What is Revenue Recognition (IFRS 15)?
IFRS 15 is the global standard for revenue recognition from contracts with customers. It applies a five-step model that focuses on the transfer of control of goods or services to the customer rather than the transfer of risks and rewards. The standard replaced IAS 18 and IAS 11 in 2018 and applies to all industries.
How It Works
- Step 1: Identify the contract with the customer.
- Step 2: Identify the performance obligations in the contract.
- Step 3: Determine the transaction price.
- Step 4: Allocate the transaction price to the performance obligations.
- Step 5: Recognise revenue when (or as) each performance obligation is satisfied.
Saudi Context
Saudi companies under IFRS as adopted by SOCPA apply IFRS 15. Telecom operators, software vendors, real estate developers, and construction contractors are most affected. ZATCA’s Fatoora e-invoicing aligns with IFRS 15 transaction price requirements, and the VAT treatment usually follows invoice timing.
Example
A Saudi telecom operator bundles a 24-month plan: a SAR 2,400 handset and SAR 200/month service for SAR 7,200 total. It allocates the SAR 7,200 between handset (point in time) and service (over time) based on relative stand-alone selling prices.