Cover paper (Agenda Paper 6)

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

This paper introduced the papers for this session and provided a reminder of the IASB’s framework for deciding whether and when to take further action in response to specific application matters. The appendix to this paper summarised the IASB’s tentative decisions on the application matters discussed by the IASB to date.

This paper was not discussed as it was an overview paper.

Determining the transaction price (Agenda Paper 6A)

This paper summarised the feedback, staff analysis and staff recommendations on Question 3 of the RFI related to determining the transaction price requirements of IFRS 15.

Staff recommendation

The staff recommended that the IASB take no further action on application matters raised by respondents in relation to:

• variable consideration;
• sales-based taxes;
• non-cash consideration; and
• other aspects of determining the transaction price included in Appendix A of the paper.

IASB discussion

Regarding variable considerations, IASB members rejected the criticism that requiring the highly probable criterion for inclusion of variable consideration in the transaction price is extremely conservative. They alluded that it is imperative to be prudent when it comes to revenue recognition. They also emphasised that judgement must be taken to analyse whether the entities meet the highly probable criterion, and that the IASB cannot eliminate this judgement by providing additional guidance. One IASB member said that IFRS 3 and IFRS 16 also discuss variable consideration and sometimes those requirements are confused with the IFRS 15 criterion for variable consideration. However, IFRS 15 is clear in that respect.

Regarding sales-based taxes principles, IASB members informed that these principles are very clear and explain that the sales-based taxes that are collected on behalf of the tax authority should be excluded from revenue. Entities should continue to apply the IFRS 15 principal vs agent requirements by analogy when accounting for sales-based taxes. Regarding the feedback that an accounting policy choice should be provided, IASB members said that this would impair the comparability of financial statements.

The main criticism on non-cash consideration requirements was that IFRS 15 does not provide guidance on the date of measurement of non-cash consideration. Members alluded that while setting the standard, the IASB intentionally decided not to include guidance on the date of measurement of non-cash consideration and paragraph BC254C and BC254E of the basis for conclusions to IFRS 15 explain the IASB’s reasons for not including guidance on the date of measurement. IASB members emphasised that those reasons are still valid to date. One IASB member appeared to be quite critical of the staff recommendation and said that the IASB has consistently rejected accounting policy choices to increase comparability. In this case, however, the IASB has provided an implicit accounting policy by not addressing the requirement related to date of measurement of non-cash consideration.

IASB decision

All IASB members agreed with the staff recommendation.

Determining when to recognise revenue (Agenda Paper 6B)

This paper summarised the feedback, staff analysis and staff recommendations on Question 4 of the RFI related to determining when to recognise revenue requirements of IFRS 15.

Staff recommendation

The staff recommended that the IASB take no further action on application matters raised by respondents in relation to:

• applying the concept of control and the criteria for recognising revenue over time;
• measuring progress for performance obligations satisfied over time; and
• other aspects of determining when to recognise revenue described in Appendix A of the paper.

IASB discussion

IASB members mainly discussed ‘applying the concept of control and the criteria for recognising revenue over time’. IFRS 15:35(c) attracted most of the criticism in the consultation stage as many respondents to the RFI mentioned that this paragraph leads to outcomes which are not relevant to the commercial substance of the arrangements. This applies especially in multi-unit real estate developments. IASB members, however, rejected the criticism and alluded that In developing the requirements the IASB considered that although entities were able to conclude that their performance does not create an asset with an alternative use, they were unable to meet the ‘right to payment for performance completed to date’ criterion. This means that they can recognise revenue only at the point in time when each unit is transferred to the customer. IASB members emphasised that if either of the criteria in IFRS 15:35(c) is not met, recognising revenue over time would not faithfully depict the entity’s performance and the entity’s and the customer’s respective rights and obligations in the contract.

IASB decision

All IASB members agreed with the staff recommendation, except for 'applying the concept of control and the criteria for recognising revenue over time’, which only received 13 out of 14 votes.

Disclosure requirements (Agenda Paper 6C)

This paper summarised the feedback, staff analysis and staff recommendations on Question 7 of RFI related to disclosure requirements of IFRS 15.

Staff recommendation

Based on the analysis in this paper, the staff recommended that the IASB take no further action on application matters raised by respondents related to:

• concerns about the cost-benefit balance of specific disclosure requirements;
• variation in the quality of disclosed information; and
• other aspects of disclosure requirements described in Appendix A of the paper.

IASB discussion

IASB members mainly discussed ‘concerns about the cost-benefit balance of specific disclosure requirements’. IASB members emphasised that when the IASB accepts the cost of a disclosure requirement, it means the benefits of the disclosure requirements outweigh those costs.  

IASB decision

12 of 14 IASB members agreed with the staff recommendation on ‘concerns about the cost-benefit balance of specific disclosure requirements’ and ‘variation in the quality of disclosed information’. All IASB members agreed with the staff recommendation on other aspects of disclosure requirements described in Appendix A of the paper.