Overview
1.1 Revenue recognition has been a contentious area for financial reporting.
1.2 In the previous revenue standards, there are significant diversity in revenue recognition due to limited guidance:
(a) Timing of revenue recognition – whether a company should have recognised revenue at a point in time or over a period of time
(b) Incidental obligations and incentives – how to recognised revenue when sells of a product along with an incentive to be provided at a later date
(c) Significant financial component – what is the effect of financial components in a contract when a customer pays in advance or in arrears.
1.3 In the US GAAP, there is a complex, detailed and disparate revenue recognition requirement for specific transactions and industries, e.g., software and real estate.
1.4 The IASB and FASB undertook the convergence project and finally issued a joint comprehensive revenue recognition, IFRS 15 Revenue from Contracts with Customers in May 2014. It will replace virtually all revenue recognition requirements in IFRS and US.
1.5 The new IFRS 15 introduces a comprehensive and robust framework which reduces the need for interpretive guidance to be developed on a case-by-case basis that addresses emerging revenue recognition issues and improved on disclosure requirements.
1.6 All entities will be affected.
1.7 The core principle requires an entity to recognise revenue to reflect the transfer of goods or services to customers in an amount relative to the consideration it expects to be entitled to in exchange for those goods or services.
1.8 Singapore Accounting Standards Council (ASC) has subsequently adopted IFRS 15 as FRS 115 Revenue from Contracts with Customers on 19 November 2014.
1.9 Consequently, the following standards and interpretation are replaced:
| Current | New |
| (IAS 11) FRS 11 Construction contacts
(IAS 18) FRS 18 Revenue (IFRIC 15) INT FRS 115 Agreements for the Construction of Real Estate |
FRS 115 Revenue from Contracts with Customers |
| (IAS 18) FRS 18 Revenue – Interest and dividends | (IAS 39) FRS 39 / (IFRS 9) (FRS 109) Financial Instruments |
| (IFRIC 13) INT FRS 113 Customer Loyalty Programmes | New guidance on options for additional goods and services and breakage |
| (IFRIC 18) INT FRS 118 Transfers of Assets from Customers
(SIC 31) INT FRS 31 Revenue – Barter Transactions Involving Advertising Services |
Guidance on non-cash consideration |
Effective date and transition
2.1 (IFRS 15) FRS 115 must be applied for annual reporting periods beginning on or after 1 January 2018. Early adoption is permitted.
2.2 For US GAAP public companies, the standard must be applied for annual reporting periods beginning on or after 15 December 2017. Early adoption permitted after 15 December 2016.
2.3 The transitional provisions state that when first applying the new revenue standard, entities should apply in full for the current period, including retrospective application to all contracts that were not yet complete at the beginning of that period.
| Key considerations | Retrospective approach | Modified approach |
| Applies to which periods presented? | Apply in full to prior periods | Retain prior figures as reported under the previous standards, recognizing the cumulative effect of applying new standard as an adjustment to the opening balance of retained earnings as at the date of initial application |
| Applies to which contracts? | All contracts that would have existed during all periods presented had the new standard been applied from contract inception | Any contracts existing as of effective date (as if new standard had been applied since inception of contract), as well as any new contracts from that date forward |
| Recognition of the impact of adoption in the financial
statements? |
Cumulative effect of changes prior to periods presented are
reflected in opening balance of retained earnings in the earliest period presented |
Cumulative effect of changes to be reflected in the opening balance of retained earnings in the most current period presented |
Scope and exclusions
3.1 The following are in scope or affected by the new standard:
(a) Contracts with customers
(b) Sale of some non-financial assets that are not an output of the entity’s ordinary activities (e.g. property, plant and equipment, intangible assets)
(c) Capitalisation of certain costs
3.2 The following are not in scope:
(a) Leasing contracts
(b) Insurance contracts
(c) Financial instrument contracts
(d) Certain non-monetary exchanges
(e) Certain put options on sale and repurchase agreements
Last review: 31 July 2017