What is a customer under IFRS 15?

What is a customer under IFRS 15?

• A. A party that contracts with an entity to purchase goods or services that are the output of the entity's ordinary activities in exchange for consideration
• B. A supplier of inputs
• C. A regulator
• D. An employee

Answer: (A)

Under IFRS 15, a customer is the party that has a contract with the entity to obtain goods or services that are the output of the entity's ordinary activities in exchange for consideration. This focuses on the contractual relationship and the transfer of control of those goods or services to the price-paying party. The customer is the counterpart in the contract, not a broader audience like end users who may later consume the product, nor internal or external parties who don’t contract with the entity to receive goods or services. So, for example, when a manufacturer sells products under a contract to a retailer, the retailer is the customer. The ultimate consumer who buys the product from the retailer is not the customer from IFRS 15’s perspective. Likewise, a business providing services to another business under a contract is recognizing revenue from that contract with the customer, not from any regulator, supplier, or employee.

Under IFRS 15, a customer is the party that has a contract with the entity to obtain goods or services that are the output of the entity's ordinary activities in exchange for consideration. This focuses on the contractual relationship and the transfer of control of those goods or services to the price-paying party. The customer is the counterpart in the contract, not a broader audience like end users who may later consume the product, nor internal or external parties who don’t contract with the entity to receive goods or services.

So, for example, when a manufacturer sells products under a contract to a retailer, the retailer is the customer. The ultimate consumer who buys the product from the retailer is not the customer from IFRS 15’s perspective. Likewise, a business providing services to another business under a contract is recognizing revenue from that contract with the customer, not from any regulator, supplier, or employee.