20160820 bfrs 15 technical note

BFRS 15 Revenue from Contracts
BFRS 15
by Mahamud Hosain FCA Page 1 of 14
Title : BFRS 15 Revenue from Contracts with Customers
Date of Issuance : May 2014
Effective Date : On or after 1 January 2018
Existing standard Supersedes: BFRS 15 replaces the following standards and interpretations:
 BAS 11 Construction contracts
 BAS 18 Revenue
 IFRIC 13 Customer Loyalty Programmes
 IFRIC 15 Agreements for the Construction of Real Estate
 IFRIC 18 Transfers of Assets from Customers
 SIC-31 Revenue - Barter Transactions Involving Advertising Services
Sectors affected for which IASB issued implementation guidelines:
 Aerospace and Defense Sector
 Travel, hospitality and Leisure Sector
Early Application : Allowed
Background of BFRS 15 :IASB’s predecessor body has issued BAS 11 Construction Contracts [1979] & BAS 18
Revenue [1982] & SIC 31 Revenue - Barter Transactions Involving Advertising
Services, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the
Construction of Real Estate & IFRIC 18 Transfers of Assets from Customers
All the above mentioned standards cover their own areas & were revised
subsequently. In order to address the concern/gap (risen time to time), specific
guidelines through SIC & IFRIC were issued. IASB (and its predecessor) had
relentlessly employed efforts to prescribe proper accounting treatments in these
areas. There was understood gap with related GAAP issued by FASB. Finally IASB has
undertaken project to bring convergence with FASB pronouncement/GAAP &
integrate different standards in June 2002. After long time & due course of study of
different accounting pronouncements/GAAP issued by various
national/international standards setter/regulatory guidelines applied in different
political boundary, knowledge sharing with different standards setters across the
globe, inviting & consideration of comments from interested group, meeting with
expert group/researcher, IASB has finally issued BFRS 15 in May 2014.

BFRS 15
Major Changes from Earlier Standards
This new standard represents the integrated standards on revenue from customer contracts. With this new
standard the IASB has now completed its substantive re-deliberations in regard to standards for revenue.
Rationale for issuance of new BFRS (BFRS 15) superseding BAS 11 & BAS 18
Revenue is a crucial number to users of the financial statements in assessing a company’s performance and
prospects.
The objective of issuance new BFRS covering revenue, is to prescribe proper accounting treatment & practices
through clarifying the principles for recognising revenue from contracts with customers.
In order to meeting the above said view this standard establishes & explains the principles that an entity shall
apply regarding
o the nature, amount, timing and uncertainty of revenue; and
o cash flows arising from a contract with a customer

BFRS 15
Overview of BFRS 15
BFRS 15 specifies more specifically:
- how and when an entity shall recognise revenue;
- require entities to provide users of financial statements with more informative, relevant disclosures; and
- provides a single, principles based five-step model to be applied to all contracts with customers
The package of improvements introduced by BFRS 15 includes:
-a methodical approach (how);
-a principle oriented guideline on timing (when);
-more disclosure with specific & decisive information; and
-a substantially a single, principles based five-step model
[similar approach of FASB pronouncement few often adopted by IASB under Norwalk agreement of
convergence between standards issued by two major bodies (IASB & FASB)]
BFRS 15 is expected to assist user more specifically with directive & guidelines to cater the new/changed pattern
of business & evolution (since issuance of BAS 18, BAS 11 & others IFRIC & SIC). This new standard shall assist
prepares/reviewer of financial statements with detail guidelines to encounter the prevailing gap which was not
exhaustively covered through existing standards. Surely this standards shall bring together all aspects of:
-The accounting of revenue from contracts; and
- Qualitative disclosure
Together with these above mentioned improvements/changes in BFRS 15, will enhance the credibility of financial
statements & better understanding by the users.
IASB stand that the new Standard will enhance investor confidence in regard to revenue and the financial system
as a whole
BFRS 15 Scope: It applies to all contracts with customers except leases, financial instruments and insurance
contracts, except:
BAS 17 Leases;
financial instruments and other contractual rights or obligations within the scope of BFRS 9
Financial Instruments,
BFRS 10 Consolidated Financial Statements,
BFRS 11 Joint Arrangements,
BAS 27 Separate Financial Statements,
BAS 28 Investments in Associates and Joint Ventures;
insurance contracts within the scope of BFRS 4 Insurance Contracts; and
non-monetary exchanges between entities in the same line of business to facilitate sales to
customers or potential customers
What value addition BFRS 15 bring: It establishes the principles that an entity shall apply to report useful
information to users of financial statements about
o the nature,
o amount,
o timing, and
o uncertainty of revenue and
o cash flows arising from a contract with a customer.
[employs significant emphasis on cash flow]

