Basis for Conclusions International Financial …

1 Basis for Conclusions International Financial reporting Standard May 2014 ifrs 15 Revenue from Contracts with CustomersBasis for Conclusions onIFRS 15 Revenue from Contracts withCustomersThis Basis for Conclusions accompanies ifrs 15 Revenue from Contracts with Customers(issuedMay 2014; see separate booklet) and is published by the International Accounting StandardsBoard (IASB).Disclaimer: the IASB, the ifrs Foundation, the authors and the publishers do not acceptresponsibility for any loss caused by acting or refraining from acting in reliance on thematerial in this publication, whether such loss is caused by negligence or Financial reporting Standards (including International Accounting Standardsand SIC and IFRIC Interpretations), Exposure Drafts and other IASB and/or ifrs Foundationpublications are copyright of the ifrs 2014 ifrs Foundation ISBN for this part: 978-1-909704-35-0; ISBN for the set of three parts: 978-1-909704-33-6 All rights part of this publication may be translated, reprinted, reproducedor used in any form either in whole or in part or by any electronic, mechanical or othermeans, now known or hereafter invented, including photocopying and recording, or in anyinformation storage and retrieval system, without prior permission in writing from theIFRS approved text of International Financial reporting Standards and other IASB publications is that published by the IASB in the English language.

2 Copies may be obtainedfrom the ifrs Foundation. Please address publications and copyright matters to: ifrs Foundation Publications Department30 Cannon Street, London EC4M 6XH, United KingdomTel: +44 (0)20 7332 2730 Fax: +44 (0)20 7332 2749 Email: Web: ifrs Foundation logo/the IASB logo/the ifrs for SMEs logo/ Hexagon Device , IFRSF oundation , eIFRS , IASB , ifrs for SMEs , IAS , IASs , IFRIC , ifrs , IFRSs , SIC , International Accounting Standards and International Financial reporting Standards areTrade Marks of the ifrs ifrs Foundation is a not-for-profit corporation under the General Corporation Law ofthe State of Delaware, USA and operates in England and Wales as an overseas company(Company number: FC023235) with its principal office as FOR Conclusions ON ifrs 15 REVENUE FROMCONTRACTS WITH CUSTOMERSINTRODUCTIONBC1 OVERVIEWBC2 BACKGROUNDBC4 Why make the change?BC14 Alternative revenue recognition modelsBC16 SCOPEBC28 Definition of a contractBC31 Accounting for contracts that do not meet the criteria in paragraph 9BC47 Wholly unperformed contractsBC50 Definition of a customerBC52 Exchanges of products to facilitate a sale to another partyBC58 Contracts with customers outside the scope of the requirementsBC60 Contracts partially within the scope of other StandardsBC64 IDENTIFYING THE CONTRACTBC67 Applying ifrs 15 at a portfolio levelBC69 Combination of contractsBC71 Contract modificationsBC76 IDENTIFYING PERFORMANCE OBLIGATIONSBC84 Definition of a performance obligationBC84 Identifying the promised goods or servicesBC87 Identifying when promises represent performance obligationsBC94A series of distinct goods or services that are substantially the same andhave the same pattern of transferBC113 SATISFACTION OF PERFORMANCE OBLIGATIONSBC117 ControlBC118 Performance obligations satisfied over timeBC124

3 Performance obligations satisfied at a point in timeBC153 Measuring progress towards complete satisfaction of a performanceobligationBC158 MEASUREMENT OF REVENUEBC181 Determining the transaction priceBC184 Variable considerationBC189 The existence of a significant financing component in the contractBC229 Non-cash considerationBC248 Consideration payable to a customerBC255 ifrs 15 Basis FORCONCLUSIONS ifrs Foundation3 Customer credit riskBC259 ALLOCATING THE TRANSACTION PRICE TO PERFORMANCEOBLIGATIONSBC266 Estimating stand-alone selling pricesBC268 Allocating discounts and variable considerationBC277 Changes in transaction priceBC286 Contingent revenue cap and the portfolio approach to allocationBC287 ONEROUS PERFORMANCE OBLIGATIONSBC294 CONTRACT COSTSBC297 Incremental costs of obtaining a contractBC297 Costs to fulfil a contractBC304 Amortisation and impairmentBC309 Learning curveBC312 PRESENTATIONBC317 Relationship between contract assets and receivablesBC322 DISCLOSUREBC327 Disclosure objective and materialityBC330 Contracts with customersBC332 Performance obligationsBC354 Significant judgementsBC355 Assets recognised from the costs to obtain or fulfil a contract with acustomerBC356 Disclosures required for interim Financial reportsBC358 APPLICATION GUIDANCEBC362 Sale with a right of returnBC363 WarrantiesBC368 Principal versus agent considerationsBC379 Customer options for additional goods or servicesBC386 Customers unexercised rights (breakage)

