IFRS 15 Revenue Flowchart — UAE

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)

Local standard: IFRS 15 as adopted in the UAE

Regulator: Securities and Commodities Authority (SCA) / Abu Dhabi Accountability Authority (ADAA)

IFRS 15 in United Arab Emirates

IFRS 15 Adoption in the UAE

The United Arab Emirates adopted IFRS as the mandatory financial reporting framework, and IFRS 15 Revenue from Contracts with Customers applies to UAE entities for annual periods beginning on or after 1 January 2018. The Securities and Commodities Authority (SCA) requires all entities listed on the Abu Dhabi Securities Exchange (ADX) and the Dubai Financial Market (DFM) to prepare financial statements in accordance with IFRS. The UAE Ministry of Economy mandates IFRS for certain categories of entities, and the Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM) financial free zones require IFRS for regulated entities within their jurisdiction. IFRS 15 as applied in the UAE is identical to the IASB-issued version with no local modifications or carve-outs. The Abu Dhabi Accountability Authority (ADAA) oversees financial reporting quality for government entities in Abu Dhabi, and has incorporated IFRS compliance into its examination programme.

UAE Regulatory Environment

The UAE's regulatory landscape for financial reporting encompasses multiple layers including federal requirements, emirate-level oversight, and financial free zone regulation. The SCA has issued directives requiring IFRS compliance for listed entities and has established penalties for non-compliance with financial reporting standards. SCA Decision No. 3 of 2020 on Corporate Governance requires listed entities to have an audit committee that oversees financial reporting quality, including the appropriateness of revenue recognition policies. The DIFC's Dubai Financial Services Authority (DFSA) and the ADGM's Financial Services Regulatory Authority (FSRA) impose IFRS requirements on regulated entities within their respective financial free zones. The UAE Federal Law No. 2 of 2015 on Commercial Companies (as amended) requires entities to maintain proper accounting records and prepare financial statements, and the recent introduction of Federal Decree-Law No. 32 of 2021 on Commercial Companies reinforces these requirements. The UAE does not have a separate local GAAP framework, making IFRS the primary accounting standard for all entities that are required to prepare audited financial statements.

Free Zone Considerations

The UAE's numerous free zones, including Jebel Ali Free Zone (JAFZA), Dubai Airport Freezone (DAFZA), Dubai Multi Commodities Centre (DMCC), Abu Dhabi Airports Free Zone, and Ras Al Khaimah Economic Zone (RAKEZ), host thousands of entities with diverse business models. Free zone entities face specific IFRS 15 considerations related to the nature of their operations. Many free zone entities operate as trading companies, acting as intermediaries in the supply chain between manufacturers and end customers, requiring careful principal-versus-agent analysis under IFRS 15 paragraphs B34-B38. The determination of whether a free zone entity controls goods before their transfer to customers, or merely arranges for supply on behalf of a principal, significantly affects whether revenue is reported on a gross or net basis. Free zone entities that provide re-export services, warehousing, and logistics must assess whether these activities represent distinct performance obligations or are combined with the supply of goods in a single performance obligation.

VAT Interaction with IFRS 15

The UAE introduced Value Added Tax at a rate of five percent effective 1 January 2018, coinciding with the IFRS 15 effective date. The interaction between UAE VAT and IFRS 15 requires careful attention. Under IFRS 15.47, amounts collected on behalf of third parties, including VAT, are excluded from the transaction price. UAE entities must ensure that their revenue recognition systems properly separate VAT from the consideration received from customers. The UAE Federal Tax Authority (FTA) has issued guidance on the VAT treatment of various types of transactions that may also inform the IFRS 15 analysis, including the treatment of supply of goods and services, deemed supplies, and composite supplies. For free zone entities operating in designated zones that are outside the UAE VAT regime for certain supplies, the VAT treatment may differ from mainland entities, and the IFRS 15 transaction price should reflect the actual consideration receivable net of any applicable VAT.

Industry-Specific Considerations: Real Estate, Construction, and Hospitality

The UAE economy has major concentrations in real estate development, construction, oil and gas, hospitality, and trading, each presenting significant IFRS 15 challenges. Real estate developers must determine whether revenue from off-plan property sales is recognised over time during construction or at a point in time upon completion and handover. The assessment under IFRS 15.35(c) depends on whether UAE law provides the developer with an enforceable right to payment for performance completed to date. Under UAE Federal Law No. 8 of 2007 (the Escrow Account Law) and the regulations of the Real Estate Regulatory Agency (RERA) in Dubai, payments from buyers are held in escrow accounts and may not be unconditionally available to the developer, which may affect the enforceable-right-to-payment assessment. Construction companies undertaking major infrastructure projects must assess whether contracts meet the over-time recognition criteria and select appropriate progress measurement methods, considering the specific terms of UAE construction contracts governed by UAE Civil Code provisions.

