IFRS 15 Summary: Practical Revenue Recognition + Free Video & Checklist

Updated: May 2025
IFRS 15 Revenue from Contracts with Customers brought the most significant change in revenue recognition under IFRS. It affects almost every company with customer contracts — and applying it correctly takes more than just knowing the 5 steps.

In this quick summary, you’ll learn the core rules and practical insights to apply IFRS 15 effectively — including contract costs, presentation, disclosures, and adoption options. Also, you can download free practical IFRS 15 compliance checklist below.

Jump to section:

1. Free VIDEO lecture: Overview of IFRS 15 Revenue from Contracts with Customers
2. Objective and scope of IFRS 15
3. The 5-step revenue recognition model

• 3.1 Step 1: Identify the contract with the customer
• 3.2 Step 2: Identify the performance obligations in the contract
• 3.3 Step 3: Determine the transaction price
• 3.4 Step 4: Allocate the transaction price to the performance obligations
• 3.5 Step 5 Recognize revenue when (or as) the entity satisfies a performance obligation

4. Contract costs
5. Presentation and disclosures
6. Note to adoption
7. DOWNLOAD IFRS 15 Practical Checklist
8. Further reading&learning

IFRS 15 sets the principles to apply when reporting about:

• the nature;
• the amount;
• the timing; and
• the uncertainty

of revenue and cash flows from a contract with a customer.

Let me stress “a customer” here. If you have a contract with party other than a customer, then IFRS 15 does not apply.

Sometimes, it’s quite difficult to determine whether you deal with a customer or simply with a collaborating party (e.g. some mutual development projects with other entities), therefore take care!

Also, be aware that there are some scope exclusions from IFRS 15, namely:

• Leases (IAS 17 or IFRS 16)
• Financial instruments and other rights and obligations within the scope of IFRS 9 (IAS 39), IFRS 10, IFRS 11, IAS 27, IAS 28;
• Insurance contracts (IFRS 4) and
• Non-monetary exchanges between entities within the same business to facilitate sales.

We need to apply IFRS 15 for periods starting from 1 January 2018 or later.

The main aim of IFRS 15 is to recognize revenue in a way that shows the transfer of goods/services promised to customers in an amount reflecting the expected consideration in return for those goods or services.

It seems understandable and very easy at first sight, and it truly is in many cases. So why is IFRS 15 so extensive?

Well, because many situations are not straightforward and entities recognize revenues differently in these cases, for example:

• Buy 1+get 1 free;
• Buy monthly prepaid plan + get handset for free;
• Earn loyalty points and cash them out/receive free goods later on;
• Get bonuses for delivery on time; etc.

To make it systematic, IFRS 15 requires application of 5 step model for revenue recognition (go to this link to see full guide of IFRS 15 5-step model with videos, examples and journal entries template).

The 5 steps are shown in the following picture:

Let’s describe them a bit.
 

A contract is an agreement between 2 parties that creates enforceable rights and obligations (IFRS 15, Appendix A).

You need to apply IFRS 15 to all contracts that have the following 5 attributes (IFRS 15.9):

1. Parties to the contract has approved it and are committed to perform;
2. Each party’s rights to the goods/services transferred are identified;
3. The payment terms are identified;
4. The contract has a commercial substance; and
5. It is probable that an entity will collect the consideration – here, you need to evaluate the customer’s ability and intention to pay.

So, if the contract does not meet all 5 criteria, then you don’t apply IFRS 15, but some other standard.

Therefore, be careful about intragroup transactions, as they often lack a commercial substance (as these companies often transfer inventories and other items at prices different than the market).

IFRS 15 provides a guidance about contract combinations and contract modifications, too.

Contract combination happens when you need to account for two or more contract as for 1 contract and not separately. IFRS 15 sets the criteria for combined accounting.

Contract modification is the change in the contract’s scope, price or both. In other words, when you add certain goods or services, or you provide some additional discount, you are effectively dealing with the contract modification.

IFRS 15 sets different accounting methods for individual contract modification, depending on certain conditions.

 
Return to top

Performance obligation is any good or service that contract promises to transfer to the customer.

It can be either (IFRS 15 App. A)

• A single good or service, or their bundle that is distinct; or
• A series of distinct goods or services that are substantially the same and have the same pattern of transfer.

An essential characteristic of a performance obligation is the word “distinct”. Simply said, distinct means separable, or separately identifiable, and IFRS 15 sets criteria that you must assess in order to determine whether the performance obligation is distinct or not.

Let me say that this is extremely important and you must do it right.

The reason is that in further steps, you will account for distinct performance obligations and their revenues separately, in line with their allocated transaction price, and if you fail in the correct identification of distinct performance obligations, then the whole contract accounting will be wrong.

I say more about that in my IFRS Kit, so check it out if you need.

Let me also add that the performance obligations can be both explicit (e.g. written in the contract) and implicit (e.g. implied by some customary practices).

Also, if there’s no transfer to customer, then there’s no performance obligation. For example, imagine you construct a building for your client. Before you actually start, you build a small mobile toilet for your workers. As this will not be delivered to your customer, it is not a separate performance obligation.
 

The transaction price is the amount of consideration than an entity expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties (IFRS 15 Appendix A).

That’t the definition from the standard and in other words, it’s what you expect to receive from your customer in return for your supplies.

Attention – it’s NOT always the price set in the contract. It is you expectation of what your receive.

It means that you need to estimate the transaction price.

How?

