What is a contract under IFRS 15?

What is a contract under IFRS 15?

• A. An agreement between two or more parties that creates enforceable rights or obligations
• B. A verbal statement by a sales representative
• C. A unilateral promise to pay without consideration
• D. A government regulation

Answer: (A)

Under IFRS 15, a contract is an agreement between two or more parties that creates enforceable rights and obligations. This means there must be mutual consent to the terms and a clear right to receive goods or services in exchange for consideration, with those rights and obligations enforceable by law. Additionally, for IFRS 15, the parties typically must have approved the contract and be committed to performing, the entity must be able to identify each party’s rights and the payment terms, and the contract must have commercial substance. The emphasis on two or more parties and enforceable rights and obligations is what makes this the proper definition. A verbal statement by a salesperson alone, a unilateral promise to pay without consideration, or a government regulation do not meet this definition of a mutually binding agreement creating enforceable rights and obligations in relation to a specific transaction.

Under IFRS 15, a contract is an agreement between two or more parties that creates enforceable rights and obligations. This means there must be mutual consent to the terms and a clear right to receive goods or services in exchange for consideration, with those rights and obligations enforceable by law. Additionally, for IFRS 15, the parties typically must have approved the contract and be committed to performing, the entity must be able to identify each party’s rights and the payment terms, and the contract must have commercial substance. The emphasis on two or more parties and enforceable rights and obligations is what makes this the proper definition. A verbal statement by a salesperson alone, a unilateral promise to pay without consideration, or a government regulation do not meet this definition of a mutually binding agreement creating enforceable rights and obligations in relation to a specific transaction.