

IASB discussion

The main criticism from respondents was that IFRIC 12 requires to recognise an IAS 37 provision for the operator’s contractual obligation to restore the infrastructure. Respondents considered that this contractual obligation should instead be an IFRS 15 performance obligation. Some IASB members said that IFRIC 12 was issued before IFRS 15 was drafted and therefore IFRIC 12 is worth revisiting. One IASB member said that recognising an IAS 37 provision vs treating the obligation as a separate performance obligation would not influence the decision of users. Therefore, he argued that IASB should not take any further action. One IASB member said that the IASB should do a PIR of IFRIC 12 rather than considering this matter in the next agenda consultation.

IASB decision

Only 7 of the 14 IASB members voted in favour of Recommendation 1. The Chair used his casting vote in favour of the recommendation.

13 IASB members voted in favour of Recommendation 2.

Determining the transaction price—consideration payable to a customer and significant financing component (Agenda Paper 6F)

In its March 2024 meeting, the IASB made decisions on application matters raised in relation to variable consideration, sales-based taxes and non-cash consideration, and discussed the staff’s preliminary analysis of the feedback related to consideration payable to a customer. This paper provided a summary of the feedback, staff analysis and staff recommendations on application matters related to considerations payable to a customer updated for comments made by IASB and the Accounting Standards Advisory Forum (ASAF) at their March 2024 meetings and for significant financing components in response to Question 3 ‘determining the transaction price’ in the IFRS 15 RFI.

Staff recommendation

The staff recommended that the IASB:

• classify as low priority the matters related to consideration payable to a customer (Recommendation 1); and
• take no further action on application matters raised by respondents in relation to (Recommendation 2):
  • the discount rate for contracts with a significant financing component; and
  • other aspects of requirements on significant financing components included in Appendix A of the paper.

IASB discussion

The main criticism from respondents was that IFRS standards do not allow to update the discount rate for contracts with significant financing components when those contracts are modified or when circumstances change after contract inception. One IASB member said that the respondents’ arguments are conceptually wrong. The IASB member explained that when a transaction is entered into at arm’s length, the pricing at the outset reflects the interest rate, inflation, etc. that is expected in the future. By allowing to change the discount rate in the future, it would effectively be allowed to change the pricing determined at inception with the application of hindsight. This was not acceptable in the IASB members’ view.

IASB decision:

11 of the 14 IASB members voted in favour of Recommendation 1.

All IASB members voted in favour of Recommendation 2.