IFRS 15 · Agriculture & Agribusiness

IFRS 15 Revenue Recognition for Agriculture & Agribusiness

Navigate the boundary between IAS 41 and IFRS 15, account for forward commodity contracts, cooperative arrangements, and multi-element agricultural service agreements.

Step 1: Identify the Contract

IFRS 15.9–21All five criteria must be met for a contract to exist
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 Assessment

(Optional)
Are there multiple contracts with the same customer (or related parties) entered at or near the same time that should be combined?

Contract Modification Assessment

(Optional)

IFRS 15 Revenue Recognition for Agriculture & Agribusiness

IFRS 15 for Agriculture applies to the sale of agricultural produce after harvest, creating a critical boundary with IAS 41 Agriculture.

IAS 41 / IFRS 15 Boundary: Agricultural produce at harvest is measured at fair value less costs to sell under IAS 41. This becomes deemed cost under IAS 2. Subsequent sale to a customer falls within IFRS 15. The boundary is the point of harvest.

Forward Contracts — Own-Use Exemption: Commodity forwards that can be net-settled are prima facie IFRS 9 derivatives. Contracts for physical delivery in normal course of business may qualify for the 'own use' exemption (IFRS 9.2.4) and be accounted for under IFRS 15.

Variable Consideration: Commodity price indexation, quality premiums/discounts, weight adjustments, cooperative surplus distributions. For price-indexed contracts, the constraint may significantly limit initial recognition given commodity volatility.

Cooperative Arrangements: Most cooperatives are principals — take title, commingle, sell under own brand. Gross revenue from end buyers. Member distributions are purchase costs, not revenue sharing.

Common Audit Pitfalls:

  • Incorrect IAS 41/IFRS 15 boundary (e.g., revenue for standing timber pre-harvest).
  • Misclassifying forwards as IFRS 15 when they should be IFRS 9.
  • Inadequate constraint on volatile commodity prices.
  • Treating cooperative surplus distributions as variable consideration.

Typical Contract Structures

Spot sales at harvest, forward contracts (fixed or index-linked), contract farming, cooperative member agreements, and processing service contracts. Delivery terms reference trade rules (ex-farm, FOB silo, CIF). Quality by grade standards (USDA, EU). Payment from cash-on-delivery to 30-90 day terms.

Common Performance Obligations in Agriculture & Agribusiness

Crop/livestock delivery Processing services Storage/handling Quality certification Technical advisory

Regulatory Context

Agricultural produce at harvest is measured under IAS 41 at fair value less costs to sell. Revenue from subsequent sale falls within IFRS 15. The boundary requires careful judgement.

Worked Example: Wheat Forward Sale + Processing + Storage

FarmCorp sells 5,000 tonnes wheat forward at $280/tonne (CBOT-linked, floor $260, cap $310), provides drying/cleaning ($15/tonne), and 90-day silo storage ($8/tonne/month). Own-use designation documented.

Step 1: Identify the Contract

Written forward contract. All IFRS 15.9 criteria met. Own-use designation confirmed — IFRS 15 scope, not IFRS 9.

Step 2: Identify Performance Obligations

Three POs: (1) Wheat delivery — distinct; (2) Drying/cleaning — distinct processing service; (3) Silo storage — distinct.

Step 3: Determine the Transaction Price

Wheat: variable (CBOT-linked). Constrained estimate: $275/tonne × 5,000 = $1,375K. Drying: $75K fixed. Storage: $100K estimated (2.5 months expected). Total = $1,550K.

Step 4: Allocate the Transaction Price

SSPs match component pricing. Direct allocation: Wheat $1,375K; Drying $75K; Storage $100K.

Step 5: Recognise Revenue

Wheat: point-in-time at delivery (actual CBOT price applied, variable consideration updated). Drying: point-in-time on completion. Storage: over-time monthly under IFRS 15.35(a).

IFRS 15 Revenue Recognition Audit Toolkit — free PDF

Complete audit toolkit: IFRS 15 five-step decision flowchart poster, contract assessment template, PO identification checklist, SSP allocation worksheet, and industry-specific application notes.

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Frequently Asked Questions

Where is the IAS 41 / IFRS 15 boundary?
At the point of harvest — when produce is detached from the biological asset. Pre-harvest: IAS 41. Post-harvest sale: IFRS 15.
When do forward contracts fall under IFRS 9 vs IFRS 15?
Net-settleable commodity contracts are prima facie IFRS 9. Contracts for physical delivery qualifying for the 'own use' exemption (IFRS 9.2.4) may be IFRS 15. Must document the designation.
How should quality premiums/discounts be accounted for?
Variable consideration (IFRS 15.50). Estimate using expected-value for portfolio, most-likely-amount for individual lots. Apply the constraint. Update as grading data becomes available.
How do cooperatives recognise revenue?
As principal — gross revenue from end buyers. Payments to members are cost of goods sold. Surplus distributions are cost adjustments, not variable consideration.
Should growing contracts be recognised over time?
Depends on who controls the biological asset. If buyer provides seeds, specifies practices, bears crop risk, and owns the growing crop — IFRS 15.35(b) may support over-time. Otherwise, point-in-time at delivery.

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