3.1 Revenue Recognition

The collectibility threshold for contracts (step 1 — qualification of a contract for revenue recognition)

IFRS 15 establishes a probable collectibility threshold, which means that collection is “more likely than not.” In practice, “more likely than not” refers to a probability of greater than 50 percent.

ASC 606 establishes a probable collectibility threshold, which means that collection is “likely to occur.” In practice, “probable” is interpreted as signifying a higher percentage (e.g., 70 percent or higher) than that under IFRS Accounting Standards.

Reversal of impairment losses

An entity is required to reverse an impairment loss on capitalized costs to obtain or fulfill a contract if the impairment conditions no longer exist or have improved.

An entity cannot reverse an impairment loss on capitalized costs to obtain or fulfill a contract.

Licensing — determining the nature of an entity’s promise

An entity’s determination of whether a license is a right to use (for which revenue is recognized at a point in time) versus a right to access (for which revenue is recognized over time) is based on whether the customer can direct the use of, and obtain substantially all of the benefits from, the license at the point in time the license is granted. The customer can direct the use of, and obtain substantially all of the benefits from, the license (and thus has a right to use) if the underlying intellectual property (IP) is not significantly affected by the entity’s ongoing activities.

An entity’s determination of whether a license is a right to use (for which revenue is recognized at a point in time) versus a right to access (for which revenue is recognized over time) is based on its classification of the IP underlying the license as either functional or symbolic.

Licensing — renewals

The “use and benefit” guidance does not explicitly refer to renewals; as a result, revenue may be recognized earlier than it would be under U.S. GAAP.

A renewal or extension is subject to the “use and benefit” guidance in ASC 606-10-55-58C, the application of which will generally result in revenue recognition at the beginning of the renewal period.

Shipping and handling activities

IFRS 15 does not provide an accounting policy election. If an entity performs shipping and handling services after the customer has obtained control of the related good, the shipping and handling activities will typically be accounted for as a separate performance obligation.

ASC 606 provides an accounting policy election that permits an entity to account for shipping and handling activities that occur after the customer has obtained control of the related good as a fulfillment expense.

Noncash consideration

IFRS 15 does not prescribe a measurement date or clarify when the variable consideration guidance applies.

ASC 606 requires measurement at contract inception. The guidance on variable consideration applies only to variability resulting from reasons other than the form of the noncash consideration.

Consideration paid or payable to a customer — equity instruments (i.e., share-based payments to customers)

IFRS 15 does not specify whether equity instruments granted by an entity to a customer are a type of consideration paid or payable to a customer. Further, IFRS 15 does not address how equity instruments granted to a customer in a revenue arrangement should be accounted for with regard to initial and subsequent measurement. Therefore, an entity should consider which standard (e.g., IFRS 2, IFRS 9, IFRS 15, IAS 32), or combination of standards, could be applicable.

Equity instruments granted by an entity in conjunction with selling goods or services as a form of consideration paid or payable to a customer are measured and classified in accordance with ASC 718.

Presentation of sales (and other similar) taxes

IFRS 15 does not provide an accounting policy election. An entity is required to identify whether it has a primary responsibility to pay the taxes or is acting only as a collection agent. If it is the primary obligor, it must include those taxes in the transaction price.

ASC 606 provides an accounting policy election that permits an entity to exclude all sales (and other similar) taxes from the measurement of the transaction price.

Provisions for losses on construction-type and production-type contracts

In accordance with IAS 37, the onerous test should be performed at the contract level.

ASC 605-35-25 (which was not superseded by ASC 606) clarifies that provisions for losses on construction-type and production-type contracts may be determined at either the contract or performance obligation level.

Onerous contracts

In accordance with IAS 37, losses are recognized for all onerous contracts with customers, and the onerous test should be performed at the contract level.

Although the guidance is silent on the topic of onerous contracts, it does not supersede existing provisions in other ASC subtopics that require the recognition of losses for certain types of contracts with customers, such as ASC 605-20, ASC 605-35, and ASC 985-20. ASC 605-35-25 clarifies that provisions for losses on construction-type and production-type contracts may be determined at either the contract or performance obligation level.