Document ID: chunk:federal_register_of_legislation:F2022L00705:reg:4:p2
Version: federal_register_of_legislation:F2022L00705
Segment Type: reg
Provision Reference: reg 4 (pt 2/4)
Character Range: 6315–9182

The entity first considers whether the agreement with the customer is within the scope of AASB 15, by referring to AASB 15 paragraphs 9–21 and F5–F19 to determine whether there is a contract with a customer:

      •  Is there a customer who has promised consideration in exchange for goods or services from the entity and is the promise to transfer goods or services sufficiently specific? (AASB 15, paragraphs 9, Aus9.1 and F5–F7)

      •  Is there a written, oral or implied agreement, such as an application form or other document? (AASB 15, paragraphs 10 and F8–F9)

      •  Does the agreement create enforceable rights and obligations for the parties? For example, could the customer either enforce the agreement or obtain other remedy under Australian law if the promised service was not delivered? (AASB 15, paragraphs 10 and F10–F18)

    In many cases where there will be an ongoing relationship with the customer following payment of the upfront fee, such as annual fees to access a service, revenue would be recognised in accordance with AASB 15. If multiple agreements are in place, for example an agreement for a joining fee and a separate agreement for the annual membership fee, then the guidance in paragraph 17 of AASB 15 should be considered in relation to combining the agreements for accounting purposes.

    What are the performance obligations in the contract, and are the activities associated with the non-refundable upfront fee one of these performance obligations?

    The entity considers the guidance on:

      •  accounting for non-refundable fees in AASB 15, paragraphs B48–B51; and

      •  identifying performance obligations in AASB 15, paragraphs 22–30 and F20–F27;

    to determine whether the upfront fee relates to the transfer of a good or service separate to the provision of services in the future.

    In performing this analysis, the entity notes that performance obligations do not include activities that an entity must undertake to fulfil a contract (eg setting up a customer on the system, printing membership cards and similar) unless those activities transfer a good or service to the customer (AASB 15, paragraph 25). The non-refundable fee might cover internal administrative activities that enable the entity to provide future services to the customer. However, these activities do not transfer a promised good or service to the customer separate from the provision of future services and therefore do not satisfy a separate performance obligation (AASB 15, paragraph B51). If this is the case, the entity concludes that the non-refundable upfront fee – to the extent it relates to the internal administrative services – does not represent a payment for a separate performance obligation but is in substance an advance payment for future services.

    In other circumstances, some or all of the upfront fee