IAS 18 vs. IFRS 15

Attribute	IAS 18	IFRS 15
Scope	Revenue recognition for the sale of goods, rendering of services, and interest, royalties, and dividends.	Revenue recognition for contracts with customers, including the transfer of goods or services.
Contract Identification	Does not specifically address contract identification.	Emphasizes the need to identify contracts with customers.
Performance Obligations	Does not specifically address performance obligations.	Requires identification of distinct performance obligations within a contract.
Transaction Price	Recognize revenue at the fair value of consideration received or receivable.	Allocate transaction price to each distinct performance obligation based on their relative standalone selling prices.
Variable Consideration	Allows for recognition of contingent revenue when it is probable and can be reliably measured.	Requires estimation of variable consideration using either the expected value or most likely amount approach.
Contract Modifications	Does not specifically address contract modifications.	Requires accounting for contract modifications as separate contracts if they result in additional distinct performance obligations.
Disclosure	Requires disclosure of accounting policies and revenue recognition methods.	Requires extensive qualitative and quantitative disclosures about revenue recognition, including disaggregation of revenue.

Introduction

IAS 18 and IFRS 15 are two accounting standards that provide guidance on revenue recognition. While IAS 18 is the older standard, IFRS 15 was introduced in 2014 to replace IAS 18 and other related standards. Both standards aim to ensure that revenue is recognized in a manner that reflects the transfer of goods or services to customers. However, there are several key differences between IAS 18 and IFRS 15 that are worth exploring.

Scope and Applicability

IAS 18 applies to the recognition of revenue from the sale of goods, the rendering of services, and the use of others' assets. It provides specific guidance for various industries, such as construction contracts, real estate sales, and royalties. On the other hand, IFRS 15 applies to all contracts with customers, regardless of the industry. It provides a comprehensive framework for revenue recognition and supersedes the industry-specific guidance provided by IAS 18.

Five-Step Model

One of the significant differences between IAS 18 and IFRS 15 is the approach to revenue recognition. IAS 18 follows a more rule-based approach, while IFRS 15 introduces a five-step model that focuses on the transfer of control over goods or services to customers.

The five steps of IFRS 15 are as follows:

1. Identify the contract with the customer
2. Identify the performance obligations in the contract
3. Determine the transaction price
4. Allocate the transaction price to the performance obligations
5. Recognize revenue when the performance obligations are satisfied

This five-step model provides a more principles-based approach to revenue recognition, allowing for greater judgment and flexibility in determining when revenue should be recognized.

Timing of Revenue Recognition

Under IAS 18, revenue is generally recognized when the significant risks and rewards of ownership have been transferred to the buyer, and the amount of revenue can be reliably measured. This often leads to revenue recognition at the point of delivery or when the service is rendered.

IFRS 15, on the other hand, requires revenue to be recognized when control over the goods or services is transferred to the customer. This may result in revenue recognition over time if the customer simultaneously receives and consumes the benefits of the entity's performance. For example, revenue from long-term construction contracts may be recognized over the duration of the project based on the progress of completion.

Contract Modifications

IAS 18 does not provide specific guidance on contract modifications, leading to diversity in practice. However, IFRS 15 includes detailed guidance on how to account for contract modifications. It requires entities to reassess the contract and its performance obligations whenever there is a contract modification. The impact of the modification is then recognized as an adjustment to the original contract, either as a separate contract or as a modification of the existing performance obligations.

Disclosure Requirements

Both IAS 18 and IFRS 15 have disclosure requirements to provide users of financial statements with relevant information about an entity's revenue recognition policies and the nature, amount, timing, and uncertainty of revenue and cash flows. However, IFRS 15 introduces additional disclosure requirements compared to IAS 18.

IFRS 15 requires entities to disclose information about the judgments made in applying the five-step model, including the determination of performance obligations, transaction price, and the timing of revenue recognition. It also requires entities to disclose information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

Transition and Effective Date

IAS 18 is effective for annual periods beginning on or after January 1, 1995. However, IFRS 15 has a later effective date and is applicable for annual periods beginning on or after January 1, 2018. Entities are required to apply IFRS 15 retrospectively, with certain practical expedients available to ease the transition process.

Conclusion

IAS 18 and IFRS 15 are two accounting standards that provide guidance on revenue recognition. While IAS 18 is more industry-specific and follows a rule-based approach, IFRS 15 is a comprehensive standard that introduces a five-step model and focuses on the transfer of control over goods or services to customers. IFRS 15 also includes specific guidance on contract modifications and imposes additional disclosure requirements compared to IAS 18. It is important for entities to understand the attributes of both standards and ensure compliance with the applicable requirements.