Reassessment of the five identification criteria IFRS 15

Last update 30/09/2019

IFRS 15 Revenue from Contracts with Customers (contents page is here) introduced a single and comprehensive framework which sets out how much revenue is to be recognised, and when. The core principle is that a vendor should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the vendor expects to be entitled in exchange for those goods or services. See a summary of IFRS 15 here. Reassessment of the five identification criteria IFRS 15

A reassessment of the five identification criteria is only necessary when concerns arise from a change in facts and circumstances that is considered to be significant. So an entity is not always

required to reassess whether an existing contract meets the five identification criteria. Reassessment of the five identification criteria IFRS 15

If and when the reassessment results in the collectability criterion not being met, the entity is precluded from continuing to recognise revenue under the contract until collectability returns to become probable and the five identification criteria are met again. Also the entity assesses any related contract assets or accounts receivable for impairment.

Example identify a contract with customers Reassessment of the five identification criteria IFRS 15

Per the Fishing Act 1952 the Department of Fishing (DoF) may impose a levy on persons engaged in fishing activities. Any levy imposed under this section shall be payable by such persons engaged in the sea fish industry, in such proportions and at such times as may be prescribed; and the amount payable by any person on account of the levy shall be a debt due from him to the DoF and recoverable accordingly.

In return for imposing the levy, the DoF will issue a licence to the persons engaged in fishing activities for one year. This levy is not classified as a tax by the Office of National Statistics.

If DoF were to apply the IFRS 15 criteria to identifying a contract for their levy revenue:

The legislation is the approved contract which enables the DoF to impose a levy and for the person engaged in fishing activities (customer) to pay the levy. The legislation provides the enforceability on both parties,
The DoF can identify that they will have rights to consideration from imposing the levy as a result of the customer engaging in fishing activities. The obligation on DoF is to provide a licence,
DoF can identify payment terms as the levies are agreed with Ministers and published on the website each year,
The contract (i.e. legislative requirements) has commercial substance as the amount of DoF’s future cash flows is expected to change as a result of the levy being imposed on persons engaged in fishing activities,
It is probable that DoF will collect the consideration to which it will be entitled to.

As all the criteria are met, there is a contract in place.

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