Amendments to HKFRS 15 –
Clarifications to HKFRS 15 Revenue from
Contracts with Customers
Newsletter – Issue No. 02/2016
MAIN FEATURES
The amendments are issued with the aim to:
clarify when a promised good or service is separately identifiable from other promises in a
contract (i.e. distinct within the context of the contract);
clarify how to apply the principal versus agent application;
clarify for a licence of intellectual property (“IP”) when an entity’s activities significantly
affect the IP to which the customer has rights;
clarify the scope of exception for sale-based and usage-based royalties related to licences
of IP; and
add two practical expedients to the transition requirements of HKFRS 15.
The amendments are to be applied retrospectively.
Effective for annual periods beginning on or after 1 January 2018, with earlier application
permitted.
Background
After the issuance of International Financial Reporting Standard (“IFRS”) 15 Revenue from Contracts
with Customers in May 2014, the International Accounting Standards Board (“IASB”) and Financial
Accounting Standards Board (the national standard-setter of The United States of America) jointly
formed a Transitional Resources Group for Revenue Recognition (“TRG”) to provide support on the
implementation of IFRS 15. TRG has received queries from stakeholders in relation to certain topics
on implementation of IFRS 15, including:
i)
ii)
iii)
iv)
v)
1
Identification of performance obligations;
Principal versus agent considerations;
Licensing;
Scope of the exception for sales-based and usage-based royalties; and
Practical expedients to the transition requirements of IFRS 15.
SHINEWING (HK) CPA Limited - Newsletter July 2016
In order to tackle these issues, IASB has issued the amendments to IFRS 15 to clarify those
implementation issues in April 2016.
Subsequently in June 2016, the Hong Kong Institute of Certified Public Accountants also issued the
same amendments, Amendments to Hong Kong Financial Reporting Standard (“HKFRS”) 15 –
Clarifications to HKFRS 15 Revenue from Contracts with Customers, so as to maintain the convergence
with IFRSs.
What are the major content of the amendments?
The following summarised the major amendments in Amendments to HKFRS 15:
Identification
ofof
performance
obligations
Identification
performance
obligations
 The
Theamendments
amendments clarified
good
or or
service
is separately
identifiable
from from
other
clarified when
whena apromised
promised
good
service
is separately
identifiable
promises
in a contract
(i.e. the (i.e.
promise
to transfertothe
good orthe
service
distinct
theiscontext
of the
the
other
promises
in a contract
the promise
transfer
goodisor
service
distinct
contract),
which
is part which
of an isentity’s
whether aofpromised
or service
context
of the
contract),
part ofassessment
an entity’s of
assessment
whether good
a promised
goodisora
service
is a performance
performance
obligation. obligation.
 InInassessing
assessing whether
whether ananentity’s
promises
to transfer
goodsgoods
or services
to the customer
are separately
entity’s
promises
to transfer
or services
to the customer
are
separately
identifiable,
theisobjective
is to
determine
whether
the
nature within
of the the
promise,
identifiable,
the objective
to determine
whether
the nature
of the
promise,
contextwithin
of the
the
context
contract,
is to
transfer
of those
goods or services
individually
instead,
contract,
is of
to the
transfer
each of
those
goodseach
or services
individually
or, instead,
to transfer or,
a combined
toitem
transfer
a combined
item
or items
to which
the promised
or items
to which the
promised
goods
or services
are inputs.goods or services are inputs.
 The
Theamendments
amendments provide
provide three
three indicators
indicators (including
(including level
level of
of integration,
integration, modification
modification or
or
customisation,
among
promises
to transfer
goods
or services)
in paragraph
customisation, or
or interdependence
interdependence among
promises
to transfer
goods
or services)
in paragraph
29 of
29HKFRS
of HKFRS
15 for
clarifying
or more
promises
to transfer
or services
to a customer
15 for
clarifying
twotwo
or more
promises
to transfer
goodsgoods
or services
to a customer
are not
are
not separately
identifiable.
separately
identifiable.
