International Financial Reporting Standard (IFRS) 15 helps businesses accurately record revenue from customer contracts. This standard ensures that a business recognizes revenue at the precise time goods or services are delivered to customers and that the revenue matches the expected payment. This clarifies for stakeholders the company’s financial performance and future cash flows.

For businesses working through global markets, understanding IFRS 15 is necessary for financial clarity, credibility, and compliance. As an international standard, IFRS 15 helps maintain consistency and transparency in financial reporting across different industries and around the globe.

Below, we’ll explain how ACCA relates to IFRS 15, what the revenue recognition principles are under ACCA IFRS 15, and how IFRS 15 integrates with other international standards.

What’s in this article?

• What is ACCA and how does it relate to IFRS 15?
  
• Revenue recognition principles under ACCA IFRS 15
  
• ACCA IFRS 15 vs. ASC 606
  
• ACCA IFRS 15 vs. FRS 102
  
• How ACCA IFRS 15 impacts different industries
  
• Common challenges in implementing ACCA IFRS 15
  
• How IFRS 15 integrates with other international standards
  

What is ACCA and how does it relate to IFRS 15?

The Association of Chartered Certified Accountants (ACCA) is a global professional accounting body that offers accountant qualifications and accounting standards. ACCA provides training and certification in accounting and business to give professionals the skills and knowledge to excel in these fields. ACCA members and students are often required to understand the IFRS, which are used for financial reporting in many countries.

IFRS 15 is titled “Revenue from Contracts with Customers.” It provides a comprehensive framework for recognizing revenue from customer contracts and establishes principles to report useful information to users of financial statements about the nature, amount, timing, and uncertainty of revenue and cash flows that arise from an entity’s customer contracts.

ACCA members must understand IFRS 15. This standard is included as material on ACCA students’ financial reporting exams, and students must prove they can apply IFRS 15 in practice as well as analyze and apply its principles in different business scenarios. ACCA provides members and accountants with extensive study resources, technical articles, webinars, and professional guidance on IFRS 15.

Revenue recognition principles under ACCA IFRS 15

Under IFRS 15, revenue recognition follows a five-step model that helps companies determine when and how much revenue to recognize from customer contracts. This model helps create a consistent, clear process for revenue recognition across different industries and sectors.

The five-step model for revenue recognition under IFRS 15

Step 1: Identify the contract with a customer

A contract is an agreement between two or more parties that creates enforceable rights and obligations. For revenue recognition, a contract must meet certain criteria, such as both parties approving the agreement and having a clear commitment to fulfilling their respective obligations.

Step 2: Identify the performance obligations in the contract

Performance obligations are the distinct goods or services that the company promises to deliver to the customer. Each performance obligation must be separately identifiable within the contract. If a company promises to deliver multiple goods or services, it should consider each of them a separate performance obligation.

Step 3: Determine the transaction price

The transaction price is the amount of consideration (usually money) that the company expects to receive in exchange for transferring the promised goods or services to the customer. This amount should take into account variable considerations (such as discounts and rebates), significant financing components, noncash considerations, and any consideration payable to the customer.

Step 4: Allocate the transaction price to the performance obligations

If a contract has multiple performance obligations, the business needs to allocate the total transaction price to each performance obligation based on its stand-alone selling price. The stand-alone selling price is the price at which the company would sell the promised good or service separately to a customer.

Step 5: Recognize revenue when (or as) each performance obligation is satisfied

The company recognizes revenue when it fulfills a performance obligation by transferring control of a promised good or service to the customer. The company can transfer control either over time (e.g., long-term service contracts) or at a point in time (e.g., when goods are delivered).

Beyond these five steps, IFRS 15 also emphasizes disclosures to provide more useful information to users of financial statements. Businesses must disclose qualitative and quantitative information about their customer contracts, including major judgments and changes in those judgments.

ACCA IFRS 15 vs. ASC 606

Both IFRS 15 and Accounting Standards Codification (ASC) 606 create a consistent global framework for revenue recognition that applies across industries. But while they share the same core principles and structure, there are some key differences in guidance, terminology, and their specific applications. Generally speaking, IFRS relies more on principles, while the US Generally Accepted Accounting Principles (GAAP) rely more on rules. Here are their similarities and differences.

Key similarities between IFRS 15 and ASC 606

• Transfer of control: Both IFRS 15 and ASC 606 are built on the core principle that revenue is recognized when control of goods or services is transferred to the customer.

• Five-step model: Both standards follow the five-step model for revenue recognition.

• Disclosure requirements: Both standards require comprehensive disclosures to help financial statement users understand the nature, amount, timing, and uncertainty of revenue and cash flows from customer contracts.

• Application across industries: Both IFRS 15 and ASC 606 apply to almost all industries.

Key differences between IFRS 15 and ASC 606

The biggest difference between these standards is that ASC 606 provides more detailed, industry-specific guidance (especially in US-specific contexts), while IFRS provides more principles-based guidance and leaves more room for interpretation. ASC 606 can be more prescriptive than IFRS 15 in certain cases. For example, as to recognizing revenue from licensing agreements, ASC 606 provides more guidance on the distinction between “functional” and “symbolic” intellectual property, while IFRS focuses more broadly on the concept of control and the nature of the promise in the contract.

