IFRS 15 Revenue Recognition for Transportation & Logistics

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 Transportation & Logistics

IFRS 15 for Transportation & Logistics raises distinctive challenges around principal-versus-agent, multi-element services, and loyalty programmes.

Principal vs Agent: The most consequential judgement. Under IFRS 15.B34-B38, a freight forwarder is principal if it controls the service before transfer — contracts in its own name, bears transit risk, sets prices. Agent if merely arranging capacity. Assess per-service — may be principal for warehousing (own facility) but agent for ocean freight.

Multi-Leg Transport: If the customer contracted for integrated door-to-door service and the entity manages the journey, it's likely a single PO. If legs were separately negotiated, each may be distinct.

Variable Consideration: Fuel surcharges (index-linked), demurrage/detention, weight adjustments, volume rebates. Demurrage claims are frequently disputed — constrain conservatively.

Loyalty Programmes: Points/miles are material rights requiring separate PO allocation (IFRS 15.B39-B40), adjusted for breakage.

Common Audit Pitfalls:

Inconsistent principal/agent conclusions for similar arrangements.
Treating each leg as separate when customer contracted door-to-door.
Not constraining demurrage estimates.
Incomplete loyalty programme accounting.

Typical Contract Structures

Individual bill-of-lading spot transactions to long-term MSAs. FIATA standard terms. Include incoterms, fuel factors, guaranteed transit times, and multi-service bundles (transport, customs, warehousing, insurance).

Common Performance Obligations in Transportation & Logistics

Freight transport Customs clearance Warehousing Insurance arrangement Track-and-trace service

Worked Example: International Freight + Customs + Warehousing

GlobalLogistics ships 20 containers Shanghai to Hamburg (EUR 120K), clears EU customs (EUR 15K), stores in own warehouse for 60 days (EUR 25K), and arranges cargo insurance (EUR 20K, cost EUR 17K). GL is principal for transport/customs/warehousing but agent for insurance.

Step 1: Identify the Contract

Single service order under MSA. All IFRS 15.9 criteria met. Each shipment is a separate contract.

Step 2: Identify Performance Obligations

Four POs: (1) Ocean freight — GL is principal (own B/L, bears risk, sets price); (2) Customs — principal (own team); (3) Warehousing — principal (own facility); (4) Insurance — GL is agent (arranges policy, doesn't control service).

Step 3: Determine the Transaction Price

Gross: EUR 120K + 15K + 25K = 160K. Insurance: net EUR 3K commission. Total revenue: EUR 163K. EUR 5K late delivery penalty: not expected (95%), included at full amount.

Step 4: Allocate the Transaction Price

Observable SSPs from rate cards. Small discount allocated proportionally. Freight EUR 117,280; Customs EUR 15,902; Warehousing EUR 26,823; Insurance EUR 2,982.

Step 5: Recognise Revenue

Freight: over-time (IFRS 15.35(a)), transit days method. Customs: point-in-time at clearance. Warehousing: over-time, time-based. Insurance: point-in-time at policy placement.

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

How to determine if a forwarder is principal or agent?

Assess control before transfer (IFRS 15.B37): primarily responsible for fulfilment? Bears transit risk? Has pricing discretion? Assess per-service — may differ.

Should multi-leg transport be one PO?

If the customer contracted for integrated door-to-door and the entity manages the journey, likely single PO. If legs were separately negotiated, each may be distinct.

How are fuel surcharges accounted for?

Variable consideration (IFRS 15.50). For index-linked surcharges with low variability, the full estimate typically passes the constraint.

How are loyalty points accounted for?

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

When should demurrage be recognised?

Variable consideration — recognise only when highly probable no significant reversal (IFRS 15.56). Given frequent disputes, constrain conservatively.

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