IFRS 15

Revenue Recognition
Flowchart

Walk through the IFRS 15 five-step model interactively. Answer questions at each node, document your rationale, and export a decision trail for your audit working papers.

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Revenue Recognition
Flowchart.

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01// identify_the_contract— IFRS 15.9–21
a
Have the parties approved the contract and are committed to perform their respective obligations?
IFRS 15.9(a)
Approval can be written, oral, or implied by customary business practice. Commitment means the parties intend to enforce their respective rights. Consider whether there is a signed agreement, purchase order, or established pattern of dealing that evidences approval.
b
Can the entity identify each party's rights regarding the goods or services to be transferred?
IFRS 15.9(b)
The contract must establish enforceable rights for each party. This includes identifying what goods or services the entity will transfer and what the customer is entitled to receive. Even if terms are implicit or established by customary business practice, rights must be identifiable.
c
Can the entity identify the payment terms for the goods or services to be transferred?
IFRS 15.9(c)
Payment terms include the amount, timing, and form of consideration. The terms need not be explicitly stated if they can be determined from customary business practices or the contract's terms and conditions. Consider fixed prices, variable elements, milestone payments, and credit terms.
d
Does the contract have commercial substance — that is, the risk, timing, or amount of the entity's future cash flows is expected to change as a result of the contract?
IFRS 15.9(d)
A contract has commercial substance when it is expected to change the entity's future cash flows. This criterion prevents entities from recognising revenue on reciprocal exchanges of goods or services of similar nature and value (e.g., barter transactions between oil companies to fulfil demand in different locations). Most arm's-length commercial transactions have commercial substance.
e
Is it probable that the entity will collect the consideration to which it is entitled in exchange for the goods or services that will be transferred to the customer?
IFRS 15.9(e)
Assess the customer's ability and intention to pay. Consider the customer's credit history, financial condition, collateral or guarantees, and the entity's past experience with similar classes of customers. 'Probable' means more likely than not under IFRS. If the entity offers a price concession, assess collectability on the reduced (expected) amount, not the stated contract price (IFRS 15.9.A1).
contract_combination (optional)
contract_modification (optional)
step 1: contract·0/5 steps · 0 POs · —EUR
01contract
status—
02obligations
distinct POs—
03transaction_price
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04recognition
pattern—
01// risk_warnings— ISA 240 · ISA 540
Complete the assessment to generate risk warnings.
Risk warnings · 7-rule engine (ISA 240 · ISA 540)
02// journal_entries— IFRS 15.31–45
Complete the assessment to generate journal entries.
Journal entries · per-PO Dr/Cr with IFRS 15 pattern (IFRS 15.31-45)
03// disclosure_checklist— IFRS 15.110–129
Complete the assessment to generate the disclosure checklist.
Disclosure checklist · IFRS 15.110-129 items
04// vc_sensitivity— ISA 540.15 · IFRS 15.56
No variable consideration in this contract.
VC sensitivity · constraint impact on TP (ISA 540.15)
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IFRS 15.9 applies a five-step model: identify the contract, identify performance obligations, determine the transaction price, allocate the price to each obligation, then recognise revenue as each obligation is satisfied. This flowchart handles variable consideration under IFRS 15.50–54 and the allocation step under IFRS 15.73–86.

Understanding the IFRS 15 five-step revenue recognition model

IFRS 15 Revenue from Contracts with Customers provides a single five-step model for determining when and how much revenue to recognise. It applies to all contracts with customers, with limited exceptions for leases (IFRS 16), insurance contracts (IFRS 17), and financial instruments (IFRS 9). With 129 paragraphs in the main body and extensive application guidance in Appendix B, manually navigating the standard for each contract isn't practical.

Step 1: identify the contract (IFRS 15.9–21)

IFRS 15.9 requires five criteria before a contract exists: approval and commitment, identifiable rights, identifiable payment terms, commercial substance, and probable collection. If any criterion isn't met, consideration received is recognised as a liability until the criteria are met or the contract is terminated (IFRS 15.15). This step also covers contract combinations (IFRS 15.17) and modifications (IFRS 15.18–21).

