IFRS 15: Foundations & Core Principle
Revenue is the single most important metric for most businesses. IFRS 15 ensures it's reported consistently, regardless of the industry.
1The Shift to a Single Framework
Before IFRS 15, revenue was governed by several different standards (IAS 18 for goods/services, IAS 11 for construction). This created inconsistency, especially for complex bundles (e.g., a phone with a service contract).
What changed?
- Consistency: One five-step model for everyone.
- Better Disclosure: Investors get more detail on the "unearned" revenue and contract assets.
- Allocation: Clear rules for how to split the price between a "free" handset and a monthly service.
2The Core Principle
"Recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled."
— IFRS 15.2
3Scope: What is NOT in IFRS 15?
While IFRS 15 is broad, some transactions are handled by other specific standards:
Lease Contracts
IFRS 16 (Leases) takes precedence here.
Insurance Contracts
Governed by IFRS 17.
Financial Instruments
IFRS 9 handles interest and dividends.
Non-Monetary Exchanges
Between entities in the same line of business.
4Key Definitions
Customer
A party that has contracted with an entity to obtain goods or services that are an output of the entity's ordinary activities.
Income vs Revenue
Income is the broad category. Revenue is specifically income arising in the course of an entity's ordinary activities.
The Road Ahead
Now that we have the foundations, we can dive into the heart of IFRS 15: the Five-Step Model. This model is what you will apply in every single exam question.
Ready for the Deep Dive?
Continue to Part 2 to master the five steps that govern all revenue recognition.
Part 2: The Five-Step Model