BFRS 15
IASB has made clear cut guidelines in respect of coverage by another standards as
Area Issues Developments
Scope of BFRS
15
A contract with a
customer may be
partially within the
scope of BFRS 15 and
partially within the
scope of another
standard. In that
scenario: [BFRS 15:7]
if other standards specify how to separate and/or initially measure
one or more parts of the contract, then those separation and
measurement requirements are applied first. The transaction price
is then reduced by the amounts that are initially measured under
other standards;
if no other standard provides guidance on how to separate and/or
initially measure one or more parts of the contract, then BFRS 15
will be applied
Recognition Developed approach of
revenue recognition
To bring the convergence with FASB GAAP/Pronouncement & laid
down specific guideline, 5 core principle are outlined to review &
report the revenue
Income Defined very
specifically
Increases in economic benefits during the accounting period in the
form of inflows or enhancements of assets or decreases of
liabilities that result in an increase in equity, other than those
relating to contributions from equity participants,
Revenue Defined very
specifically
Income arising in the course of an entity’s ordinary activities.
Earlier revenue was defined as
Revenue is the gross inflow of economic benefits during the period
arising in the course of the ordinary activities of an entity when
those inflows result in increases in equity, other than increases
relating to contributions from equity participants.
Revenue includes only the gross inflows of economic benefits
received and receivable by the entity on its own account.
Recognition Specific framework  BFRS 15 prescribes suggested framework to recognize revenue.
It clearly direct in regard to:
o the nature,
o amount,
o timing, and
o uncertainty of revenue and
o cash flows arising from a contract with a customer.
Future cash
flow
employs significant
emphasis on cash flow
BFRS 15 employs significance of cash flow to generate from
contracts with customer
sales or usage-
ed royalty
revenue
A different, more
restrictive approach is
applied
Sales or usage-ed royalty revenue arising from licenses of
intellectual property is recognised only when the underlying sales
or usage occurs.

BFRS 15
What significant changed made & why it is important:
Accounting requirements for revenue
The core principle of BFRS 15 is that an entity will recognise 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 in
exchange for those goods or services.
This core principle is delivered in a five-step model framework: [BFRS 15:IN7]
R
.
Application of this guidance will depend on the facts and circumstances present in a contract with a customer
and will require the exercise of judgment.
Convergence & Integration
This standard
- summarizes the revenue recognition in single standard in place of BAS 11, BAS 18, SIC
31, IFRIC 13, IFRIC 15 & IFRIC 18 &
- facilitates convergence with FASB GAAP/Pronouncement
Recognition
Provides clear direction in regard to nature, amount, timing, certainty & cash flow from contract
with customer
[Changes of pattern of principle based standards to bring convergence with GAAP issued by
FASB. Further more emphasis given to cash flow to generate from contract with customer]
Step 1 Identify the contract(s) with a customer
Step 2 Identify the performance obligations in the contract
Step 3 Determine the transaction price (Amount)
Step 4 Allocate the transaction price to the performance obligations in the contract (How much)
Step 5 Recognise revenue when (or as) the entity satisfies a performance obligation
Requires qualitative & specific disclosure

BFRS 15
Step Description Principle Guidelines Reviewer Comments Conclusion
Step
1
Identify the
contract
with the
customer
A contract with a
customer will be
within the scope of
BFRS 15 if all the
following conditions
are met: [BFRS 15:9]
1. the contract has been approved by the
parties to the contract
2. each party’s rights in relation to the goods
or services to be transferred can be
identified
3. the payment terms for the goods or
services to be transferred can be identified;
4. the contract has commercial substance
5. it is probable that the consideration to
which the entity is entitled to in exchange
for the goods or services will be collected
Exception:
If a contract with a customer does not yet
meet all of the above criteria, the entity will
continue to re-assess the contract going
forward to determine whether it
subsequently meets the above criteria. From
that point, the entity will apply BFRS 15 to
the contract. [BFRS 15:14]
1. Clarify the
obligation
2. Right &
responsibility
establishment
3. Cash flow (if
require to apply
present value)/
adoption of time
value of money
4. Establish
economic value
above merely legal
obligation
(substance over
form/BFRS
framework)
5. Due care to extent
of certainty
(probable than
likely not to
happen)
The standard provides detailed guidance
on how to account for approved contract
modifications.
(i) If following conditions are met, a
contract modification will be
accounted for as a separate contract
with the customer.
- the scope of the contract increases;
- the price of the contract increases.
(ii)If not, it will be accounted for by
modifying the accounting for the
current contract with the customer.
Whether these changes to effect
prospectively or retrospectively
depends on whether the remaining
goods or services to be delivered after
the modification are distinct from
those delivered prior to the
modification.
Retrospective effect to given if the
remaining goods or services [which
resulted from contract modification]
are not distinct.
Step
2
Identify the
performance
obligations
in the
contract
At the inception of
the contract, the
entity should assess
the goods or services
that have been
promised to the
customer, and
identify as a
1.a good or service that is distinct; or
2.a series of distinct goods or services that are
substantially the same and that have the
same pattern of transfer to the customer.
A series of distinct goods or services is
transferred to the customer in the same
pattern if both of the following criteria are
met: [BFRS 15:23]
The performance of
obligation under a
contract can be
identified through
application of the
mentioned criterion.
However regards
shall had to be
More specific & modality of evaluation
of obligation performed are clearly
outlined

