IFRS 15 Revenue for Banking & Financial Services Fees

Step 1: Identify the Contract

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

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.

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.

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.

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.

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)

Scope Consideration

Most banking revenue (interest income, trading gains) falls under IFRS 9 Financial Instruments, not IFRS 15. This flowchart applies only to fee-based and service revenue — account fees, advisory fees, asset management charges, and transaction processing income.

IFRS 15 Revenue Recognition for Banking & Financial Services

IFRS 15 Revenue Recognition in Banking requires determining which revenue streams fall within IFRS 15 scope versus IFRS 9 Financial Instruments.

Scope Boundary — IFRS 15 vs IFRS 9: Interest income, trading gains, and insurance premiums are outside IFRS 15. Fee income not integral to the effective interest rate falls within IFRS 15. Loan origination fees integral to lending are amortised under IFRS 9 (B5.4.1-B5.4.3), while fees for distinct services (e.g., financial advice alongside a loan) are IFRS 15 revenue.

Step 2 — Performance Obligations: Account management, transaction processing, advisory, custody, and card services are generally distinct. An integrated wealth management mandate where advisory, execution, and reporting are deeply interconnected may be a single PO (IFRS 15.29(c)).

Step 3 — Variable Consideration: Performance fees in asset management are variable and subject to the IFRS 15.56 constraint. M&A success fees are typically constrained until deal completion. Volume-based transaction pricing requires estimation.

Step 5 — Timing: Account management and custody fees are over-time (IFRS 15.35(a)). Transaction processing may be point-in-time per transaction. Advisory success fees at the point the contingency resolves.

Common Audit Pitfalls:

Misclassifying loan origination fees as IFRS 15 revenue.
Not allocating bundled premium account fees across POs.
Recognising M&A success fees before deal closure.
Treating interchange fees as gross when the bank is agent.

Typical Contract Structures

Banking fee contracts include account management agreements, advisory mandates (retainer + success fees), custody agreements (basis-point fees), card-issuing agreements, and transaction processing agreements. Premium account packages bundle several services at a single monthly fee.

Common Performance Obligations in Banking & Financial Services

Account management Transaction processing Advisory services Card services Custody services

Regulatory Context

Regulatory caps on interchange fees (e.g., EU Interchange Fee Regulation) limit card revenue. Consumer protection regulations may affect fee structures.

Worked Example: Premium Bank Account with Advisory, Custody, and Transaction Services

GlobalBank offers a 'Prestige' account for €2,400/year. Includes: unlimited transactions, 10 advisory hours, securities custody for up to €5M, and premium card. Standalone prices: account €960/yr, advisory €2,500 (10 hrs), custody €5,000/yr, card €480/yr.

Step 1: Identify the Contract

The Prestige account agreement constitutes the contract. Fee-based services are within IFRS 15 — lending/deposit relationships are separate IFRS 9 contracts.

Step 2: Identify Performance Obligations

Four POs: (1) Account management — stand-ready obligation; (2) Advisory — up to 10 hours; (3) Custody — continuous safekeeping; (4) Premium card — ongoing card access and rewards.

Step 3: Determine the Transaction Price

€2,400/year fixed. No variable consideration (unused advisory hours expire). No significant financing component.

Step 4: Allocate the Transaction Price

Total SSP = €8,440. Allocated: Account = €272.89; Advisory = €711.37; Custody = €1,280.47; Card = €136.49.

Step 5: Recognise Revenue

Account and custody: straight-line over the year. Advisory: as hours consumed (unused hours recognised at expiry). Card: straight-line over the year.

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

Which banking fees fall within IFRS 15?

Fees for distinct services — account management, advisory, custody, card, and transaction processing. Fees integral to the effective interest rate of a financial instrument fall within IFRS 9 (B5.4.1-B5.4.3).

How should performance-based asset management fees be recognised?

As variable consideration subject to the IFRS 15.56 constraint. Often constrained until the measurement period ends and the fee crystallises.

Should card interchange revenue be gross or net?

Depends on the principal-vs-agent assessment (IFRS 15.B34-B38). The issuing bank's role in the four-party card scheme must be evaluated individually.

How are loan fees that include distinct advisory split?

Per IFRS 9.B5.4.2, the advisory portion is IFRS 15 revenue; the remainder adjusts the effective interest rate under IFRS 9.

Is a wealth management mandate one PO or multiple?

Depends on integration. If advisory, execution, and custody are deeply interconnected, it may be a single PO under IFRS 15.29(c). If separable, multiple POs.

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