2
SHINEWING (HK) CPA Limited - Newsletter July 2016
Principal
versus
agent
considerations
Principal
versus
agent
considerations
 The
Theamendments
amendments clarified
apply
the the
principal
versusversus
agent agent
application
guidanceguidance
to determine
clarifiedhow
howto to
apply
principal
application
to
whether the
nature ofthe
an nature
entity’s of
promise
is to provide
promised
good or promised
service itself
(i.e.orthe
entity
determine
whether
an entity’s
promise
is to provide
good
service
is a principal)
or to is
arrange
for goods
orarrange
services for
to be
provided
by another
party
(i.e. theby
entity
is an
itself
(i.e. the entity
a principal)
or to
goods
or services
to be
provided
another
party
(i.e. the entity is an agent).
agent).
 Paragraph
Paragraph B34A
B34A of
of HKFRS
HKFRS 15
15 is
is newly
newly added
clarify
thatthat
to determine
the nature
its promise,
addedto to
clarify
to determine
the of
nature
of its
the entity
should:
promise,
the
entity should:
thethe
specified
goods
or services
to be provided
to the customer;
and
(a)(a) identify
identify
specified
goods
or services
to be provided
to the customer;
and
(b)(b) assess
assess
whether
it controls
specified
or service
before
that
is
whether
it controls
eacheach
specified
good good
or service
before that
good
or good
serviceorisservice
transferred
to the customer.
totransferred
the customer.
entity
a principal
if itif controls
thethe
specified
 AnAn
entityis is
a principal
it controls
specifiedgood
goodororservice
servicebefore
beforethat
that good
good or
or service
service is
is
transferred
whileananentity
entity
agent
it does
control
the specified
good
or
transferredto
to aa customer
customer while
is is
anan
agent
if itifdoes
not not
control
the specified
good or
service
service
provided
by another
party
that
goodisor
service istotransferred
to the customer.
provided
by another
party before
thatbefore
good or
service
transferred
the customer.
 AnAnentity
entityshould
should determine
determine whether
it is
a principal
or an
for each
specified
good or
service
whether
it is
a principal
or agent
an agent
for each
specified
good
or
service
promised
to the customer.
If awith
contract
withincludes
a customer
more than
one
promised
to the customer.
If a contract
a customer
more includes
than one specified
good
or
specified
good
or service,
entity could
be aspecified
principalgoods
for some
specified
services
service, an
entity
could be an
a principal
for some
or services
and goods
an agentorfor
others.and
an agent for others.
 The
Theamendments
amendments provide
provides further
further indicators
B37
of of
HKFRS
when
an
indicatorsininparagraph
paragraph
B37
HKFRS1515forforclarifying
clarifying
when
controls
thethe
specified
goodgood
or service
beforebefore
it is transferred
to the customer.
anentity
entity
controls
specified
or service
it is transferred
to the customer.
Licensing
Licensing
 The
The
amendments clarified
anan
entity’s
activities
significantly
affectaffect
the intellectual
property
amendments
clarified when
whendodo
entity’s
activities
significantly
the intellectual
property
tothe
which
the customers
one of
the three
criteria
that
be
(“IP”) to(“IP”)
which
customers
has rights.has
Thisrights.
is one This
of theis three
criteria
that must
be met
to must
recognise
met
to recognise
revenue
a licence
revenue
for a licence
of IPfor
over
time. of IP over time.
 Paragraph
ParagraphB59A
B59Aof
of HKFRS
HKFRS15
15isisnewly
newly added
added totoclarify
an an
entity’s
activities
significantly
affect
clarifythat
that
entity’s
activities
significantly
the IP
to IP
which
the customer
has rights
either:
affect
the
to which
the customer
haswhen
rights
when either:
activities
are are
expected
to significantly
changechange
the formthe
or form
functionality
of the IP; of
or the IP; or
(a)(a) those
those
activities
expected
to significantly
or functionality
(b)(b) the
the
ability
customer
to obtain
benefit
from
the
IP is substantially
derived
from, or
ability
of of
thethe
customer
to obtain
benefit
from the
IP is
substantially
derived from,
or dependent
dependent
upon, those activities.
upon,
those activities.