BFRS 15
performance
obligation: [BFRS
15.22]
1.each distinct good or service in the series
that the entity promises to transfer
consecutively to the customer would be a
performance obligation that is satisfied over
time; and
2.a single method of measuring progress
would be used to measure the entity’s
progress towards complete satisfaction of
the performance obligation to transfer each
distinct good or service in the series to the
customer.
A good or service is distinct if both of the
following criteria are met: [BFRS 15:27]
1.the customer can benefit from the good or
services on its own or in conjunction with
other readily available resources; and
2.the entity’s promise to transfer the good or
service to the customer is separately
identifiable from other promises in the
contract.
Factors for consideration as to whether a
promise to transfer the good or service to
the customer is separately identifiable
include, but are not limited to: [BFRS 15:29]
1.the entity does not provide a significant
service of integrating the good or service
with other goods or services promised in the
contract.
2.the good or service does not significantly
modify or customize another good or service
promised in the contract.
3.the good or service is not highly interrelated
with or highly dependent on other goods or
services promised in the contract.
given to principle
and not merely to
outlined criterion.

BFRS 15
Step
3
Determine
the
transaction
price
1.The transaction price is the amount to
which an entity expects to be entitled in
exchange for the transfer of goods and
services. When making this determination,
an entity will consider past customary
business practices. [BFRS 15:47]
2.Where a contract contains elements of
variable consideration, the entity will
estimate the amount of variable
consideration to which it will be entitled
under the contract. [BFRS 15:50]
3.BFRS 15 deals with the uncertainty relating
to variable consideration by limiting the
amount of variable consideration that can
be recognised.
4.A different, more restrictive approach is
applied in respect of sales or usage-based
royalty revenue arising from licenses of
intellectual property. Such revenue is
recognised only when the underlying sales
or usage occur. [BFRS 15:B63]
1.Modality (how) to
measure value are
guided by prudence
judgment in
enhanced manner
2.
3.prudent approach
to ensure
conservativeness
4.prudent approach
to ensure
conservativeness
Specifically, variable consideration is only
included in the transaction price if, and to
the extent that, it is highly probable that
its inclusion will not result in a significant
revenue reversal in the future when the
uncertainty has been subsequently
resolved. [BFRS 15:56]
Step
4
Allocate the
transaction
price to the
performance
obligations
in the
contracts
In multiple
performance
obligations
1. Allocation of the transaction price to make
based on the performance of multiple
activities obligations in the contract by
reference to their relative standalone
selling prices. [BFRS 15:74]
2. If a standalone selling price is not directly
observable, the entity will need to
estimate it. BFRS 15 suggests various
methods that might be used, including:
[BFRS 15:79]
 Adjusted market assessment
approach
1.Provide very clear
directive. This will
enhance
comparability
2. Facilitate prudent
application e