First, you need to take the price stated in the contract as some basis (if applicable).

• Variable consideration – are there some bonuses or discounts, for example, performance bonus?
• Constraining estimates in variable consideration – you should include variable consideration (e.g. bonus) in the transaction price only when it’s highly probable that you can keep it (this is a big simplification);
• Significant financing component – if your clients will pay you with delay, do the payments reflect the time value of money?
• Non-cash consideration – do you receive some non-cash items from your customer in return for your goods or services?
• Consideration payable to a customer – do you provide some vouchers or coupons to your customers?
• And other factors.

Return to top
 

Once you have identified the contract‘s performace obligations and determined the transaction price, you need to split the transaction price and allocate it to the individual performance obligations.

The general rule is to do it based on their relative stand-alone selling prices, but there are 2 exceptions when you allocate in a different way:

1. When allocating discounts, and
2. When allocating considerations with variable amounts.

A stand-alone selling price is a price at which an entity would sell a promised good or a service separately to the customer (not in the bundle).

The best way to determine a stand-alone selling price is simply to take observable selling prices and if these are not available, then you need to estimate them. IFRS 15 suggest a few methods for estimating stand-alone selling prices, such as adjusted market assessment approach, etc.

If this seems to theoretical, let me point you to this article. It illustrates all steps on a very simple telecom example.
 

A performance obligation is satisfied (and revenue is recognized) when a promised good or service is transferred to a customer. This happens when control is passed.

A performance obligation can be satisfied either:

• Over time – in this case, control is passed to the customer over some period of time (e.g. contract term); or
• At the point of time – in this case, control is retained by the supplier until it is transferred at some moment.

IFRS 15 sets a few criteria when you should recognize revenue over time. In all other cases, revenue is recognized at the point of time.

You can read more about it in this article, or learn it in details in my IFRS Kit.

Except for these 5 steps, IFRS 15 arranges a few other areas, such as…
Return to top
 

IFRS 15 provides a guidance about two types of costs related to the contract:

1. Costs to obtain a contract
   Those are the incremental costs to obtain a contract. In other words, these costs would not have been incurred without an effort to obtain a contract – for example, legal fees, sales commissions and similar.These costs are not expensed in profit or loss, but instead, they are recognized as an asset if they are expected to be recovered (the exception is the contract costs related to the contracts for less then 12 months).
2. Costs to fulfill a contractIf these costs are within the scope of IAS 2, IAS 16, IAS 38, then you should treat them in line with the appropriate standard.If not, then you should capitalize them only if certain criteria are met.

 
Return to top

IFRS 15 requires entities to present and disclose revenue in a way that provides users of financial statements with clear, relevant information about the nature, amount, timing, and uncertainty of revenue and related cash flows.

Here are the main requirements:

5.1 Presentation

• Revenue must be presented separately in the statement of profit or loss (IFRS 15.113).
• Contract assets and contract liabilities must be disclosed on the face of the financial position or in the notes (IFRS 15.105):
  • Contract asset arises when an entity has transferred goods/services but not yet billed the customer.
  • Contract liability arises when a customer pays in advance for goods or services not yet delivered.

5.2 Disclosures

The disclosures aim to explain the revenue recognition in more detail and typically include:

• Disaggregation of Revenue (IFRS 15.114–115):
  Revenue must be disaggregated into meaningful categories (e.g., by geography, product line, type of customer, or contract duration) to help users understand revenue drivers.
• Contract Balances (IFRS 15.116–118):
  Disclose opening and closing balances of contract assets, liabilities, and receivables, and explain significant changes during the period.
• Performance Obligations (IFRS 15.119–122):
  • Describe when performance obligations are typically satisfied.
  • Outline payment terms and whether there are significant financing components.
  • Explain the nature of variable consideration and how it is estimated.
• Transaction Price Allocation (IFRS 15.123–124):
  Disclose the amount of transaction price allocated to remaining performance obligations and explain when this revenue is expected to be recognized.
• Contract Costs (IFRS 15.127–128):
  If contract costs are capitalized (e.g. sales commissions), disclose the balances and amortization policies.
• Significant Judgments (IFRS 15.123, 129–133):
  Disclose judgments made in applying IFRS 15, such as:
  • Whether performance obligations are satisfied over time or at a point in time;
  • Methods used to recognize revenue (e.g. input vs output methods);
  • Estimates made when measuring progress or transaction prices.

These disclosures are not optional and should be tailored to the specific facts and circumstances of your business. Generic or overly brief (i.e. “boilerplate”) disclosures are discouraged by regulators.
 
Return to top

IFRS 15 became mandatory for reporting periods beginning on or after 1 January 2018. Most companies have already adopted it, but if you’re reviewing past transitions or joining a new reporting regime, you may still need to apply the transition rules, so let me just quickly sum them up:

As the requirements of IFRS 15 are very extensive and demanding, IFRS 15 permits 2 methods of adoption:

1. Full retrospective adoption
   Under this approach, you need to apply IFRS 15 fully to all prior reporting periods, with some exceptions.
2. Modified retrospective adoption
   Under this approach, comparative figures remain as they were reported under the previous standards and you recognize the cumulative effect of IFRS 15 adoption as a one-off adjustment to the opening equity at the initial application date.

Return to top

Return to top

Explore more on IFRS 15: Visit this page to access the full library of all IFRS 15-related articles, videos, and examples published by CPDbox.

Learn IFRS with real examples – not just theory.

Any questions? Please let me know below, thank you!