AASB 15 represents the replacement standard for AASB 118 ‘Revenue’, AASB 111 ‘Construction Contracts’ and Interpretation 12 ‘Service Concession Arrangements’

The core principle of the standard requires an entity to recognise revenue such that it depicts the transfer of promised goods or services to a customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard will require:

• contracts (either written, verbal or implied) to be identified;
• separate performance obligations within the contract to be identified;
• determination of the transaction price, adjusted for the time value of money excluding credit risk;
• allocation of the transaction price to the separate performance obligations on a basis of relative stand-alone selling price of each distinct good or service, or an estimation approach if no distinct observable prices exist; and
• recognition of revenue when each performance obligation is satisfied.

Credit risk will be presented separately as an expense rather than adjusted against revenue. For goods, the performance obligation would be satisfied when the customer obtains control of the goods. For services, the performance obligation is satisfied when the service has been provided, typically for promises to transfer services to customers. For performance obligations satisfied over time, an entity would select an appropriate measure of progress to determine how much revenue should be recognised as the performance obligation is satisfied.

The transitional rules allow either a fully retrospective application of the standard or a modified retrospective approach on transition. Under the modified retrospective approach, entities would:
• present comparative periods under the existing revenue standard requirements;
• apply the new standard to new and existing contracts as at the effective date;
• recognise a cumulative catch-up adjustment to the opening balance of retained earnings at the effective date for existing contracts that still require performance by the entity; and
• disclose all line items in the year of adoption as if they were prepared under the previous revenue requirements (i.e. AASB 118, AASB 111 and Interpretation 12).

Under the modified retrospective approach, an entity shall apply this standard only to contracts that are not completed at the date of initial application (for example, 1 July 2018, for an entity with a 30 June reporting date).

Disclosure of revenue by category and the level of disaggregation should be determined on how management and market participants analyse revenue. Narrative explanations of changes in contract asset and liabilities balances will be required.

For normal sales contracts, there should be minimal impact on the implementation of this standard. However, for other contracts such as long-term service contracts (e.g. construction contracts and contracts with multiple element deliverables), they may be significantly impacted by the change. The new standard may also significantly increase the volume of disclosures required.