Step 2: identify the performance obligations (IFRS 15.22–30)

At contract inception, the entity assesses each promised good or service and identifies those that are distinct, forming separate performance obligations. A good or service is distinct under IFRS 15.27 when it meets two criteria: the customer can benefit from it on its own or together with readily available resources (capable of being distinct), and the promise to transfer it is separately identifiable from other promises in the contract (distinct within the contract context). IFRS 15.29 provides guidance on when promises aren't separately identifiable, including significant integration, significant modification or customisation of other promises, and high interdependence. Where goods or services aren't distinct, they must be combined with other promises until the resulting bundle is distinct (IFRS 15.30). The series provision in IFRS 15.22(b) treats a series of substantially similar distinct goods or services with the same transfer pattern as a single performance obligation.

Step 3: determine the transaction price (IFRS 15.47–72)

The transaction price is the amount of consideration the entity expects to be entitled to in exchange for transferring goods or services. Five components may affect the price: variable consideration (IFRS 15.50–55), estimated using the expected value or most likely amount method, subject to a constraint that limits inclusion to amounts highly probable not to result in a significant reversal (IFRS 15.56); significant financing components (IFRS 15.60–65), with a practical expedient for contracts where payment occurs within one year of transfer (IFRS 15.63); non-cash consideration measured at fair value (IFRS 15.66); and consideration payable to a customer, which reduces the transaction price unless the payment is for a distinct good or service (IFRS 15.70).

Step 4: allocate the transaction price (IFRS 15.73–90)

When a contract has multiple performance obligations, the transaction price must be allocated to each based on their relative standalone selling prices (SSP). IFRS 15.76–80 provides four methods for estimating SSP: observable price when sold separately (preferred), adjusted market assessment approach, expected cost plus margin approach, and residual approach (permitted only when the SSP is highly variable or uncertain, per IFRS 15.79). IFRS 15.82 permits allocation of a discount entirely to specific performance obligations when certain criteria are met, and IFRS 15.84–86 permits variable consideration to be allocated entirely to a specific performance obligation if the variable payment relates specifically to satisfying that obligation.

Step 5: recognise revenue (IFRS 15.31–45)

Revenue is recognised when the entity satisfies a performance obligation by transferring a promised good or service to the customer (that is, when the customer obtains control). IFRS 15.35 provides three over-time criteria: if any one is met, revenue is recognised over time using an appropriate progress measurement method (output or input methods, per IFRS 15.B15–B19). If none of the over-time criteria are met, revenue is recognised at the point in time when control transfers, using the indicators in IFRS 15.38, including present right to payment, transfer of legal title, physical possession, risks and rewards, and customer acceptance.

Why an interactive IFRS 15 decision tree?

For a single complex contract (such as a multi-element software arrangement or a construction contract with variation orders), manually working through IFRS 15 can take 30 to 90 minutes. This tool reduces that time by guiding you through only the relevant decision nodes for your specific contract, while automatically generating the documented audit trail that ISA 230 requires.

Unlike static flowcharts, this tool records every answer and rationale you provide at each decision point. The result is a complete decision trail with IFRS 15 paragraph references that can be included directly in your audit working papers, documenting not just the conclusion but the reasoning and judgment applied at each step.

Worked example: multi-element software contract

Scenario: TechCorp Ltd enters into a contract with ClientCo to provide: (1) a perpetual software license for €250,000, (2) implementation and customisation services for €150,000, and (3) annual post-implementation support for three years at €50,000 per year. Total contract price: €550,000. Payment terms: 30% on signing, 40% at go-live, 30% in equal annual instalments over the support period.

