IFRS 15 revenue from a customer with bad credit rating

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vergogc_auditor
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Joined: 26 Jul 2022, 10:52

IFRS 15 revenue from a customer with bad credit rating

Post by vergogc_auditor »

Hello everybody,
Happy to see that there is an active community where we can exchange opinions for IFRS interpretations.

I have a specific treatment done by one of my clients in the financial statements which I would like to have your though if it is accurate or not. The client(company) is preparing the financial statements under IFRS requirements.

The company has issued an invoice at 5th of November 2021 for a serviced delivered to their clients but based on their internal policy due to the fact that the client has bad credit rating, they treat this invoice under cash based approach, where as first journal entry is done Debit of Trade Receivables and on Credit Deferred Revenue. This journal entry is applicable till the second moment that cash are being collect by their client. At that moment Cash is debited, Trade Receivable is Credited and also Revenue is Credit and Deferred Revenue Debited.
As at Dec 31, 2021 when the entity is preparing the financial statements for year end, the first journal entry is still applicable since no cash payment has occurred. In the same time the entity following the IFRS 9 requirements has built an impairment model for trade receivables balance, based on which impaired the invoice of our case with 50%, by crediting Impairment of Trade Receivables (asset) and debiting Impairment charge (expenses).

Based on company, this treatment is correct and it is in line with IFRS 15.15(a). In my opinion this treatment does not make sense and the respective reference brought by the company looks more as a definition of deferred revenue, rather than a reference for that case. In my opinion the entity should had credit directly the revenue and by the year end if there are indicators which might raise uncertainties for the collectability of that trade receivables, the company can impair 100% through IFRS 9.
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Marek Muc
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Re: IFRS 15 revenue from a customer with bad credit rating

Post by Marek Muc »

Hi,

This is relevant to your case:
https://ifrscommunity.com/knowledge-bas ... of-payment

So what they are saying is that this contract is not in the scope of IFRS 15... What was their approach to expenses incurred while performing this contract? I.e. did they go to P/L or are deferred as an asset?
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Marek Muc
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Re: IFRS 15 revenue from a customer with bad credit rating

Post by Marek Muc »

Ps. What makes the least sense to me is that they expensed the impairment charge instead of debiting the deferred revenue balance. I mean, what do they plan to do with this deferred revenue balance if the customer doesn't eventually pay?
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