BFRS 15
 Expected cost plus a margin
approach
 Residual approach (only permissible
in limited circumstances).
4. Where consideration is paid in advance or
in arrears, the entity will need to consider
whether the contract includes a significant
financing arrangement and, if so, adjust
for the time value of money. [BFRS 15:60]
3. Significant
emphasis given to
Time value of
money
A practical expedient is available where
the interval between transfer of the
promised goods or services and payment
by the customer is expected to be less
than 12 months. [BFRS 15:63]
Step
5
Recognise
revenue
when (or as)
the entity
satisfies a
performance
obligation
Revenue is
recognised as control
is passed, either over
time or at a point in
time. [BFRS 15:32]
1.Control of an asset is defined as the ability to
direct the use of and obtain substantially all
of the remaining benefits from the asset.
This includes the ability to prevent others
from directing the use of and obtaining the
benefits from the asset.
The benefits related to the asset are the
potential cash flows that may be obtained
directly or indirectly. These include, but are
not limited to: [BFRS 15:31-33]
 using the asset to produce goods or
provide services;
 using the asset to enhance the value
of other assets;
 using the asset to settle liabilities or
to reduce expenses;
 selling or exchanging the asset;
 pledging the asset to secure a loan;
and
 holding the asset.
2.An entity recognises revenue over time if
one of the following criteria is met: [BFRS
15:35]
 the customer simultaneously
receives and consumes all of the
More detailed
approach

BFRS 15
benefits provided by the entity as the
entity performs;
 the entity’s performance creates or
enhances an asset that the customer
controls as the asset is created; or
 the entity’s performance does not
create an asset with an alternative
use to the entity and the entity has
an enforceable right to payment for
performance completed to date.
If an entity does not satisfy its performance
obligation over time, it satisfies it at a point
in time. Revenue will therefore be recognised
when control is passed at a certain point in
time. Factors that may indicate the point in
time at which control passes include, but are
not limited to: [BFRS 15:38]
 the entity has a present right to
payment for the asset;
 the customer has legal title to the
asset;
 the entity has transferred physical
possession of the asset;
 the customer has the significant risks
and rewards related to the
ownership of the asset; and
 the customer has accepted the asset.

BFRS 15
Presentation in FS:
Issues BFRS 15 Other BFRS Remarks
Presentation of
Contracts
Assets,
Receivable &
liability
Contracts with customers will be presented in an entity’s
statement of financial position as a contract liability, a
contract asset, or a receivable, depending on the
relationship between the entity’s performance and the
customer’s payment. [BFRS 15:105]
A contract liability is presented in the statement of
financial position where a customer has paid an amount
of consideration prior to the entity performing by
transferring the related good or service to the customer.
[BFRS 15:106]
Contract liabilities,
assets and
receivables shall be
accounted for in
accordance with
BFRS 9.
Disclosure of
impairment
Any difference between the initial recognition of a
receivable and the corresponding amount of revenue
recognised should also be presented as an expense, for
example, an impairment loss. [BFRS 15:107-108]
Other
disclosure
An entity to disclose sufficient information to enable users
of financial statements to understand the nature, amount,
timing and uncertainty of revenue and cash flows arising
from contracts with customers. Therefore, an entity
should disclose qualitative and quantitative information
[BFRS 15:110]
qualitative
and
quantitative
disclosure

BFRS 15
Impact analysis:

BFRS 15
Bangladesh Context:
 We, ICAB, only licensed body in Bangladesh by BFRS foundation for issuance of BFRSs as BFRSs & also
presumed body to issue the GAAP/Accounting/Reporting standards needs to immediately address the
changes made in revenue recognition through BFRS 15 [Recognition & impairment adequately &
comprehensively];
 The area as covered through BFRS 15 has huge significance in Bangladesh. Considering the diversity &
impact of these issues, urgent attention is required to ensure comprehensive guidelines & adequate
disclosure outlines in BFRS 15; and

BFRS 15
History:
Date Development Comments
June 2002 Project on revenue added
to the IASB's agenda
History of the project
19 December 2008 Discussion Paper
Preliminary Views on
Revenue Recognition in
Contracts with Customers
published
Comment deadline 19
June 2009
24 June 2010 Exposure Draft
ED/2010/6 Revenue from
published
Comment deadline 22
October 2010
14 November 2011 Exposure Draft
ED/2011/6 Revenue from
published (re-exposure)
Comment deadline 13
March 2012
28 May 2014 IFRS 15 Revenue from
issued
Effective for an entity's
first annual IFRS financial
statements
for periods beginning on
or after 1 January 2017
26 March 2015 Implementing IFRS 15
'Revenue from Contracts
with Customers' - A
practical guide to
implementation issues
for the travel, hospitality
and leisure sector
More specific guidelines
31 March 2015 Implementing IFRS 15
'Revenue from Contracts
with Customers' - A
practical guide to
implementation issues
for the aerospace and
defense industry
More specific guidelines
With this new standard the IASB has now completed their substantive re-deliberations in regard to standards
for revenue.

20160820 bfrs 15 technical note

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