IASB Proposes modifications in IFRS 15 Revenue from Contract with Customers
International Accounting Standard Board (IASB), the independent body of IFRS foundation and responsible for developing and promoting International Financial Reporting Standards (IFRS), has proposed some clarifications to IFRS 15 ‘Revenue from contract with customers’. The implementation of the said standard has already been deferred to 1st January, 2018. These clarifications are proposed after discussion with Transition Resource Group (TRG) which has collected opinion of stakeholders regarding difficulties faced in implementation of IFRS 15.
IASB has proposed following clarifications to IFRS 15:
Considerations for identifying Principal or Agent
1. IASB has proposed changes in IFRS 15 which provides additional guidance to assess whether the entity is acting as a principal or an agent. The criteria to identify whether the entity is acting as a principal or an agent is who controls the goods or services to be transferred to customer. In case an entity retains control on the goods or services to be transferred to customer then the entity is acting as a principal.
Further, certain changes have also been proposed in the indicators which are used to identify whether the entity has control on goods or services before being transferred to customer.
2. IASB has also proposed relevant changes in Illustrative examples relating to the above topic.
In case an entity grants a license of intellectual property distinct from other promised goods or services to a customer, IFRS 15 requires the entity to determine whether the license transfers to a customer is for right to use or right to access the intellectual property. For this purpose the entity should determine whether the contract requires, or the customer reasonably expects, the entity to undertake activities that significantly affect the intellectual property to which customer has right.
IASB proposed additional guidance which provides that activities of entity will affect the intellectual property significantly when
(a) Those activities are expected to change the functionality/ form of the intellectual property whose rights are with customer Or
(b) The customer’s ability to obtain benefit from intellectual property is dependent upon those activities.
IASB has proposed that during transition to IFRS 15,
(a) An entity should be allowed to use hindsight for identification of performance obligations (satisfied and unsatisfied) and determination of transaction price
(b) In case an entity is adopting full retrospective method then allowing the entity not to use IFRS 15 retrospectively for completed contracts.