When is revenue typically recognized under IFRS?

Revenue is typically recognized under IFRS when control of goods or services is transferred to the customer. This principle is rooted in the IFRS 15 standard, which emphasizes the transfer of control as the key indicator for recognizing revenue. Control refers to the ability of the customer to direct the use of and obtain substantially all of the remaining benefits from the goods or services.

The rationale for this approach is to ensure that revenue reflects the actual completion of performance obligations in the sale process. This aligns the recognition of revenue with the delivery of goods or services, providing a clearer picture of an entity’s financial performance.

In contrast, revenue recognition at the point of cash receipt would not adequately reflect the economic activity taking place at the time of sale, as it could lead to income being recognized without having delivered the associated goods or services. Recognizing revenue at the end of the accounting period would not accurately depict revenue associated with specific transactions throughout the period. Lastly, recognizing revenue based on advertising a product does not meet the criteria for revenue recognition, as advertising alone does not involve the transfer of goods or services to a customer.

Understanding this principle is vital for accurate financial reporting and compliance with IFRS standards.