IFRS 15 Post-implementation Review

IFRS 15 Revenue from Contracts with Customers became effective for annual periods beginning on or after 1 January 2018. At the same time the US Financial Accounting Standards Board (FASB) introduced into its Accounting Standards Codification® Topic 606 Revenue from Contracts with Customers substantially converged with IFRS 15.

In November 2021 the International Accounting Standards Board (IASB) decided to begin the post-implementation review (PIR) of IFRS 15. For the PIR of IFRS 15 the IASB will consider whether:

• there are fundamental questions (ie 'fatal flaws') about the clarity and suitability of the core principle and the five-step revenue recognition model in IFRS 15;
• the benefits to users of financial statements of the information arising from applying the IFRS 15 requirements are broadly as expected; and
• the costs of applying some or all of the IFRS 15 requirements and auditing and enforcing their application are broadly as expected.

On September 2022, the IASB indicated that the PIR process consists of two phases:

• Phase 1: the IASB identifies matters to be examined. To that extent, IASB members and staff consult with preparers, auditors, users of financial statements, regulators and standard-setters as well as the IASB's advisory groups. The IASB consults publicly on the matters identified in the first phase of the PIR through a request for information (RFI); and 
  
• Phase 2: the IASB considers the comments from the public consultation along with the information it has gathered from any additional analysis and other consultative activities.

Furthermore, EFRAG has reviewed IFRS 15 issues raised by the IFRS Interpretation Committee (IFRS IC), ESMA enforcement issues and the issues raised during the USGAAP PIR on Accounting Standards Update Revenue from Contracts with Customers (Topic 606) which is also being implemented.

On 24 July 2023, EFRAG published its Draft Comment Letter (DCL) in response to the RFI.

In the DCL response, EFRAG noted that the Standard is generally working well in practice and the five-step revenue recognition model and accompanying application guidance are  robust and principles-based requirements suitable for contracts with customers of varying complexity. Findings from an EFRAG-sponsored academic survey (i.e., to preparers and users) included in the DCL showed that IFRS 15 improved the relevance and comparability of reported revenue. However, there were some potential areas for targeted improvements of the Standard. Specifically, EFRAG made suggestions for the IASB to consider in respect of the following application challenges (listed in order of priority):

• The challenges in determining whether a reporting entity is a principal or an agent which have arisen across a breadth of business models; 
• The challenges in accounting for contracts involving licences; 
• The challenges of applying the requirements of IFRS 15 along with the requirements of IFRS 3 Business Combinations, IFRS 16 Leases, IFRS 10 Consolidated Financial Statements, and IFRS 11 Joint Arrangements.
• The challenge of identifying performance obligations related to contracts with upfront fees, pre-production services, and those involving licences; and 
• The challenge in determining the transaction price in respect of the requirements for the estimation of variable consideration and the treatment of 'negative' revenue. 
  

EFRAG issued its final comment letter (‘FCL’) on 27 October 2023. EFRAG largely retained the tentative views expressed in the DCL. EFRAG included detailed findings from the EFRAG-supported academic survey to preparers on the costs and benefits of implementing IFRS 15. Moreover, EFRAG received mixed feedback on some of the Standard's specific disclosure requirements. Hence, EFRAG recommended that the IASB consider whether to conduct further targeted outreach to explore if suggested improvements to some of the disclosure requirements could improve their overall cost-benefit balance.

On 27 November 2023, EFRAG published an EFRAG-supported academic study on the effects of the adoption of IFRS 15 Revenue from Contracts with Customers on preparers and users of financial statements. The study's findings shed light on the related costs and benefits and these findings were incorporated into EFRAG's comment letter on the post-implement review of IFRS 15. The study is available here.

On 30 January 2024, EFRAG published feedback statement on post-implement review of IFRS 15. The feedback statement is available here.