This part relates to a complete explanation of IFRS 15 Revenue from contracts with customers in respect of Engineering & Construction contracts, see https://www.faqifrs.com/revenue-from-engineering-construction-contracts/.
The disclosures related to contract balances are extensive and intended to enable users to understand the relationship between the revenue recognised and changes in overall balances of total contract assets and liabilities in a particular reporting period.
For example, disclosures required include revenue recognised in the reporting period that was included in the contract liablity balance at the beginning of the period; revenue recognised in the reporting period from performance obligations satisfied (or partially satisfied) in previous periods (e.g., changes in transaction price; an explanation of the timing of satisfaction of performance obligations compared to the typical timing of payment; and an explanation of the significant changes in the contract asset and liability balances during the period (e.g., due to business combinations, cumulative catch-up adjustments, impairment).
Transaction price allocated to remaining performance obligations
Entities must disclose the aggregate amount of the transaction price allocated to the remaining performance obligations and an explanation of when they expect to recognise the amounts through both quantitative and qualitative disclosures.
Significant judgements Extra disclosures IFRS 15
The standard specifically requires disclosure of significant judgements and estimates made in determining the transaction price; allocating the transaction price to performance obligations; and determining when performance obligations are satisfied. Extra disclosures IFRS 15
For E&C entities that recognise revenue at a point in time, but conclude that this occurs in advance of passing of legal title, disclosure will be required of the significant judgements made in evaluating at what point in time the customer obtains control of an asset. Extra disclosures IFRS 15
Assets recognised from the costs to obtain or fulfil a contract Extra disclosures IFRS 15
The standard requires disclosure of information about assets recognised from the costs to obtain or fulfil a contract. These disclosures are intended to explain the types of costs recognised as assets (e.g., sales commissions) and how those assets are subsequently amortised or impaired.
Practical expedients Extra disclosures IFRS 15
There are several practical expedients within the standard that may lead to financial results that differ from a full application of the standard. As such, entities are required to disclose where these expedients have been used. For example, if an entity elects to use the practical expedient associated with determining whether a significant financing component exists, the entity must disclose those facts.
IFRS 15 significantly increases the volume of disclosures required in entities’ financial statements, particularly for annual financial statements. For some E&C entities there may be no change in the timing of revenue recognition under IFRS 15, but the new disclosure requirements may, nonetheless, require significant additional effort (e.g., changes to systems, internal controls, policies and procedures) to collect and disclose the required information. In light of the expanded disclosure requirements and the potential need for new systems to capture the data needed for these disclosures, entities may wish to prioritise this portion of their implementation plans.