Highlights of HKFRS15 – Revenue from Contracts with Customers

In July, 2014, HKICPA issued a new standard, HKFRS15 – Revenue from Contracts with Customers (the “Standard”) after IASB had published the IFRS15. The Standard supersedes:

 HKAS 11 Construction Contracts;

 HKAS 18 Revenue;

 HK(IFRIC)-Int 13 Customer Loyalty Programmes;

 HK(IFRIC)-Int 15 Agreements for the Construction of Real Estate;

 HK(IFRIC)-Int 18 Transfers of Assets from Customers; and

 HK(SIC)-Int 31 Revenue—Barter Transactions Involving Advertising Services.

An entity shall apply this Standard to all contracts with customers, except the following:

 lease contracts within the scope of HKAS 17 Leases;

 insurance contracts within the scope of HKFRS 4 Insurance Contracts;

 financial instruments and other contractual rights or obligations within the scope of HKFRS 9 Financial Instruments, HKFRS 10 Consolidated Financial Statements, HKFRS 11 Joint Arrangements, HKAS 27 Separate Financial Statements and HKAS 28 Investments in Associates and Joint Ventures; and

 non-monetary exchanges between entities in the same line of business to facilitate sales to customers or potential customers. For example, this Standard would not apply to a contract between two oil companies that agree to an exchange of oil to fulfill demand from their customers in different specified locations on a timely basis.

New Revenue Model

The core principle of the Standard is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity recognises revenue in accordance with that core principle by applying the following steps:

1. Identify the contract(s) with a customer

2. Identify the performance obligations in the contract

3. Determine the transaction price

4. Allocate the transaction price to the performance obligations in the contract

5. Recognise revenue when (or as) the entity satisfies a performance obligation

HKFRS 15 is effective for annual periods beginning on or after 1 January 2017. Earlier application is permitted.

Disclaimer:

The publication contains information in summary form and is therefore intended for general guidance only.  This publication is not intended as legal, accounting or other professional advice and should not be relied upon as such.  If legal, accounting or other professional advice or expert assistance is required, the services of a competent professional should be sought.  Neither Reanda Lau & Au Yeung Limited nor any related entity shall have any liability to any person or entity that relies on the information contained in this publication.