IFRS 15, adopted, full retrospective method, policies, contracts, aircraft manufacturer

Airbus SE – Quarterly report – 31 March 2018

Industry: aircraft manufacturing

Notes to the Airbus SE Unaudited Condensed Interim IFRS Consolidated Financial Statements (extract)

  1. Accounting Policies (extract)

IFRS 15 “Revenue from Contracts with Customers”

In May 2014, the IASB issued IFRS 15 which establishes a single comprehensive framework for determining when to recognise revenue and how much revenue to recognise. IFRS 15 replaced the former revenue recognition standards IAS 18 “Revenue” and IAS 11 “Construction contracts” and related interpretations. The core principle of IFRS 15 is that an entity recognizes revenue to depict the transfer of control of the promised goods or/and services in an amount that reflects the consideration to which that entity is entitled.

The Company adopted the new standard on 1 January 2018, using the full retrospective transition method. Accordingly, the Company restated the comparative 2017 results included in the first three months 2018 Unaudited Condensed Interim IFRS Consolidated Financial Statements. The opening equity was restated as of 1 January 2017.

The Company has elected practical expedients for completed contracts and contract modifications.

As a result, the implementation of IFRS 15 “Revenue from contracts with customers”, the Company revised its accounting policies.

Revenue recognition

The Company recognises revenue when it transfers the control of the promised goods and services to the customer. The Company measures revenue, for the consideration to which the Company is expected to be entitled in exchange for transferring promised goods or services. Variable considerations are included in the transaction price when it is highly probable that there will be no significant reversal of the revenue in the future.

Revenue from the sale of commercial aircraft

Revenue will continue to be recognised at a point in time (i.e. at the delivery of the aircraft). The Company will estimate the amount of price concession for delivered aircraft and will treat the price concession as a reduction of both revenue and cost of sales.

Revenue from the sale of military aircraft, space systems and services

When the control of the produced good and rendered services is transferred over time to the customer, revenue is recognised over time (i.e. under the percentage of completion method).

The Company transfers control over time when:

  • it produces a good with no alternative use and the Company has an irrevocable right to payment (including a reasonable margin) for the work completed to date, in the event of termination of the contract for the convenience of the customer (e.g. Tiger contract).
  • it creates a good which is controlled by the customer as the good is created or enhanced (e.g. Eurofighter contracts, some border security contracts).
  • the customer simultaneously receives and consumes the benefits provided by the Company (e.g. maintenance contracts).

When none of the criteria stated above have been met, revenue is recognised at a point in time. Revenue has been recognised at the delivery of the aircraft under IFRS 15 from the sale of military transport aircraft, from the A400M launch contract and most of NH90 serial helicopters contracts.

The most significant changes result from the following:

  • Several performance obligations are identified instead of recognising a single contract margin under IAS 11 (e.g. A400M, NH90 contracts). In some cases, the over time (e.g. percentage of completion (“PoC”) method) revenue recognition criteria are not fulfilled under IFRS 15. In particular, on A350 launch contracts, on A400M series production and certain NH90 contracts, revenue and production costs relative to the manufacture of aircraft are recognised at a point in time (e.g. upon delivery of the aircraft to the customer).
  • Under IFRS 15, measurement of the revenue takes into account variable consideration constraints in order to achieve high likelihood that a significant reversal of the recognised revenue will not occur in the future. The constraint in assessing revenue at completion for some contracts (A400M) generates a decrease in recognised revenue.
  • Under IFRS 15, for the application of the overtime method (PoC method), the measure of the progress towards complete satisfaction of performance obligations is based on inputs (i.e. cost incurred) rather than on outputs (i.e. milestones achieved). On Airbus current long-term construction contracts progress were usually measured based on milestones achieved (e.g. Tiger programme, satellites, orbital infrastructures). Under IFRS 15, Airbus measures progress of work performed using a cost-to-cost approach, whenever control of the work performed transfers to the customer over time.

IFRS 15 also impact the presentation of the revenue. Under IAS 18, Airbus recognised revenue based on the amount of its contracts with its customer, unless it has confirmation of the amount of the price concession. In contrast, IFRS 15 requires Airbus to estimate the amount of price concession in all cases and to treat the price concession as a reduction of revenue and cost of sales. Under IFRS 15, revenue and cost of sales decrease by the amount of the estimated concession granted by Airbus engine supplier to their customers.

In addition to these changes, IFRS 15 introduced a new class of assets and liabilities “contract assets” and “contract liabilities”.

  • A contract asset represents the company’s right to consideration in exchange for goods or services that the Company has transferred to a customer when that right is conditioned on something other than the passage of time (e.g. receivables recognised from the application of the PoC method before the Company has a right to invoice. These receivables were prior to the implementation of IFRS 15 reported within “trade receivables”).
  • A contract liability represents the Company’s obligation to transfer goods or services to a customer for which the customer has paid a consideration (e.g. contract liabilities mainly include the customer advance payments received which were reported prior to the implementation of IFRS 15 within the “other liabilities”).

For any individual contract, either a contract asset or a contract liability is presented on a net basis.

The distinction between non-current and current presentation remains unchanged.

The following tables summarise the impacts on the comparative information resulting from the change in revenue recognition principles:

Condensed IFRS Consolidated Statements of Financial Position as at 31 December 2017


Condensed IFRS Consolidated Income Statements for the three-month period ended 31 March 2017