AASB 15 requires a five step model to be applied to determine when a business can recognise and report on revenue.
- Step 1 – Identify the contract
- Step 2 – Identify separate performance obligations
- Step 3 – Determine transaction price
- Step 4 – Allocate transaction price to obligation
- Step 5 – Recognise revenue when/as obligation satisfied
Importantly, revenue must be recognised when (or as) a customer gains control of goods or services for the agreed amount. In some cases, depending on if the required criteria is met, revenue may be recognised either over time, in a manner that reflects the company’s performance, or when control of the goods or services is transferred to the customer.