Module I· Revenue Recognition (IFRS 15)Basic
Question
What are the 5 steps of the IFRS 15 model?
Answer
The IFRS 15 five-step model
- Identify the contract with the customer.
- Identify separate performance obligations.
- Determine the transaction price.
- Allocate the transaction price to the performance obligations.
- Recognize revenue when, or as, each performance obligation is satisfied.
Practical use
The model forces you to separate bundled contracts, estimate variable consideration, and decide whether revenue is recognized over time or at a point in time.
Pitch tip
In DD, map the top customer contracts through the five steps. Most revenue-recognition issues come from bundled services, variable rebates, bill-and-hold arrangements, long-term contracts, or aggressive cut-off practices.