Revenue – ifrs 15 handbook

deterioration in the customer’s credit-worthiness
An entity does not reassess the Step 1 collectability criteria unless there is 
a significant change in facts and circumstances that results in a significant 
deterioration in the customer’s credit-worthiness. For example, a significant 
deterioration in a customer’s ability to pay because it loses one of its 
customers that accounts for 75 percent of its annual sales would be likely to 
lead to a reassessment.
The determination of whether there is a significant deterioration in the 
customer’s credit-worthiness will be situation-specific and will often be a matter 
of judgement. The evaluation is not intended to capture changes of a more 
minor nature – that is, those that do not call into question the validity of the 
contract. Nor does it capture changing circumstances that might reasonably 
fluctuate during the contract term (especially for a long-term contract) that do 
not have a significant effect. 
If the entity determines that collectability is no longer probable, then it 
discontinues revenue accounting and follows the guidance on accounting for 
consideration received when a contract does not exist – see 
Section 1.3
.
Collectability assessment required for contracts with a significant 
financing component
The assessment of collectability in Step 1 of the model applies equally to 
contracts with or without a significant financing component. This is regardless 
of the fact that credit-worthiness is factored into the discount rate and therefore 
the transaction price for a contract with a significant financing component.
Fiscal funding clauses may affect the assessment of whether a 
contract exists
When the customer in a contract is a government, there may be a fiscal funding 
clause stating that the contract is cancellable if the funding authority does not 
appropriate the funds necessary for the government to pay. Judgement will 
need to be applied to determine whether a contract exists when delivery of 
goods or services commences before funding has been formally approved.

---

© 2019 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.
1 Step 1 – Identify the contract with a customer | 9
1.1 Criteria to determine whether a contract exists
|