3
SHINEWING (HK) CPA Limited - Newsletter July 2016
Scope
of the
exception
for sales-based
and usage-based
royalties royalties
Scope
of the
exception
for sales-based
and usage-based
 The
The
amendments clarified
clarified the
exception
for for
sales-based
and usage-based
royalties
related
amendments
thescope
scopeofofthe
the
exception
sales-based
and usage-based
royalties
related
to licences
of IPthere
when
other goods
promised
goodsinorthe
services
in the contract.
to licences
of IP when
arethere
other are
promised
or services
contract.
 Paragraph
ParagraphB63
B63ofof
HKFRS
15 requires
entity
should
recogniserevenue
revenuefor
foraasales-based
sales-based or
or
HKFRS
15 requires
thatthat
an an
entity
should
recognise
usage-based royalty
royalty promised
promised ininexchange
forfor
a licence
of intellectual
property
when
(or of
as)the
the
usage-based
exchange
a licence
of IP only when
(oronly
as) the
later
following
events
occurs:
later of the
following
events occurs:
(a)(a) the
the
subsequent
or usage
occurs;
subsequent
sale sale
or usage
occurs;
and and
(b)(b) the
the
performance
obligation
to which
some
allsales-based
of the sales-based
or usage-based
performance
obligation
to which
some or
all oforthe
or usage-based
royalty has been
royalty has been allocated has been satisfied (or partially satisfied).
allocated has been satisfied (or partially satisfied).
 Paragraphs
ParagraphsB63A
B63Aand
and B63B
B63Bof
ofHKFRS
HKFRS15
15are
arenewly
newly added
added totoclarify
when
a royalty
relates
only
clarifythat
that
when
a royalty
relates
to atolicence
of IPof
or IP
when
a licence
of IP is the
predominant
items to which
the royalty
relates,
revenue
only
a licence
or when
a licence
of IP
is the predominant
items
to which
the royalty
relates,
from
a sales-based
or usage-based
royalty wholly
shouldinbe
recognised
in
from arevenue
sales-based
or usage-based
royalty
should be recognised
accordance
withwholly
paragraph
accordance
paragraphonB63.
If not,
the requirements
variable
consideration
in
B63. If not,with
the requirements
variable
consideration
in paragraphson
50-59
of HKFRS
15 apply to the
paragraphs
of HKFRSroyalty.
15 apply to the sales-based or usage-based royalty.
sales-based50-59
or usage-based
4
SHINEWING (HK) CPA Limited - Newsletter July 2016
Practical
expedients
to the
requirements
of HKFRS
15
Practical
expedients
totransition
the transition
requirements
of HKFRS
15
 The
Theamendments
amendments added
expedients
to the
requirements
of HKFRS
15 for:15 for:
addedtwo
twopractical
practical
expedients
to transition
the transition
requirements
of HKFRS
contracts
underunder
the full
transition
approach;
and
(a)(a) completed
completed
contracts
theretrospective
full retrospective
transition
approach;
and
(b)
contract
modifications
at transition.
(b) contract
modifications
at transition.
 Paragraph
Paragraph C5(a)
C5(a)ofofHKFRS
HKFRS
explicitly
statedthat
thatwhen
whenapplying
applying HKFRS
HKFRS1515retrospectively,
retrospectively, an
an
1515
explicitly
stated
entity
contractthat
thatareare
completed
contracts
at beginning
the beginning
the earliest
entityneed
need not
not restate
restate contract
completed
contracts
at the
of theofearliest
period
period
presented.
presented.

