Which of the following is NOT one of the five steps in the revenue recognition process under AASB 15 Revenue from Contracts with Customers?

Question

BlackTom AI · Accepted Answer

The five-step model under AASB 15 consists of: (1) identify the contract(s) with a customer; (2) identify the performance obligations (distinct goods or services) in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations; and (5) recognize revenue when (or as) the entity satisfies each performance obligation. These are the authoritative steps for revenue recognition under AASB 15 (the Australian adoption of IFRS 15).

Step-by-step reasoning:
1. List the five correct steps above (knowledge point 1).  
2. Compare the candidate choice "Recognize revenue as costs are incurred" to each official step: none of the five steps uses costs-incurred as the trigger or wording. The official trigger is satisfaction of a performance obligation (step 5), which may, in some contracts, coincide with costs incurred, but costs themselves are not the determining step.  
3. Therefore the candidate choice is not one of the five steps and is the correct “NOT” answer.

No numerical calculations are required for this conceptual question.

Why the correct answer is correct:
- AASB 15 ties revenue recognition to transfer of control of promised goods or services (i.e., satisfaction of performance obligations), not directly to the pattern or timing of costs incurred. Costs may inform measurement or progress (for example, input methods like cost-to-cost can be used to measure progress), but recognizing revenue purely when costs are incurred would be inconsistent with the standard’s focus on transfer of control and satisfaction of obligations.

Why typical distractors would be incorrect:
- “Recognize revenue when billed” is incorrect because billing is a billing event, not necessarily the transfer of control.  
- “Recognize revenue when cash is received” is incorrect because cash receipt can precede or follow performance.  
- “Recognize revenue when the contract is signed” is incorrect because signing alone doesn’t mean obligations are satisfied.  
All of these contrast with the correct step 5.

Conclusion: "Recognize revenue as costs are incurred" is not one of the five steps under AASB 15, which matches the provided correct answer.

Which of the following is NOT one of the five steps in the revenue recognition process under AASB 15 Revenue from Contracts with Customers?Single choice

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