27/10/2023 - Publication of EFRAG's Final Comment Letter in response to the IASB Request For Information on the Post-Implementation Review of IFRS 15 Revenue from Contracts with Customers

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On 29 June 2023, the IASB published a Request for Information ('RFI') on the Post-implementation Review ('PIR') of IFRS 15 Revenue from Contracts with Customers ('IFRS 15' or 'the Standard'). EFRAG has now published its Final Comment Letter ('FCL') in response to the RFI.

In its FCL response, EFRAG notes that the Standard is generally working well in practice, the five-step revenue recognition model and accompanying application guidance are robust and principles-based requirements suitable for contracts with customers of varying complexity and the intended objectives of adopting the Standard were achieved. In this vein, an EFRAG-supported academic survey provides detailed evidence of one-off and ongoing costs for preparers as well as benefits for users and preparers. It also shows that IFRS 15 improved the relevance and comparability of reported revenue.

However, there are some potential areas for targeted improvements of the Standard. Specifically, EFRAG has identified the following application challenges (listed in order of priority):

• Determining whether a reporting entity is a principal or an agent. These challenges arise across a breadth of business models;

• Accounting for contracts involving licences;

• 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.

• Identifying performance obligations related to contracts with upfront fees, pre-production services, connection fees and those involving licences; and

• Determining the transaction price with respect to the requirements for the estimation of variable consideration and those of consideration payable to customers including the treatment of 'negative' revenue.
  

EFRAG has made suggestions for the IASB to address the above application challenges including through additional illustrative examples. Moreover, EFRAG received mixed feedback on some of the Standard's specific disclosure requirements. Hence, EFRAG recommends 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.

More details on EFRAG's recommendations can be found in EFRAG's Final Comment Letter.