Limited disclosures were required under the previous revenue standard. In contrast entities must disclose information for users to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Two new quantitative disclosures in particular that support this are:

• Revenue to be recognised in future periods for unperformed performance obligations (PO) (i.e. backlog disclosure); and
• Revenue recognised in the current period for POs satisfied or partially satisfied in previous periods.

Our experience has been that entities are struggling with how to provide this information in a useful and relevant way whilst managing the potential commercial and risk sensitivities.

Revenue backlog information, in quantitative or qualitative form, helps users understand the future revenue (and cash flows) “locked in” at year end. In our view, this information would be most useful when provided on the same basis as how revenue is disaggregated and by time bands appropriate to the remaining duration of the contract. For example:

This new disclosure will have the most impact on entities with long duration contracts (>1 year). And as a tip, any variable revenue currently being constrained is excluded from the backlog disclosure.

Are your systems set up to capture this data? If you have previously disclosed this information (for example if you are a constructor), were your previous disclosures by appropriate time bands? How will you deal with amounts expected from claims and variations? How comfortable are you with the market seeing this level of information – commercial sensitivities and concerns about providing “forecast information” do not provide an out from making these disclosures.

This new disclosure helps users understand the “uncertainty” of revenue and cash flows, including providing information about the “quality” of revenue recognised in the current period – it segregates unusual amounts included in your current year revenue and highlights your ability to make estimates about your revenue.

Entities will recognise revenue in the current period for work performed in previous periods, typically when:

• The transaction price changes because of changes in constrained variable consideration – e.g. performance fee earned over five years was previously constrained to nil and now in year five an amount has been recognised.
• There are revisions to the measure of progress – e.g. total costs to complete has increased.
• Contract modification occurs – e.g. variation to a contract containing a single PO is approved.

This disclosure is most useful when these true-ups in revenue are linked to disclosures made about estimates and assumptions in accounting for contracts with customers, telling a complete “revenue story”.

If you have not begun to think about your revenue disclosures, you should begin now as there are many new required disclosures. You may also need the time to work out how to pull this information from your systems or the work arounds you may need to capture this new information.

If you wish to discuss this further, or any other aspects of the implementation of AASB 15, please contact your KPMG adviser or the contacts on this page.

Our next article will discuss new qualitative disclosures required by the new revenue standard.

• Example Public Company Limited: Illustrative disclosures 2020-21 – includes first year of IFRS 15 disclosures
• IFRS 15 – Illustrative disclosures
• AASB 15: New revenue disclosures for half year accounts – observations on disclosures for transition approaches and accounting policies
• AASB 15: Disaggregation of revenue – tips on disclosing disaggregated revenue