The Boards decided that all performance obligations that do not meet the criteria for being satisfied over time should be accounted for as performance obligations satisfied at a point in time. For performance obligations satisfied at a point in time, an entity should apply the indicators of control to determine the point in time when the performance obligation is satisfied.
The 2010 proposed Update included indicators to assist an entity in determining when the customer obtains control of a good or service. Because many respondents commented that this guidance was useful for contracts for the sales of goods, the Boards decided to carry forward those indicators to assist an entity in determining when it has transferred control of an asset (whether tangible or intangible), with some amendments for clarification.
Some respondents to the 2010 proposed Update questioned whether all of the indicators would need to be present for an entity to conclude that it had transferred control of a good or service or what an entity should do if some but not all of the indicators were present. In their redeliberations, the Boards emphasized that the guidance in paragraph 37 is not a checklist. Rather, it is a list of factors that are often present when a customer has control of an asset and is provided to assist entities in applying the principle of control in paragraph 31.
In the proposed guidance, the Boards added the indicator “the customer has the significant risks and rewards of ownership of the asset” in light of comments from respondents who disagreed with the Boards’ proposal to eliminate considerations of the “risks and rewards of ownership” from the recognition of revenue. Respondents observed that risks and rewards can be a helpful factor to consider when determining the transfer of control, as highlighted by the IASB in IFRS 10, Consolidated Financial Statements, and is often a consequence of controlling an asset. The Boards decided that adding risks and rewards as an indicator would provide additional guidance but would not change the principle of determining the transfer of goods or services on the basis of the transfer of control.
The Boards also added the indicator “the customer has accepted the asset.” The 2010 proposed Update included that notion as implementation guidance; however, the Boards decided to relocate that guidance to the indicators of control in this proposed Update.
Many respondents to the 2010 proposed Update were concerned about the application of the indicator that the “design or function of the good or service is customer-specific” (which was proposed in paragraph 30(d) of the 2010 exposure draft). For many, it was not clear how the indicator related to the objective of determining the transfer of control because the customer might clearly control an asset even though the design or function of that asset is not customer-specific. Conversely, a customer might not control an asset with a customer-specific design or function. The Boards noted that because the indicator had been developed mainly for service contracts, that indicator would not be necessary if separate guidance were developed for determining when performance obligations are satisfied over time. Thus, the Boards decided to eliminate this as an indicator of control. As described in paragraph BC94, the notion of customer-specific design or function has been developed into the criterion of “an asset with no alternative use to the entity.”
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