Key takeaways
- IFRS 15 and its Egyptian equivalent (EAS 48) recognise revenue when control of goods or services transfers to the customer.
- Identifying performance obligations correctly drives everything else.
- Variable consideration is included only to the extent a significant reversal is highly unlikely.
- Contract costs, principal-vs-agent and licences are frequent sources of error.
The five-step model
- Identify the contract with the customer.
- Identify the performance obligations.
- Determine the transaction price.
- Allocate the transaction price to the performance obligations.
- Recognise revenue when (or as) each obligation is satisfied.
Pitfall 1 — Performance obligations
Bundled contracts — equipment plus installation plus maintenance, or software plus implementation plus support — must be analysed to determine whether each promise is distinct. Treating everything as one obligation, or splitting obligations that are highly interdependent, both lead to misstated timing.
Pitfall 2 — Variable consideration
Discounts, rebates, penalties, bonuses and rights of return make the price variable. Estimate them using the expected value or most likely amount, and constrain the estimate so that a significant reversal is highly unlikely.
Pitfall 3 — Over time vs point in time
Revenue is recognised over time only if one of the specific criteria is met — for example, the customer simultaneously receives and consumes the benefit, or the entity has an enforceable right to payment for work completed. Real estate and construction contracts need particular care.
Pitfall 4 — Principal or agent
Platforms and intermediaries must decide whether they control the good or service before it is transferred. An agent recognises only its commission — a critical point for marketplaces and many startups.
Pitfall 5 — Contract costs
Incremental costs of obtaining a contract, such as sales commissions, are capitalised if expected to be recovered, and amortised over the period of benefit.
How ASA can help
We review revenue policies, analyse complex contracts and support implementation and audit discussions.
This article is for general information only and does not constitute professional advice. Thresholds, rates and procedures change — please contact us or refer to the latest official sources before acting.