Corporate Tax and IFRS 15

The introduction of UAE corporate tax effective for financial years beginning on or after 1 June 2023, under Federal Decree-Law No. 47 of 2022, has created new interactions between IFRS 15 and taxation. The UAE corporate tax regime generally uses accounting profit as the starting point for determining taxable income, which means that the timing of revenue recognition under IFRS 15 directly affects the timing of taxable income. Entities must assess whether there are specific adjustments required under the corporate tax law and its implementing decisions that override or modify the IFRS 15 revenue timing. The treatment of revenue from free zone qualifying activities, which may benefit from a zero percent corporate tax rate for qualifying income, requires alignment between the IFRS 15 revenue recognition and the corporate tax qualifying income determination. The Ministry of Finance has issued ministerial decisions that clarify certain aspects of the interaction between accounting standards and the corporate tax base.

Regulatory Inspection Focus Areas

SCA and ADAA reviews have identified generic IFRS 15 policy disclosures that do not explain the application of the five-step model to specific contract types, insufficient disclosure of significant judgements for real estate over-time recognition assessments, inadequate principal-versus-agent analysis for trading entities, and failure to properly exclude VAT from the transaction price. Audit quality findings include limited auditor challenge of management's revenue recognition for off-plan property sales and construction contracts.

IFRS 15 Revenue Recognition Audit Toolkit — free PDF

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

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Frequently Asked Questions

Is IFRS 15 mandatory for all UAE entities?

IFRS 15 is mandatory for entities listed on the ADX and DFM (required by SCA), regulated entities in the DIFC and ADGM financial free zones, and certain categories of entities under UAE Ministry of Economy requirements. While the UAE does not have a separate local GAAP, smaller unlisted entities may not be subject to mandatory IFRS reporting depending on their legal form and regulatory requirements. Entities required to prepare audited financial statements generally apply IFRS as the default framework.

How does the UAE's RERA escrow account requirement affect IFRS 15 for real estate developers?

The RERA escrow account requirement means that payments from off-plan property buyers are held in a regulated escrow account and released to the developer based on construction milestones. This structure may affect the assessment of whether the developer has an enforceable right to payment for performance completed to date under IFRS 15.35(c). If the developer can only access funds upon reaching construction milestones and cannot demand payment for partially completed work between milestones, the over-time recognition criterion may not be met.

How does the principal-versus-agent assessment apply to UAE free zone trading companies?

Free zone trading companies must assess whether they control goods before transfer to customers under IFRS 15 paragraphs B34-B38. Indicators of control include whether the entity takes title to goods, bears inventory risk, has pricing discretion, and is primarily responsible for fulfilling the promise. Many UAE free zone entities act as intermediaries, and the analysis must consider the substance of the arrangement rather than the legal form to determine whether revenue is reported gross (as principal) or net (as agent).

How does UAE VAT interact with IFRS 15 revenue recognition?

UAE VAT at five percent is excluded from the IFRS 15 transaction price under paragraph 47, as it is collected on behalf of the Federal Tax Authority. Revenue should be measured net of VAT. For free zone entities in designated zones where certain supplies are zero-rated or outside the VAT scope, the IFRS 15 transaction price reflects the consideration receivable without VAT. Entities must ensure that their accounting systems correctly separate VAT from revenue across different supply categories.

How does the new UAE corporate tax affect IFRS 15 revenue timing?

The UAE corporate tax uses accounting profit as the starting point for taxable income, meaning IFRS 15 revenue recognition timing directly affects tax timing. Entities should assess whether the corporate tax law or implementing ministerial decisions require adjustments to IFRS 15 revenue for tax purposes. Free zone entities must ensure that qualifying income determination aligns with the IFRS 15 revenue recognition for activities conducted within the qualifying free zone.

How should UAE construction companies apply IFRS 15 to infrastructure projects?

Construction companies must assess whether their contracts meet the over-time recognition criteria under IFRS 15.35, considering whether the customer controls the asset as it is created and whether the entity has an enforceable right to payment under UAE Civil Code provisions. For government infrastructure projects, the terms of the contract and applicable UAE procurement regulations influence this assessment. The entity must select an appropriate input or output method to measure progress and must account for contract modifications through change orders under IFRS 15.18-21.

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IFRS 15 Revenue Flowchart — UAE Edition