Step 1: identify the contract

All five IFRS 15.9 criteria are assessed: the contract is a signed master services agreement (criterion a, approved); rights to software, services, and support are clearly specified (criterion b); payment milestones and annual fees are defined (criterion c); TechCorp has not previously provided software to ClientCo and the arrangement changes its cash flow profile (criterion d, commercial substance); ClientCo has strong creditworthiness (criterion e, probable collection). Result: contract exists.

Step 2: identify performance obligations

Three promised deliverables are assessed for distinctness under IFRS 15.27. The software license is capable of being distinct (the customer can use the software without the other services) and is separately identifiable (it doesn't significantly modify or customise other promises). The implementation services involve significant customisation of the software. The implementation isn't available from other vendors and creates interfaces that modify the software's core functionality. Under IFRS 15.29, the implementation isn't separately identifiable and must be combined with the license into a single PO. The annual support is a stand-ready obligation that the customer could obtain from third parties; it is both capable of being distinct and separately identifiable. Result: two POs: (1) License + Implementation (combined), (2) Annual Support.

Step 3: determine the transaction price

Fixed consideration: €550,000. No variable consideration, no non-cash consideration. Significant financing component assessment: the payment profile (30/40/30 over approximately 3.5 years) creates a gap between payment and transfer. However, the entity applies the practical expedient under IFRS 15.63 for each individual PO. The license+implementation payment timing is within one year of delivery, and the annual support payments are made concurrently with the service period. No financing adjustment required. Transaction price: €550,000.

Step 4: allocate the transaction price

SSP determination: TechCorp regularly sells the software license at €300,000 (observable price). Implementation services have no observable SSP. Using the expected cost plus margin approach, estimated SSP is €180,000. Annual support is sold separately at €55,000/year, or €165,000 total. SSP total: €645,000. Relative allocation: License+Implementation = (€480,000 / €645,000) × €550,000 = €409,302. Support = (€165,000 / €645,000) × €550,000 = €140,698.

Step 5: recognise revenue

PO 1 (License + Implementation): Does the entity's performance create an asset with no alternative use and does it have an enforceable right to payment for performance to date? The customised software has limited alternative use (specific to ClientCo's systems), and the contract includes milestone-based payment clauses providing enforceable right to payment. IFRS 15.35(c) is met. Recognise over time using cost-to-cost input method (€409,302 over the implementation period). PO 2 (Annual Support): The customer simultaneously receives and consumes the benefit of the stand-ready support obligation as TechCorp performs. IFRS 15.35(a) is met. Recognise over time, ratably over each annual support period (€46,899 per year).

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Key terms

Performance Obligation Over Time Recognition Point in Time Transaction Price Contract Asset Variable Consideration

