IFRS 15 provides accounting requirements for all revenue arising from contracts with customers. They affect all entities that enter into contracts to provide goods or services to their customers, unless the contracts are in the scope of other IFRSs requirements, such as IFRS 16 the leasing standard. Arrangements partially in IFRS 15
The standard provides requirements for arrangements partially within the scope of IFRS 15 and partially within the scope of other standards, as follows:
Partially in scope – IFRS 15 7
Document your decisions in your financial close file to facilitate internal review and approval and external audits.
Entities enter into transactions that are partially within the scope of IFRS 15 and partially within the scope of other standards. In these situations, IFRS 15 requires an entity to apply any separation and/or measurement requirements in the other standard first, before applying the requirements in IFRS 15. Some examples of where separation and/or initial measurement are addressed in other IFRS include the following:
- IFRS 9 generally requires that a financial instrument be recognised at fair value at initial recognition. For contracts that include the issuance of a financial instrument and revenue components within the scope of IFRS 15 and the financial instrument is required to be initially recognised at fair value, the fair value of the financial instrument is first measured and the remainder of the estimated contract consideration is allocated among the other components in the contract in accordance with IFRS 15.
- IFRS 16 12 requires the allocation of an arrangement’s consideration between a lease and other components within a contractual arrangement using a relative fair value approach regarding the lease of the land and the buildings elements in a lease of land and buildings (lease is also rent of land and buildings!!!!). [IFRS 16 B56]
Conversely, if a component of the arrangement is covered by another standard or interpretation, but that standard or interpretation does not specify how to separate and/or initially measure that component, the entity needs to apply IFRS 15 to separate and/or initially measure each component. For example, specific requirements do not exist for the separation and measurement of the different parts of an arrangement when an entity sells a business and also enters into a long-term supply agreement with the other party.
The requirements for arrangements partially within the scope of IFRS 15 and partially within the scope of other standards are detailed in IFRS 15 7 (follow the link).
In certain transactions, a counterparty may not always be a ‘customer’ of the entity. Instead, the counterparty may be a collaborator or partner that shares in the risks and benefits of developing a product to be marketed. This is common in the pharmaceutical, bio-technology, oil and gas, and health care industries. However, depending on the facts and circumstances, these arrangements may also contain a vendor-customer relationship component. Such contracts could still be within the scope of IFRS 15, at least partially, if the collaborator or partner meets the definition of a customer for some, or all, aspects of the arrangement.
Arrangements partially in IFRS 15 Arrangements partially in IFRS 15 Arrangements partially in IFRS 15 Arrangements partially in IFRS 15