IFRS 15

What it means

IFRS 15 is the IFRS standard on revenue from contracts with customers, setting a five-step model for when and how much revenue to recognise. It replaced earlier standards on sales of goods and construction contracts and applies uniformly across almost all industries.

The five steps are: identify the contract, identify the performance obligations, determine the transaction price, allocate it to the performance obligations and recognise revenue when each obligation is satisfied. Revenue is recognised either at a point in time, such as on delivery of goods, or over time as performance occurs.

The standard matters especially for service bundles, long-term contracts and licences. When a phone is sold with a contract, for instance, the price must be allocated between the phone and the services even if the phone seems to be free.

How it works in practice

For a SaaS subscription, revenue is recognised evenly over the service period, not when invoiced. An annual payment in advance is therefore recorded as a contract liability and released to revenue monthly.

Variable consideration such as volume discounts, bonuses or penalties is included in the transaction price at an estimated amount only if it is highly probable that a significant reversal will not occur. This requires judgement and regular reassessment.

Slovak accounting procedures are simpler in some areas, so Slovak subsidiaries of foreign groups often prepare revenue adjustments for group reporting. Differences arise mainly with multiple-element contracts and long-term projects.

What to watch out for

The timing of revenue under IFRS 15 may not match the tax base or VAT. VAT follows its own principle of principal and ancillary supplies and its own tax point rules, so differences must be tracked.

Misidentifying performance obligations or their values distorts revenue and profitability across periods. Auditors give revenue priority attention because it is a common area for errors and earnings manipulation.