Paragraph C5(c) of HKFRS 15 is newly added to allow entities exempted from retrospective restating
Paragraph C5(c) of HKFRS 15 is newly added to allow entities exempted from retrospective
the contracts
that werethat
modified
before thebefore
beginning
of the earliest
period
presented
contract
restating
the contracts
were modified
the beginning
of the
earliest
periodfor
presented
modification
in accordance
paragraphs
and 21 of HKFRS
15.of
Instead,
should
reflect
for
contract modification
in with
accordance
with20paragraphs
20 and 21
HKFRSan
15.entity
Instead,
an entity
the aggregate
effect
of all of effect
the modifications
occur beforethat
the occur
beginning
of the
the earliest
period
should
reflect the
aggregate
of all of thethat
modifications
before
beginning
of
the
earliestwhen:
period presented when:
presented
(i)(i)
identifying
unsatisfiedperformance
performance
obligations;
identifyingthe
thesatisfied
satisfied and
and unsatisfied
obligations;
(ii)
determining the transaction price; and
(ii)
determining the transaction price; and
(iii)
allocating the transaction price to the satisfied and unsatisfied performance obligation.
(iii)
allocating the transaction price to the satisfied and unsatisfied performance obligation.
 Paragraph
Paragraph C3(b)
C3(b) of
to apply
HKFRS
15 retrospectively
with thewith
cumulative
of HKFRS
HKFRS 15
15allows
allowsentities
entities
to apply
HKFRS
15 retrospectively
the
effect of initial
of HKFRS of
15 HKFRS
to be recognised
at the date at
of the
initial
application
cumulative
effectapplication
of initial application
15 to be recognised
date
of initial in
application
accordance
with
C7 and15.
C8C7
of of
HKFRS
15. 15
C7 is
ofrevised
HKFRSto
15allow
is revised
to to
accordanceinwith
paragraphs
C7 paragraphs
and C8 of HKFRS
HKFRS
entities
allow
entities
to HKFRS
choose 15
to retrospectively
apply HKFRS only
15 retrospectively
to contracts
are not
choose
to apply
to contracts thatonly
are not
completed that
contracts
at the
completed
contracts
at the date of initial application.
date of initial
application.
 Paragraph
ParagraphC7A
C7AofofHKFRS
HKFRS
is newly
addedtotoallow
allowentities
entitieswhich
which apply
apply HKFRS
HKFRS15
15retrospectively
retrospectively
1515
is newly
added
accordance with
C3(b)
of HKFRS
15 to
expedient
stated in stated
paragraph
ininaccordance
withparagraph
paragraph
C3(b)
of HKFRS
15use
to the
usepractical
the practical
expedient
in
paragraph
C5(c) of15,
HKFRS
C5(c) of HKFRS
either:15, either:
(a)(a) forfor
contract
modification
before
the beginning
of the period
earliestpresented;
period or
allall
contract
modification
that that
occuroccur
before
the beginning
of the earliest
(b) forpresented;
all contractormodification that occur before the date of initial application.
(b)
for all contract modification that occur before the date of initial application.
If an entity uses this practical expedient, the expedient should be applied consistently to all contracts.
If an entity uses this practical expedient, the expedient should be applied consistently to all
contracts.
The objective of these amendments is to clarify the standard setter’s intention when developing the
requirements in HKFRS 15 but not to change the underlying principles of HKFRS 15.
5
SHINEWING (HK) CPA Limited - Newsletter July 2016
When will these amendments become effective?
The Amendments to HKFRS 15 will become effective for financial statements with annual periods
beginning on or after 1 January 2018. Earlier application is permitted. If an entity applies these
amendments for an earlier period, it should disclose that fact.
The Amendments to HKFRS 15 should be applied retrospectively in accordance with Hong Kong
Accounting Standard 8 Accounting Policies, Changes in Accounting Estimates and Errors.
6
SHINEWING (HK) CPA Limited - Newsletter July 2016
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SHINEWING (HK) CPA Limited - Newsletter July 2016
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