Revenue – ifrs 15 handbook

... collection of
consideration is
probable*
... collection of
consideration is
probable
... it has commercial
substance
... it is approved
and the parties are
committed to
their obligations
... rights to goods
services and
or
payment terms can
be identified
A contract
exists if...
IFRS 15.IE14–IE17
Relevant considerations when assessing whether the parties are committed 
to performing their respective obligations, and whether they intend to enforce 
their respective contract rights, may include whether:
– the contractual terms and conditions are commensurate with the 
uncertainty, if there is any, about the customer or the entity performing in 
accordance with the modification;
– there is a history of the customer (or class of customer) not fulfilling its 
obligations in similar modifications under similar circumstances; and
– the entity has previously chosen not to enforce its rights in similar 
modifications with the customer (or class of customer) under similar 
circumstances.
Contract claims are evaluated using the guidance on contract 
modifications
A contract claim is typically described as an amount in excess of the agreed 
contract price that a contractor seeks to collect from customers or other parties. 
Claims may arise from customer-caused delays, errors in specifications or 
design, contract terminations, change orders that are in dispute or unapproved 
on both scope and price, or other causes of unanticipated additional costs. 
Contract claims are evaluated using the guidance on contract modifications.
IFRS 15.18–19, BC39, BC81
Assessing whether a contract modification related to a claim exists may require 
a detailed understanding of the legal position, including third party legal advice, 
even when a framework agreement or other governing document prescribes 
the claim resolution process under the contract. 
The assessment may be more straightforward if an objective framework for 
resolution exists – e.g. if the contract includes a defined list of cost overruns 
that will be eligible for reimbursement and a price list or rate schedule. 
Conversely, the mere presence of a resolution framework – e.g. a requirement 
to enter into binding arbitration instead of litigation – will generally not negate 
an entity’s need to obtain legal advice to determine whether its claim is 
enforceable. If enforceable rights do not exist for a contract claim, then a 
contract modification has not occurred and no additional contract revenue is 
recognised until either approval or legal enforceability is established.

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198 | Revenue – IFRS 15 handbook
An entity’s accounting for any costs incurred before approval of a contract 
modification will depend on the nature of the costs. In some circumstances, 
those costs will be expensed as they are incurred. In other circumstances, 
an entity will need to consider whether the expectation of costs without a 
corresponding increase in the transaction price requires the recognition of an 
onerous contract provision. Or, a contract modification may be considered a 
specifically anticipated contract such that the costs incurred before approval 
of the contract modification – i.e. pre-contract costs – may be considered for 
capitalisation based on the standard’s fulfilment cost guidance (see 
Section 7.2
).