ASC 606 and IFRS 15 also differ in how they assess collectibility. Both IFRS 15 and ASC 606 recognize revenue only if it is probable that the entity will collect the full consideration to which it is entitled. But under ASC 606, “probable” means a likelihood of 75% or higher, while under IFRS 15, “probable” means a likelihood of 50% or higher.

ACCA IFRS 15 vs. FRS 102

While both IFRS 15 and Financial Reporting Standard (FRS) 102 provide frameworks for revenue recognition, IFRS 15 is more comprehensive, detailed, and suitable for complex arrangements. FRS 102 is simpler, less prescriptive, and more appropriate for smaller entities with straightforward revenue streams. IFRS 15 emphasizes consistency and comparability across industries and regions, while FRS 102 focuses on practical application and minimizing compliance burdens.

Here’s a closer look at how they compare.

ACCA IFRS 15

• Revenue recognition model: IFRS 15 uses the five-step model for revenue recognition.

• Performance obligations: Businesses must identify and separate distinct performance obligations within a contract. They recognize revenue separately for each obligation as it is satisfied.

• Measurement of revenue: Under IFRS 15, companies allocate the transaction price to each performance obligation based on stand-alone selling prices.

• Contract modifications: IFRS 15 provides guidance on how to account for contract modifications (i.e., whether to treat them as a separate contract or as a modification to the existing contract).

• Disclosures: IFRS 15 requires extensive disclosures about customer contracts, including disaggregated revenue information, contract balances, performance obligations, significant judgments, and changes in judgments.

• Application: IFRS 15 provides a comprehensive, standardized system of revenue recognition across industries and geographies. It’s suitable for entities with diverse revenue streams, multiple deliverables, or significant financing components.

FRS 102

• Revenue recognition model: FRS 102 relies on simpler criteria that consider the transfer of risks and rewards, the extent of performance under the contract, and the reliability of measurement. FRS 102 will operate with the five-step model after changes go into effect in 2026.

• Performance obligations: FRS 102 does not specifically require the identification of distinct performance obligations. An entity recognizes revenue when it is probable that economic benefits will flow to it and the amount of revenue can be measured reliably.

• Measurement of revenue: Under FRS 102, businesses measure revenue at the fair value of the consideration, which is the price that knowledgeable buyers and sellers would agree to.

• Contract modifications: FRS 102 does not provide specific guidance on contract modifications that aren’t considered substantial. The treatment of modifications is generally based on the standard principles of revenue recognition.

• Disclosures: FRS 102 requires relatively limited disclosures compared to IFRS 15. It focuses on the amount of revenue recognized, the nature of the revenue, and the policies for recognizing revenue.

• Application: FRS 102 is simpler and more straightforward. It’s suitable for smaller entities or those with basic revenue arrangements.

How ACCA IFRS 15 impacts different industries

The core principle of IFRS 15 is that revenue should be recognized when control of goods or services is transferred to customers, in an amount that reflects the consideration to which the entity expects to be entitled. Here’s how this affects different industries.

Technology

Companies in the tech sector often have multiple performance obligations in a single contract (e.g., selling hardware bundled with software and ongoing support services). Under IFRS 15, the business must identify each of these components as a separate performance obligation, if they are distinct. It must allocate revenue to each performance obligation based on its stand-alone selling price and might need to recognize revenue over different periods. This can create changes in reported revenue compared to previous standards, especially for companies offering software licenses, subscription-based models, or bundled services.

Construction and real estate

In construction and real estate, revenue recognition often involves long-term contracts where work is performed over several years. IFRS 15 requires companies to recognize revenue based on the transfer of control rather than the passage of time. They might recognize revenue either over time or at a point in time, depending on whether the customer controls the asset as it is being constructed. Companies must carefully assess the terms of their contracts to determine which option applies.

Telecommunications

Telcos often bundle products and services (e.g., mobile devices, data plans, and service contracts). Under IFRS 15, telcos must unbundle these bundled offerings into distinct performance obligations. They must recognize revenue from each performance obligation separately. For instance, a company can recognize the sale of a mobile device up front, while it recognizes the related service plan revenue over the contract period.

Pharmaceutical and life sciences

Businesses in the pharmaceutical and life sciences industry often enter into complex arrangements for licensing, milestone payments, and royalties. Under IFRS 15, revenue recognition for licenses of intellectual property depends on whether the license provides a right to access or a right to use the intellectual property. The business might recognize revenue from licenses either over time or at a point in time, depending on the nature of the arrangement. It must estimate milestone payments and variable considerations and constrain them to avoid reversals. This requires a careful evaluation of each contract and can increase deferred revenue.

Manufacturing

Manufacturers might have contracts that include customization of products, multiple delivery schedules, or warranties. IFRS 15 requires companies to evaluate whether the control of goods is transferred at a point in time or over time. Manufacturers must examine their contracts to determine when control passes to the customer. This can create major changes in revenue recognition timing, especially for contracts that involve a high degree of customization.

