IFRS 15, quantified disclosure of expected effects of future adoption, separation of distinct and combination of indistinct performance obligations

Ricardo plc – Annual report – 30 June 2018

Industry: manufacturing

1 Accounting policies (extract)

(x) New standards and interpretations (extract)

IFRS 15 ‘Revenue from contracts with customers’

IFRS 15 ‘Revenue from contracts with customers’ establishes principles for reporting the nature, amount and timing of revenue arising from an entity’s contracts with customers. The Standard becomes effective for the Group for the financial year ending 30 June 2019 and the Group’s intention is to apply the full retrospective approach upon adoption of IFRS 15. This approach requires all open contracts with customers that are presented in the financial statements for the year ending 30 June 2019 to be transitioned under the new Standard. Comparative financial information for the financial year ending 30 June 2018 will be restated, together with a cumulative adjustment to equity as at 1 July 2017. The Group has performed a detailed analysis in order to quantify the impact of IFRS 15. The principal areas impacted include:

Separation of distinct performance obligations:

Under IAS 11, the Group recognised revenue over time on individual contracts for a programme of services to be performed over a number of years. The programme of services were proposed as a package and were not subject to separate negotiation. Under IFRS 15, these services are deemed to be separate performance obligations that are distinct from one another within the context of the contract. Revenue will continue to be recognised on a percentage of completion basis, but based upon these separate and distinct performance obligations.

Combination of indistinct performance obligations:

On a number of Technical Consulting contracts, revenue was recognised separately for services such as sales commission and up-front fees to compensate for costs incurred in obtaining and setting up a contract or other administrative costs. Under IFRS 15, these activities are not deemed to represent the transfer of services to a customer and therefore do not satisfy distinct performance obligations in the context of the overall contract upon which revenue can be recognised separately. Under IFRS 15, revenue is recognised over time as distinct performance obligations are satisfied. Revenue is measured through the consistent use of reliable input methods as a measure of progress towards completion and which depict performance in transferring control of the service to the customer.

An assessment of the expected impact of IFRS 15 is shown below:


The estimated impact on reported net assets at 30 June 2018 under IFRS 15 is a reduction of £1.1m.