IFRS 15 Revenue Recognition: Key Principles and Common Pitfalls for Cyprus Entities

IFRS 15 Revenue from Contracts with Customers replaced IAS 18 and IAS 11 and is now the mandatory standard for revenue recognition for Cyprus entities preparing IFRS financial statements. While the standard has been effective for some years, we continue to see significant errors in its application — particularly among Cyprus-based companies in the technology, construction, and professional services sectors.

The Five-Step Model

IFRS 15 introduces a five-step model for recognising revenue:

Step 1 — Identify the contract(s) with a customer. A contract exists when it creates enforceable rights and obligations, has commercial substance, and payment is probable.

Step 2 — Identify the performance obligations. Separate performance obligations are distinct goods or services that are capable of being distinct and are separately identifiable in the context of the contract.

Step 3 — Determine the transaction price. This includes consideration of variable consideration (discounts, rebates, performance bonuses), the time value of money (if significant), non-cash consideration, and consideration payable to the customer.

Step 4 — Allocate the transaction price. Where a contract contains multiple performance obligations, the transaction price is allocated based on relative standalone selling prices.

Step 5 — Recognise revenue when (or as) each performance obligation is satisfied. Revenue is recognised either at a point in time or over time, depending on the nature of the performance obligation.

Common Pitfalls for Cyprus Entities

SaaS and software companies frequently misclassify bundled contracts — treating licences, implementation services, and support as a single obligation when IFRS 15 requires separation. This can result in revenue being recognised too early or too late.

Construction and development companies need to assess carefully whether revenue should be recognised over time (most construction contracts) or at a point in time. An incorrect assessment can significantly misstate annual results.

Professional services firms need to assess the stage of completion carefully for time-based arrangements, and must consider whether variable consideration (success fees, bonuses) should be constrained.

Disclosures

IFRS 15 requires extensive disclosures including: disaggregation of revenue, information about contract balances (contract assets, contract liabilities), remaining performance obligations, and significant judgements made in applying the standard. These disclosures are often insufficient in financial statements we review during audit.