IASB June 2009

The Board discussed:

• what amounts an entity should recognise as revenue when other parties are involved in providing goods and services to its customer
• the combination and modification of contracts
• non-monetary exchanges.

Revenues for performance by other parties

The Board decided tentatively that:

• the amount an entity recognises as revenue depends on the identification of performance obligations. In other words, the entity must determine whether its performance obligation is:
  (a) to provide goods and services, in which case the entity recognises ‘gross’ revenue for providing those goods and services; or
  (b) to arrange for another party to provide those goods and services, in which case the entity recognises revenue for the fee or commission.
• an entity should disclose separately revenues in the same line of business from (a) providing goods and services and (b) arranging for the provision of goods and services.
• an entity should disclose the basis for its assessment and any significant judgement in identifying performance obligations when other parties are involved in providing goods and services to the entity’s customer.
• if an entity legally transfers a performance obligation to another party, so that the entity is no longer obliged to provide the underlying good or service to the customer, the entity should not recognise revenue for that performance obligation.

Combination and modification of contracts

The Board decided tentatively that:

• two or more contracts with the same customer should be accounted for as a single net contract position if the prices of those contracts are interdependent. An entity should consider various indicators and exercise judgement when determining whether prices are interdependent.
• when an entity modifies an existing contract, it should account for the modification as a separate contract if the modification is priced independently from the original contract. If the prices are interdependent, an entity should account for the original contract and modification as a single net contract position, recognising the effect of the modification on a cumulative catch-up basis.

Non-monetary exchanges

The Board previously decided tentatively that an entity should measure non-cash consideration at its fair value or, if the fair value cannot be estimated reliably, by reference to the selling price of the goods and services. It also decided tentatively that an entity should not recognise revenue if a contract lacks commercial substance.

At this meeting, the Board decided tentatively that an entity should not recognise revenue from a non-monetary exchange contract (even if it has commercial substance) if its purpose was to facilitate a sale to another party.