IFRS 15 Revenue Recognition for Hospitality & Tourism

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)

IFRS 15 Revenue Recognition for Hospitality & Tourism

IFRS 15 for Hospitality & Tourism fundamentally changed revenue recognition for hotels, resorts, and tourism operators.

Principal vs Agent — OTAs: Under IFRS 15.B34-B38, assess who controls the accommodation. In the agency model (hotel sets rate, OTA earns commission), the hotel is principal. In the merchant model (OTA sets price, bears credit risk), the OTA may be principal. Most hotel-OTA arrangements are agency.

Bundled Packages: Each component (room, meals, spa, transfers) is typically a separate PO — each can be purchased separately. Bespoke curated experiences may be a single combined PO if deeply integrated.

Cancellations: Cancellation policies create variable consideration. Estimate expected cancellations using historical data. Non-refundable deposits forfeited on cancellation are breakage revenue (IFRS 15.B45-B47).

Loyalty Programmes: Points/free nights are material rights (IFRS 15.B39-B40). Allocate and defer based on SSP adjusted for breakage.

'Stay 4, Pay 3': Total consideration allocated across all 4 nights based on relative SSPs — not 3 nights at full price and 1 at zero.

Common Audit Pitfalls:

Incorrect OTA principal/agent conclusions.
Not separating bundled components.
Inadequate cancellation modelling.
Ignoring loyalty programme obligations.

Typical Contract Structures

Individual reservations (via OTA or direct), corporate rate agreements, group/event contracts, hotel management agreements. Pricing: room-only, B&B, half-board, full-board, all-inclusive. Free cancellation up to 24-72 hours before arrival.

Common Performance Obligations in Hospitality & Tourism

Accommodation Food & beverage Spa/wellness services Event/conference facilities Airport transfer

Worked Example: All-Inclusive Resort Package (Room + Meals + Spa + Transfers)

Paradise Resort sells a 7-night all-inclusive for EUR 4,200 (room, full-board, 1 spa treatment, return transfers). Guest earns 2,100 loyalty points (40% breakage). Direct booking, prepaid 14 days before arrival.

Step 1: Identify the Contract

Contract at booking with full prepayment. Non-refundable after 72 hours. All IFRS 15.9 criteria met. No significant financing (14-day advance, practical expedient).

Step 2: Identify Performance Obligations

Five POs: (1) Accommodation — 7 nights; (2) Full-board meals; (3) Spa treatment; (4) Return transfers; (5) Loyalty points — material right.

Step 3: Determine the Transaction Price

EUR 4,200 fully prepaid. Fixed, no variable consideration (non-refundable).

Step 4: Allocate the Transaction Price

SSPs: Room EUR 3,500; Meals EUR 560; Spa EUR 120; Transfers EUR 80; Points EUR 189 (adjusted for 40% breakage). Total EUR 4,449. Room = EUR 3,305; Meals = EUR 529; Spa = EUR 113; Transfers = EUR 76; Points = EUR 178.

Step 5: Recognise Revenue

Room: per-night over 7 nights. Meals: as served daily. Spa: on treatment day. Transfers: on completion. Points (EUR 178): deferred until redeemed/expired.

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

Is the hotel principal or agent for OTA bookings?

Usually principal — hotel controls the accommodation, sets rate, bears inventory risk. OTA earns commission. Merchant model arrangements where OTA sets price and bears risk may be different.

How are non-refundable deposits recognised on cancellation?

As breakage revenue (IFRS 15.B45-B47) when the guest forfeits. Consider whether the room will be resold.

Should tips be included in revenue?

Voluntary tips: no. Mandatory service charges: depends on whether the entity has discretion over use. If legally required to pass to staff, not revenue.

How are hotel loyalty points accounted for?

Material right (IFRS 15.B39-B40). Allocate based on SSP adjusted for breakage. Defer and recognise on redemption/expiry.

How is 'stay 4, pay 3' accounted for?

Allocate total consideration across all 4 nights based on equal relative SSPs. Each night receives 25% of the total.

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