Retail and consumer goods

Retailers often provide incentives, loyalty programs, and rights of return. Under IFRS 15, companies must account for these elements as separate performance obligations if they are material. Retailers must estimate returns more accurately and allocate the transaction price between the product sold and the loyalty points, as well as defer revenue related to loyalty points, returns, and refunds until the obligation is satisfied.

Media and entertainment

The media and entertainment industry frequently involves contracts with multiple deliverables such as content licensing, advertising, and subscription services. Under IFRS 15, businesses must separate these deliverables into distinct performance obligations that have their revenue recognized as each is fulfilled. For example, businesses might need to recognize advertising revenue over the period the advertisement is displayed or recognize content revenue based on viewing metrics to fulfill this requirement.

Common challenges in implementing ACCA IFRS 15

Implementing IFRS 15 can present several challenges, particularly for organizations transitioning from different accounting principles or those with complicated customer contracts. Here are some of the hurdles businesses face when working with IFRS 15:

• Performance obligations: Businesses must identify all distinct performance obligations in a contract, which can become complicated when a business handles bundled goods and services or contracts with multiple components. This process often involves judgment, which can lead to inconsistencies if not carefully managed.

• Transaction price: Companies must allocate the transaction price to each performance obligation based on stand-alone selling prices. This becomes challenging when those prices are not observable and must be estimated, which can affect the accuracy and timing of revenue recognition.

• Revenue recognition timing: Businesses must determine whether performance obligation satisfaction occurs over time or at a point in time in order to recognize revenue at the appropriate moment. This decision can be contentious, particularly in industries such as construction and software where services might be delivered over a prolonged period.

• Contract modifications: Companies must implement systems and processes to manage contract changes such as amendments, cancellations, and extensions. They must integrate these modifications appropriately to ensure the revenue recognition process remains accurate.

• Disclosures: Businesses must provide detailed disclosures with comprehensive information about revenue and cash flows from customer contracts. They must have comprehensive data collection and management systems to prepare these disclosures, which might require upgrades to existing IT infrastructure.

• Training and change management: Companies must ensure that all relevant staff are familiar with the requirements of IFRS 15. This often involves extensive training and adjustments to internal controls and processes, which can be resource-intensive.

• Cross-departmental coordination: Businesses must coordinate across departments including finance, sales, IT, and legal. Each department must understand how its actions affect financial reporting and compliance under the new standard.

How IFRS 15 integrates with other international standards

By design, IFRS 15 integrates easily with other reporting standards. Here’s how IFRS 15 aligns with and complements other key international standards:

• IFRS 9 (financial instruments): IFRS 9 handles the recognition, classification, and measurement of financial instruments, the impairment of financial assets, and hedge accounting. IFRS 15 interacts with IFRS 9 in cases where a contract includes both revenue components and financial instruments (such as financing elements). For example, IFRS 15 requires companies to adjust the transaction price for the time value of money when a contract contains a significant financing component. This standard also aligns with IFRS 9 in terms of recognizing impairments for contract assets for consistency in the treatment of credit losses.

• IFRS 16 (leases): IFRS 16 regulates lease accounting and requires lessees to recognize assets and liabilities for all leases with terms of more than 12 months. IFRS 15 helps distinguish between service contracts and lease contracts so companies can determine which standard to apply. If a contract involves both lease and service components, IFRS 15 provides guidance on separating and allocating transaction prices appropriately, while IFRS 16 handles the lease component.

• IFRS 3 (business combinations): IFRS 3 applies to accounting for business combinations and requires the acquirer to recognize the fair value of identifiable assets acquired and liabilities assumed. When recognizing acquired contracts in a business combination, IFRS 15 helps assess how post-acquisition revenue should be recognized.

• IFRS 10 (consolidated financial statements): IFRS 10 states the principles for preparing and presenting consolidated financial statements. In the context of revenue recognition, IFRS 15 integrates with IFRS 10 by requiring consistent application of revenue recognition principles across a group’s financial statements so that revenue is recognized based on the same criteria throughout all entities.

• IAS 37 (provisions, contingent liabilities, and contingent assets): IFRS 15 interacts with International Accounting Standard (IAS) 37 when contract losses are considered. IFRS 15 focuses on recognizing revenue; meanwhile, if a company anticipates that fulfilling a contract will result in a loss, IAS 37 guides it on how to recognize and measure such provisions. Integration ensures that companies account for potential liabilities linked to the same contracts.

• IAS 12 (income taxes): Revenue recognition under IFRS 15 can impact the calculation of current and deferred taxes as outlined in IAS 12. When IFRS 15 alters the timing or amount of recognized revenue, it directly affects taxable income and consequently the measurement of current and deferred tax liabilities or assets.

• IAS 38 (intangible assets): IAS 38 handles the recognition and measurement of intangible assets such as software development costs. In cases where an entity licenses intellectual property, IFRS 15 provides detailed guidance on whether to recognize revenue at a point in time or over time. This affects the way companies manage and report both revenue and the underlying intangible assets.