Revenue Recognition Under IFRS 15: The Evidence Auditors Ask For and Rarely Receive

Revenue is the first number an auditor looks at and usually the last one they sign off. In growth-stage and PE-backed businesses it is also the number most likely to move during fieldwork, not because management is wrong, but because the reasoning behind the policy lives in someone's head rather than in a file.

IFRS 15 did not make revenue harder. It made the reasoning explicit. Auditors now expect to see the five-step logic applied contract by contract, with evidence attached to each judgement.

Where revenue testing actually stalls

Fieldwork rarely stalls on the arithmetic. It stalls on three things: contracts that cannot be located, performance obligations that were never separately identified, and cut-off around the year-end date where invoicing and delivery do not align.

A business selling subscriptions with an implementation fee, a professional services element and an annual licence has at least three potential performance obligations. If the general ledger records one revenue line and the contract file is incomplete, the auditor cannot conclude, and the request list grows.

The evidence pack that works

Build a revenue file before fieldwork that contains the following:

1. A written revenue recognition policy mapped to the five steps of IFRS 15, referencing your actual contract types rather than the standard's examples.
2. A contract register listing every material customer arrangement, the contract date, the value, the identified performance obligations and the recognition pattern for each.
3. Copies of signed contracts and any variations, filed against the register.
4. A schedule reconciling contracted value to recognised revenue to deferred revenue, agreed to the trial balance.
5. Cut-off testing evidence for the two weeks either side of year end, showing delivery or service dates against invoice dates.
6. A separate schedule for variable consideration: discounts, rebates, service credits and usage true-ups, with the constraint applied and the basis explained.

Judgements that need a written rationale

Three judgements attract the most audit attention in mid-market businesses.

Principal versus agent. If you resell software, hardware or third-party services, the question of whether you control the good before transfer determines whether you report gross or net. This single judgement can halve reported revenue. Document it once, properly, with reference to who bears inventory risk, who sets price and who is responsible for fulfilment.

Contract modifications. Upsells and mid-term expansions are common in recurring-revenue businesses. Whether a modification is a separate contract or a continuation changes the recognition profile. A short memo per material modification prevents a fieldwork debate.

Costs to obtain a contract. Sales commissions may need capitalising and amortising over the customer relationship period. Many businesses expense them, which may be right under the practical expedient, but the expedient has conditions and you should evidence that you meet them.

Why this matters beyond the audit

Revenue quality is the first thing a buyer or a lender interrogates. A business that can produce a contract register, a deferred revenue roll-forward and a clean cut-off file is telling a very specific story about the discipline of its finance function. A business that produces a spreadsheet built during fieldwork is telling a different one.

The work involved is measured in days if you do it before the year end. It is measured in weeks, under pressure, if you leave it to the audit.