Revenue from Contracts with Customers Aasb 15

Revenue from Contracts with Customers AASB 15: Understanding the Key Principles

The Australian Accounting Standards Board (AASB) has issued a new accounting standard, AASB 15, which outlines the principles on how to recognize revenue from contracts with customers. This new standard replaces the previous AASB 118 Revenue standard and is effective for annual reporting periods beginning on or after 1 January 2018. In this article, we will explore the key principles of AASB 15.

What is AASB 15?

AASB 15 is an international financial reporting standard developed by the International Accounting Standards Board (IASB) to provide a single framework for recognizing and measuring revenue from contracts with customers. The standard applies to all types of contracts with customers, including sales of goods, services, and software, as well as licensing arrangements.

The core principle of AASB 15 is that revenue should be recognized when a customer obtains control of a good or service. This differs from the previous standard, which recognized revenue when the risks and rewards of ownership were transferred, regardless of whether the customer had control of the good or service.

Key Principles of AASB 15

The standard outlines a five-step model for recognizing revenue from contracts with customers:

1. Identify the contract with the customer: The first step is to identify the contract with the customer. A contract is a legally enforceable agreement between two or more parties that creates enforceable rights and obligations.

2. Identify the performance obligations: The second step is to identify the performance obligations in the contract. A performance obligation is a promise to transfer a good or service to the customer.

3. Determine the transaction price: The third step is to determine the transaction price, which is the amount of consideration that the entity expects to receive in exchange for transferring the goods or services.

4. Allocate the transaction price to the performance obligations: The fourth step is to allocate the transaction price to the performance obligations in the contract. This is done based on the relative standalone selling prices of the goods or services.

5. Recognize revenue when performance obligations are satisfied: The final step is to recognize revenue when the entity satisfies the performance obligations in the contract. This is done when control of the goods or services is transferred to the customer.

Impact on Financial Statements

AASB 15 is expected to have a significant impact on the financial statements of many entities. The standard requires that revenue be recognized based on the transfer of control of goods or services, rather than on the transfer of risks and rewards of ownership.

This could result in revenue being recognized earlier or later than under the previous standard, depending on the specific terms of the contract and the timing of when control is transferred. Entities may need to adjust their revenue recognition policies, processes, and systems to comply with the new standard.

Conclusion

AASB 15 is a significant change to the accounting principles for recognizing revenue from contracts with customers. The new standard requires entities to recognize revenue based on when control of goods or services is transferred to the customer, rather than on the transfer of risks and rewards of ownership. Entities should carefully review their contracts and processes to ensure compliance with the new standard, and consider seeking advice from a qualified professional if necessary.