Testing when revenue is recognised under IFRS 15

How an auditor tests whether a client should recognise revenue over time or at a point in time under IFRS 15, using the five steps as an audit map.

By Achekam · 11 October 2026 · 5 min read · For Accountants & audit firms in South Africa, Nigeria, Kenya

An engineering firm in Durban recognises revenue on a design contract when it delivers the final drawings. An IT company in Nairobi recognises revenue on a support contract when it invoices, quarterly in advance. A Lagos events company recognises revenue when the client signs the booking form. Each policy might be right. Each might be wrong. The answer depends on what each contract promises and when the customer gets it.

Timing is where IFRS 15 judgement concentrates, and where a client under pressure can most easily move profit between years. This article covers how to audit whether revenue is recognised at a point in time or over time, using the standard's own structure as a map for the audit.

The five steps as an audit map

The IFRS Foundation summarises IFRS 15 in five steps: identify the contract with a customer; identify the performance obligations in it; determine the transaction price; allocate the price to each performance obligation; and recognise revenue when each obligation is satisfied.

Each step gives the auditor a question:

Timing is a step-five question, but it cannot be answered without steps one and two. A wrong view of what was promised leads to a wrong view of when it was delivered.

Distinct performance obligations

ACCA explains that, under IFRS 15, a good or service is a distinct performance obligation if the customer can benefit from it on its own or with other readily available resources, and it is separately identifiable from the other elements of the contract.

This matters for timing because separate obligations can be satisfied at different times. Equipment sold with a year of support contains, typically, two promises: the equipment, delivered at a point in time, and the support, delivered over the year. A client that recognises the whole price on delivery has brought the support revenue forward.

For each significant contract type, list the promises and test whether each is distinct. Ask the people who perform the work, not only finance, what the customer actually receives.

Over time: the three criteria

ACCA lists the three IFRS 15 criteria under which a performance obligation is satisfied over time:

1. The customer simultaneously receives and consumes the benefits as the entity performs, as with a cleaning or security service.
2. The entity's performance creates or enhances an asset that the customer controls, as with building on the customer's land.
3. The performance creates no asset with an alternative use to the entity, and the entity has an enforceable right to payment for work completed to date, as with a bespoke product the client could not sell to anyone else, under a contract that pays for work done if cancelled.

If none applies, ACCA explains, the obligation is satisfied at a point in time.

The third criterion is the one most often claimed and least often supported. Test both halves: could the client redirect the asset to another customer without significant cost, and does the contract, read with the law of the country concerned, give a right to payment for work done if the customer cancels? Read the cancellation clause.

Point in time: signs that control has passed

ACCA explains that indicators that control has passed at a point in time include a present right to payment, the customer having legal title, and the entity having transferred physical possession of the asset.

For point-in-time sales, the audit tests are familiar but should be tied to those indicators:

• Physical possession: delivery notes signed by the customer, waybills, collection records.
• Legal title: contract terms on when ownership passes, especially for goods in transit or on consignment.
• Right to payment: invoice terms and when the amount becomes due.

ACCA explains that the occurrence assertion means recorded transactions and events have occurred and pertain to the entity. Point-in-time revenue recorded before the indicators are met fails that assertion, even if the sale eventually happens. Our guide to revenue cut-off testing covers the period-end procedures.

Procedures and adjustments in Achekam

In Achekam, each work item lists the procedures and the documents each needs. A step counts as done only with a written response and its documents attached, or it is set aside with a written reason, and no step is ever deleted. For revenue timing, that keeps the contract reading, the over-time assessment and the delivery testing visible as separate steps, each answered.

The revenue, contract asset and contract liability lines in the lead schedules come from the engagement's trial balance and can be traced to the lines behind them. Where the team concludes that revenue was recognised too early, for example a support element taken up front, staff record an audit adjustment on the affected line with a reason and raise a finding from the working paper, which is later closed or withdrawn.

Contracts worth reading in full

Not every contract needs reading, but some do:

• the largest contracts by value;
• contracts signed near year end, especially with revenue recognised before year end;
• contracts with unusual terms: bill-and-hold, consignment, rights of return, acceptance clauses;
• contracts where the client recognises revenue over time on the third criterion;
• new types of contract the client has not used before.

Compare what the contract says with the client's revenue recognition policy and with what was recorded. A policy that does not match the contracts needs to change; our article on revenue recognition policies covers writing one that does.

ACCA's article on revenue under IFRS 15 explains distinct performance obligations, the over-time criteria and the indicators of control passing, with examples that help when discussing a client's contracts.

For your next audit, ask the client for one example of each type of contract it uses, and map each through the five steps at planning. The timing questions will be obvious before fieldwork starts.

General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.