Further reading

Frequently asked questions

What is the IFRS 15 five-step model for revenue recognition?
IFRS 15 requires entities to recognise revenue by applying five sequential steps: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations, and (5) recognise revenue when (or as) the entity satisfies a performance obligation. Each step involves specific criteria and assessments documented in IFRS 15 paragraphs 9–45.
How does this IFRS 15 flowchart differ from static PDF decision trees?
This tool records your answers and rationale at every decision point, producing a documented decision trail with IFRS 15 paragraph references suitable for audit working papers. It also provides industry-specific guidance at each node, calculates transaction price allocations, and exports a formatted working paper.
When should I use the IFRS 15 revenue recognition flowchart?
Use this tool during risk assessment and planning when evaluating a client's revenue recognition policies, during new client onboarding with complex revenue streams (software/SaaS, construction, telecom bundles), when assessing contract modifications, and whenever you need a documented analysis of IFRS 15 application. It's particularly valuable for mid-tier firms that lack proprietary guidance platforms.
How do I determine if revenue should be recognised over time or at a point in time?
IFRS 15.35 provides three criteria; if ANY one is met, revenue is recognised over time: (a) the customer simultaneously receives and consumes the benefits as the entity performs, (b) the entity's performance creates or enhances an asset the customer controls as it is created, or (c) the entity's performance doesn't create an asset with alternative use and the entity has an enforceable right to payment for performance completed to date. If none are met, revenue is recognised at a point in time when control transfers.
What is a performance obligation under IFRS 15?
A performance obligation is a promise in a contract with a customer to transfer a distinct good or service (or a bundle of goods or services). A good or service is distinct if the customer can benefit from it on its own or with readily available resources (IFRS 15.27(a)) AND the promise is separately identifiable within the contract context (not significantly integrated, doesn't significantly modify other promises, and isn't highly interdependent) (IFRS 15.27(b)).
How does the constraint on variable consideration work under IFRS 15?
IFRS 15.56 requires that variable consideration be included in the transaction price only to the extent it is highly probable that a significant reversal of cumulative revenue recognised won't occur when the uncertainty is subsequently resolved. This constraint applies to bonuses, penalties, rebates, price concessions, and similar variable amounts. IFRS 15.57 lists five factors to consider in the assessment.
What standalone selling price methods are available under IFRS 15?
IFRS 15.79 describes four methods for estimating standalone selling prices: (1) observable price when the entity sells the good/service separately (preferred), (2) adjusted market assessment approach (estimating the price customers would pay in the market), (3) expected cost plus margin approach (forecasting expected costs and adding an appropriate margin), and (4) residual approach (only permitted when the SSP is highly variable or uncertain).
Can I export the IFRS 15 assessment as an audit working paper?
Yes. After completing all five steps, the tool generates a complete decision trail document containing every question answered with the specific IFRS 15 paragraph reference, your rationale notes, and conclusions. This can be exported as a formatted working paper with entity name, contract name, date, preparer name, and sign-off fields, ready for inclusion in your audit file.
How does IFRS 15 apply to SaaS and software arrangements?
SaaS arrangements typically involve a right to access the entity's intellectual property (IFRS 15.B58), which is a service recognised over time under IFRS 15.35(a). On-premise software licenses typically grant a right to use IP (IFRS 15.B56), recognised at a point in time. Multi-element arrangements (license + implementation + support) require identification of separate performance obligations and allocation based on relative standalone selling prices.
What is the difference between a contract modification treated as a separate contract versus prospective or cumulative catch-up?
A contract modification is treated as a separate contract when it adds distinct goods/services AND the price increases by the standalone selling price of those additions (IFRS 15.20). If it's not a separate contract, it's treated prospectively when remaining goods/services are distinct from those already transferred (IFRS 15.21(a)), or as a cumulative catch-up when remaining goods/services aren't distinct and form part of a single partially satisfied performance obligation (IFRS 15.21(b)).
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Industry-specific IFRS 15 flowcharts

Each industry variant provides tailored guidance notes alongside every decision node, industry-specific worked examples, and common performance obligation patterns.

Manufacturing Retail & E-Commerce Banking & Financial Services Insurance Real Estate & Property Development Healthcare & Pharmaceuticals Technology & SaaS Energy & Utilities Construction & Engineering Nonprofits & NGOs Government & Public Sector Transportation & Logistics Hospitality & Tourism Agriculture & Agribusiness

Country-specific IFRS 15 guidance

United Kingdom Germany Netherlands France Belgium Australia Canada Ireland South Africa United Arab Emirates

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IFRS 15.9: An entity shall account for a contract with a customer that is within the scope of this Standard only when all five criteria are met.

IFRS 15.22: At contract inception, an entity shall assess the goods or services promised in a contract and shall identify as a performance obligation each promise to transfer to the customer either a distinct good or service or a series of distinct goods or services that are substantially the same.

IFRS 15.47: An entity shall consider the terms of the contract and its customary business practices to determine the transaction price.

IFRS 15.73: The objective of allocating the transaction price is to allocate an amount that depicts the consideration to which the entity expects to be entitled in exchange for transferring the promised goods or services to the customer.

IFRS 15.31: An entity shall recognise revenue when (or as) the entity satisfies a performance obligation by transferring a promised good or service to a customer.

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