Revenue – ifrs 15 handbook

Definition of related parties acquires new significance 
IFRS 15.BC74, IAS 24
The standard specifies that for two or more contracts to be combined, they 
should be with the same customer or related parties of the customer. The Board 
stated that the term ‘related parties’ as used in the revenue standard has the 
same meaning as the definition in the related party standard. This means that 
the definition originally developed in IFRS for disclosure purposes acquires a 
new significance, because it can affect the recognition and measurement of 
revenue transactions.

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© 2019 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.
22 | Revenue – IFRS 15 handbook
No exception for contracts entered into with different divisions of 
the same entity
There is no exception from considering whether two or more contracts should 
be combined because they were executed by different divisions of the entity 
or the customer. In fact, contracts with related parties of the customer that 
may not even be part of the same consolidated entity are considered for 
possible combination.
However, whether the contracts were negotiated by the same parties or, 
instead, were negotiated with different divisions of the entity or the customer 
may in practice influence whether any of the three specified criteria in the 
standard are met.
For example, two contracts entered into by different divisions of one or 
both parties may be less likely to have been ‘negotiated as a package with 
a single commercial objective’ or to have goods or services that are a single 
performance obligation.
Additional complexities for sales through distribution channels
When applying the guidance on combining contracts, an entity needs to 
determine who the customer is under the contract. Contracts entered into by 
an entity with various parties in the distribution channel that are not customers 
of the entity are not combined. 
For example, for carmakers the customer for the sale of a vehicle is typically 
a dealer, whereas the customer for a lease of a vehicle is typically the end 
consumer. Because the dealer and the end consumer are not related parties, 
these contracts (the initial sales contract for the vehicle to the dealer and the 
subsequent lease contract with the end consumer) are not evaluated for the 
purpose of combining them, and are treated as separate contracts. However, 
in other situations an entity’s customer may be acting as an agent for the end 
consumer. In these situations, the contracts will need to be evaluated for the 
purpose of combining them.
IFRS 15.BC74
However, performance obligations that an entity implicitly or explicitly promises 
to an end consumer in a distribution channel – e.g. free services to the end 
customer when the entity’s sale is to an intermediary party – are evaluated 
as part of the contract. For further discussion on identifying the performance 
obligations in a contract (Step 2 of the model), see 
Chapter 2
.

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© 2019 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.
2 
Step 2 – Identify 
the performance 
obligations in the 
contract