Ace Your IFRS 15 Interview: 15 Essential Questions with Model Answers

IFRS 15, also known as Revenue from Contracts with Customers, is an International Financial Reporting Standard that outlines how entities should recognize and report revenue from contracts with customers. 

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Some common interview questions regarding IFRS 15 and potential answers are:

Can you explain what IFRS 15 is and why it was introduced?

IFRS 15 is an International Financial Reporting Standard that provides a comprehensive model for entities to use in accounting for revenue from contracts with customers. It was introduced to improve the comparability and consistency of revenue recognition practices across different industries and jurisdictions.

What are the main principles of IFRS 15?

The main principles of IFRS 15 are:

• Revenue is recognized when or as an entity satisfies a performance obligation by transferring a promised good or service to a customer.
• The amount of revenue recognized should reflect the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.
• Revenue is recognized at the amount of consideration an entity expects to be entitled to, not the amount of consideration received.

How does IFRS 15 differ from previous revenue recognition standards?

IFRS 15 differs from previous revenue recognition standards in several ways, including:

• It provides a single, comprehensive revenue recognition model, whereas previous standards had multiple revenue recognition models for different industries and transactions.
• It focuses on transferring promised goods or services to customers rather than completing specific performance obligations or milestones.
• It requires entities to provide more detailed disclosures about their revenue recognition practices.

How does IFRS 15 affect the financial statements of entities that must comply with it?

IFRS 15 affects the financial statements of entities that must comply with it in several ways, including:

• It may change the timing of when revenue is recognized, resulting in differences in the amount of revenue recognized in the current period compared to previous periods.
• Depending on the specifics of the contract with the customer, it may affect the amount of revenue recognized, either increasing or decreasing it.
• It may require entities to provide additional disclosures in their financial statements, such as information about their performance obligations and the timing and amount of revenue recognized.

Can you provide examples of when revenue should be recognized under IFRS 15?

Under IFRS 15, revenue should be recognized when or as an entity satisfies a performance obligation by transferring a promised good or service to a customer. Some examples of when this might occur include:

• When a customer takes possession of a product that has been produced or acquired by an entity for the customer.
• When an entity provides a service to a customer, the customer can use or consume the service.
• When an entity transfers control of a promised good or service to a customer, even if the customer still needs to pay for it.

Can you explain the concept of a performance obligation under IFRS 15?

A performance obligation under IFRS 15 is a promise to transfer a good or service to a customer in a contract. An entity satisfies a performance obligation and recognizes revenue when it transfers the promised good or service to the customer. Performance obligations may be satisfied at a point in time or over time.

How does an entity determine the amount of consideration it expects to be entitled to a contract with a customer under IFRS 15?

Under IFRS 15, an entity determines the amount of consideration to which it expects to be entitled to a contract with a customer by considering the terms of the contract, including any variable consideration such as discounts, rebates, or bonuses. 

The entity should also consider any constraints on its ability to earn the consideration, such as a maximum amount of consideration that can be earned.

Can you provide examples of when an entity might need to adjust the amount of revenue recognized under IFRS 15?

An entity might need to adjust the amount of revenue recognized under IFRS 15 in several situations, including:

• When the entity incurs a high cost to fulfil the contract that was not expected at the time the contract was entered into.
• When the entity grants a significant discount or rebate to the customer that was not expected at the time the contract was entered into.
• When the entity provides a warranty or other similar guarantee that was not expected at the time the contract was entered into.

What are some of the required disclosures for revenue recognition under IFRS 15?

Some of the required disclosures for revenue recognition under IFRS 15 include the following:

• A description of the entity's performance obligations in each contract with a customer.
• The timing and amount of revenue are recognized for each performance obligation in the contract.
• The nature and amount of any significant judgments or estimates used in determining the timing and amount of revenue recognized.
• Any significant changes to the entity's accounting policies for revenue recognition compared to the previous period.

Can you provide guidance on transitioning from previous revenue recognition standards to IFRS 15?

To transition from previous revenue recognition standards to IFRS 15, entities should:

• Review and understand the requirements of IFRS 15 and how they differ from previous standards.
• Identify and assess their contracts with customers to determine the appropriate accounting under IFRS 15.
• Make necessary changes to their accounting policies and systems to ensure compliance with IFRS 15.
• Prepare and review any necessary disclosures to ensure they comply with IFRS 15.
• Communicate the impact of the transition to IFRS 15 to stakeholders, including investors and analysts.

Can you provide examples of when an entity might need to recognize revenue over time under IFRS 15?

An entity might need to recognize revenue over time under IFRS 15 in several situations, including:

• When the entity is providing a service to a customer over some time, such as a subscription service or a maintenance contract.
• When the entity transfers goods or services to a customer that are consumed or used by the customer over time, such as a gas or electricity supply.
• When the entity transfers goods or services to a customer that are produced or customized to the customer's specifications, the customer simultaneously receives and consumes the benefits of the goods or services as they are produced or customized.

How does an entity determine the appropriate method for recognizing revenue over time under IFRS 15?

Under IFRS 15, an entity should use a method for recognizing revenue over time that reflects how the entity satisfies its performance obligations and transfers goods or services to the customer. Standard methods for recognizing revenue over time include output measures (such as units produced or services provided) or input measures (such as the costs incurred or resources consumed). The entity should use the method that most accurately reflects the transfer of goods or services to the customer.

What are some common challenges that entities face in implementing IFRS 15?

Some of the common challenges that entities face in implementing IFRS 15 include the following:

• Determining the appropriate accounting for contracts with customers, particularly those with complex or unusual terms.
• Identifying and assessing the entity's performance obligations in each contract.
• Determining the appropriate amount of consideration to be recognized for each performance obligation.
• Developing and implementing systems and processes to track and account for revenue under IFRS 15.
• Providing the necessary disclosures and communicating the impact of IFRS 15 to stakeholders.

Can you provide some examples of when an entity might need to adjust the timing of revenue recognition under IFRS 15?

An entity might need to adjust the timing of revenue recognition under IFRS 15 in several situations, including:

• When the entity incurs a high cost to fulfil the contract that was not expected at the time the contract was entered into.
• When the entity grants a significant discount or rebate to the customer that was not expected at the time the contract was entered into.
• When the entity provides a warranty or other similar guarantee that was not expected at the time the contract was entered into.

What are some of the common pitfalls that entities should avoid when implementing IFRS 15?

Some of the common pitfalls that entities should avoid when implementing IFRS 15 include:

• Failing to properly assess and understand the requirements of IFRS 15.
• Misinterpreting or misapplying the principles of IFRS 15 to contracts with customers.
• Failing to correctly identify and assess the entity's performance obligations in each contract.
• Failing to properly determine the amount of consideration to be recognized for each performance obligation.
• Failing to provide the necessary disclosures and communicate the impact of IFRS 15 to stakeholders.

Summing up

Understanding IFRS 15 and how to apply it is critical for anyone in the finance and accounting field. The questions mentioned in this blog post are only a few of the many that can be asked on the topic.

 Eduyush offers a range of courses, including the AICPA IFRS certificate program. With our help, you'll be sure to ace any question that comes your way.