IFRS 15 Revenue Flowchart — Canada Edition

IFRS 15 in Canada

IFRS 15 Adoption in Canada

Canada adopted IFRS 15 Revenue from Contracts with Customers through the Accounting Standards Board (AcSB) of Canada, effective for annual periods beginning on or after 1 January 2018. The AcSB incorporates IFRS standards into Canadian GAAP for publicly accountable enterprises on a standard-by-standard basis, and IFRS 15 as included in Part I of the CPA Canada Handbook — Accounting is identical to the IASB-issued version with no Canadian modifications or carve-outs. All publicly accountable enterprises in Canada, including entities listed on the Toronto Stock Exchange (TSX) and TSX Venture Exchange, must apply IFRS 15. Private enterprises in Canada may alternatively apply Accounting Standards for Private Enterprises (ASPE), which is Part II of the CPA Canada Handbook and contains a separate revenue recognition framework under Section 3400 Revenue that differs from IFRS 15.

CSA and OSC Regulatory Review

The Canadian Securities Administrators (CSA), comprising the securities regulatory authorities of Canada's provinces and territories, conduct continuous disclosure reviews that include examination of IFRS 15 application by reporting issuers. The Ontario Securities Commission (OSC) and other provincial regulators have identified revenue recognition as a common area of concern in their review findings. Key CSA and OSC observations include deficiencies in the entity-specificity of revenue recognition policy disclosures, insufficient explanation of significant judgements affecting the identification of performance obligations and the timing of revenue recognition, inadequate disaggregation of revenue, and limited disclosure of remaining performance obligations. The CSA has issued staff notices addressing financial reporting matters including revenue recognition, and the OSC publishes annual reports on its continuous disclosure review programme that highlight recurring IFRS 15 issues identified across Canadian reporting issuers.

ASPE Alternative for Private Enterprises

Canadian private enterprises that are not publicly accountable may apply ASPE Section 3400 Revenue instead of IFRS 15. ASPE Section 3400 uses a risks-and-rewards transfer model and distinguishes between sale of goods, rendering of services, and construction contracts, applying separate recognition criteria for each. Unlike IFRS 15, ASPE does not require the identification of distinct performance obligations, does not mandate allocation of the transaction price based on relative standalone selling prices, and does not impose the variable consideration constraint. For private enterprises transitioning to public status through an initial public offering on the TSX, the adoption of IFRS 15 may result in material differences in the timing and amount of revenue compared to previous ASPE reporting. CPA Canada has published guidance on the transition from ASPE to IFRS, including specific considerations for the adoption of IFRS 15.

CPA Canada Implementation Guidance

CPA Canada has published implementation guidance and educational resources to assist Canadian entities with the application of IFRS 15. These resources include sector-specific guidance for industries significant to the Canadian economy, including mining and natural resources, real estate development, technology and software, telecommunications, and engineering and construction. CPA Canada's publications address practical issues such as the treatment of flow-through shares in the mining sector, the application of IFRS 15 to condominium development contracts under Canadian provincial property law, and the identification of performance obligations in multi-element technology arrangements. The AcSB's IFRS Discussion Group has also considered IFRS 15 implementation questions raised by Canadian stakeholders, providing informal guidance on application issues that arise in the Canadian context.

Industry-Specific Considerations for the Canadian Economy

Canada's resource-based economy presents distinctive IFRS 15 challenges, particularly in the mining, oil and gas, and forestry sectors. Mining companies must assess whether commodity sales contracts are within the scope of IFRS 15 or IFRS 9 (for contracts that can be net settled), and must address the treatment of provisional pricing arrangements where the transaction price is variable and linked to commodity market prices at a future settlement date. Oil and gas companies face complexity in determining whether production-sharing arrangements and royalty structures represent variable consideration under IFRS 15 or are outside the scope of the standard. For Canadian real estate developers, particularly those involved in condominium development, the assessment of whether revenue is recognised over time or at a point in time depends on the analysis of provincial property law regarding the enforceable right to payment for performance completed to date, which varies across provinces.

OSC Continuous Disclosure Review Findings

The OSC's continuous disclosure review programme has identified recurring IFRS 15 issues among Canadian reporting issuers. Common findings include failure to provide entity-specific revenue recognition policies that explain the application of each step of the five-step model, insufficient disclosure of the methodology used to determine standalone selling prices for performance obligations in bundled arrangements, inadequate explanation of the input or output methods used to measure progress for over-time revenue recognition, and limited disclosure of the judgements applied in assessing whether variable consideration should be constrained. The OSC has issued refiling orders and prospective disclosure requirements where material deficiencies in IFRS 15 application have been identified. The CSA's National Policy 51-201 Disclosure Standards also sets expectations for timely disclosure of material changes in revenue recognition policies or significant revisions to revenue estimates.

Regulatory Inspection Focus Areas

OSC continuous disclosure reviews have identified generic IFRS 15 policy disclosures, insufficient explanation of performance obligation identification judgements, inadequate disaggregation of revenue, and limited disclosure of variable consideration estimation and constraint methodologies. The CSA has issued refiling orders for material IFRS 15 deficiencies. Provincial regulators have noted particular concerns with revenue recognition by mining, real estate development, and technology companies.