4 BC396 LicensingBC402 Repurchase agreementsBC422 TRANSITION, EFFECTIVE DATE AND EARLY APPLICATIONBC434 TransitionBC434 Effective date and early applicationBC446 ANALYSIS OF THE EFFECTS OF ifrs 15BC454 OverviewBC456 reporting revenue from contracts with customers in the Financial statementsBC460 Improved comparability of Financial information and better economicdecision-makingBC481 Compliance costs for preparersBC486 ifrs 15 REVENUE FROMCONTRACTS WITHCUSTOMERS ifrs Foundation4 Costs of analysis for users of Financial statementsBC489 ConclusionBC491 CONSEQUENTIAL AMENDMENTSBC494 Sales of assets that are not an output of an entity s ordinary activitiesBC494 TRANSITION FOR FIRST-TIME ADOPTERS OF IFRSBC504 SUMMARY OF MAIN CHANGES FROM THE 2011 EXPOSURE DRAFTBC510 APPENDICESA Comparison of ifrs 15 and Topic 606B Amendments to the Basis for Conclusions on other StandardsIFRS 15 Basis FORCONCLUSIONS ifrs Foundation5 Basis for Conclusions on ifrs 15 Revenue from Contractswith CustomersThis Basis for Conclusions

5 Accompanies, but is not part of, ifrs Basis for Conclusions summarises the joint considerations of theInternational Accounting Standards Board (IASB) and the US nationalstandard-setter, the Financial Accounting Standards Board (FASB), in reachingthe Conclusions in their standards, ifrs 15 Revenue from Contracts with Customersand Topic 606, which is introduced into the FASBA ccounting StandardsCodification by the Accounting Standards Update 2014-09 Revenue from Contractswith Customers. It includes the reasons for accepting particular views andrejecting others. Individual Board members gave greater weight to some factorsthan to 15 and Topic 606 are the result of the IASB s and the FASB s joint project toimprove the Financial reporting of revenue under International FinancialReporting Standards ( ifrs ) and US Generally Accepted Accounting Principles(US GAAP). The boards undertook this project because their requirements forrevenue needed improvement for the following reasons:(a)US GAAP comprised broad revenue recognition concepts and detailedguidance for particular industries or transactions, which often resultedin different accounting for economically similar transactions.

6 (b)the previous revenue Standards in ifrs had different principles and weresometimes difficult to understand and apply to transactions other thansimple ones. In addition, ifrs had limited guidance on important topicssuch as revenue recognition for multiple-element , some entities that were applying ifrs referred to parts ofUS GAAP to develop an appropriate revenue recognition accountingpolicy.(c)the disclosures required under both ifrs and US GAAP were inadequateand often did not provide users of Financial statements with informationto sufficiently understand revenue arising from contracts 15 and Topic 6061eliminate those inconsistencies and weaknesses byproviding a comprehensive revenue recognition model that applies to a widerange of transactions and industries. The comprehensive model also improvesprevious ifrs and US GAAP by:(a)providing a more robust framework for addressing revenue recognitionissues;1 Unless indicated otherwise, all references to ifrs 15 in this Basis for Conclusions can be read as alsoreferring to Topic 15 REVENUE FROMCONTRACTS WITHCUSTOMERS ifrs Foundation6(b)improving comparability of revenue recognition practices across entities,industries, jurisdictions and capital markets;(c)simplifying the preparation of Financial statements by reducing theamount of guidance to which entities must refer; and(d)requiring enhanced disclosures to help users of Financial statementsbetter understand the nature, amount, timing and uncertainty ofrevenue that is December 2008, the boards published for public comment the DiscussionPaperPreliminary Views on Revenue Recognition in Contracts with Customersandreceived more than 200 comment letters in response.

7 In the Discussion Paper,the boards proposed the general principles of a contract-based revenuerecognition model with a measurement approach that was based on anallocation of the transaction price. That revenue recognition model wasdeveloped after extensive discussions by the boards on alternative models forrecognising and measuring revenue (see paragraphs BC16 BC27).BC5 Respondents to the Discussion Paper generally supported the objective ofdeveloping a comprehensive revenue recognition model for both ifrs andUS GAAP. Most respondents also generally supported the recognition andmeasurement principles proposed in the Discussion Paper, which are the basicbuilding blocks of the revenue recognition model. In particular, the DiscussionPaper introduced the concepts that a contract contains performance obligationsfor the entity to transfer goods or services to a customer and that revenue isrecognised when the entity satisfies its performance obligations as a result of thecustomer obtaining control of those goods or to the Discussion Paper were mainly concerned about the followingproposals:(a)identifying performance obligations only on the Basis of the timing ofthe transfer of the good or service to the customer.

8 Respondentscommented that this would be impractical, especially when many goodsor services are transferred over time to the customer (for example, inconstruction contracts).(b)using the concept of control to determine when a good or service istransferred. Respondents asked the boards to clarify the application ofthe concept of control to avoid the implication that the proposals wouldrequire completed contract accounting for all construction contracts(ie revenue is recognised only when the customer obtains legal title orphysical possession of the completed asset).BC7 The boards considered those comments when developing the Exposure DraftRevenue from Contracts with Customers(the FASB s Exposure Draft was a proposedAccounting Standards Update), which was published in June 2010 (the 2010 Exposure Draft ). Nearly 1,000 comment letters were received from respondentsrepresenting a wide range of industries, including construction, manufacturing,telecommunications, technology, pharmaceutical, biotechnology, financialIFRS 15 Basis FORCONCLUSIONS ifrs Foundation7services, consulting, media and entertainment, energy and utilities, freight andlogistics, and industries with significant franchising operations, such ashospitality and quick-service restaurant chains.

9 The boards and their staffs alsoconsulted extensively on the proposals in the 2010 Exposure Draft byparticipating in round-table discussions, conferences, working group sessions,discussion forums and one-to-one discussions that were held across all majorgeographical boards also received a substantial number of comment letters in response toa question asked by the FASB on whether the proposals should apply tonon-public entities. Almost all of those comment letters were from respondentsassociated with sections of the US construction industry (for example, privateconstruction contractors, accounting firms that serve those contractors andsurety providers who use the Financial statements of construction contractorswhen deciding whether to guarantee that those contractors will meet theirobligations under a contract). Those respondents also raised concerns about theapplication of the proposed model to non-public entities. Those issues wereconsidered and discussed separately by the the exception of many of the responses from non-public entities in theconstruction industry, most of the feedback from the comment letters and fromthe consultation activities generally supported the boards proposal for acomprehensive revenue recognition model for both ifrs and US , most respondents supported the core principle of that model, whichwas that an entity should recognise revenue to depict the transfer of goods orservices to a customer in an amount that reflects the amount of considerationthat the entity expects to receive for those goods or all respondents to the 2010 Exposure Draft indicated that the boardsshould clarify further the operation of the core principle.

10 In particular,respondents were concerned about the application of the following:(a)the concept of control and, in particular, the application of theindicators of the transfer of control to service contracts and to contractsfor the transfer of an asset over time to a customer as it is beingconstructed (for example, a work-in-progress asset).(b)the principle of distinct goods or services for identifying performanceobligations in a contract. Many respondents were concerned that theproposed principle would lead to inappropriate disaggregation of boards addressed those concerns during the redeliberations of the proposalsin the 2010 Exposure Draft. As the redeliberations of those proposals drew to aclose, the boards decided to issue a revised Exposure Draft for public commentto provide interested parties with an opportunity to comment on the revisionsthat the boards had made since the 2010 Exposure Draft was published. Theboards decided unanimously that it was appropriate to go beyond theirestablished due process and re-expose their revised revenue proposals, becauseof the importance of revenue to all entities and to avoid unintendedconsequences in the recognition of revenue for specific contracts or revised Exposure DraftRevenue from Contracts with Customerswas published inIFRS 15 REVENUE FROMCONTRACTS WITHCUSTOMERS ifrs Foundation8 November 2011 (the 2011 Exposure Draft ) and approximately 350 commentletters were received from respondents representing a wide range of in the case of the 2010 Exposure Draf