Applying IFRS 15's five steps to a small client

A walk through IFRS 15's five steps using a small IT services client, from deciding a contract exists to recognising revenue, and how to write it up.

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

Small clients rarely think of their sales as contracts. They think of jobs, orders, quotes accepted on WhatsApp and invoices sent at month end. Yet IFRS 15 asks the preparer to look at every one of those through the same five-step lens, and for most owner-managed businesses the exercise is shorter than its reputation suggests.

The value of doing it properly is not the paperwork. It is finding the handful of arrangements where the invoice date and the revenue date are not the same, which is where small-company revenue figures usually go wrong. This article follows one example client through the steps and ends with what belongs in its policy and notes.

The client: an IT services company in Nairobi, Durban or Abuja that sells laptops to small offices, installs them on the customer's network and offers a support plan for the months that follow. The customer signs one quote covering all three.

The core principle in one sentence

Under IFRS 15, an entity recognises revenue to depict the transfer of promised goods or services to the customer, in an amount that reflects the consideration to which the entity expects to be entitled in exchange for them. Every step below serves that sentence: what was promised, what it is worth, and when it was handed over.

The IFRS Foundation sets out the five steps as identifying the contract with a customer, identifying the performance obligations in it, determining the transaction price, allocating that price to each performance obligation, and recognising revenue when a performance obligation is satisfied.

Step one: when a contract exists, written or not

ACCA explains that under IFRS 15 a contract may be written, verbal or implied, but it must be enforceable, have commercial substance and be approved by the parties, and it must be probable that the entity will collect the consideration.

For the IT company, the signed quote is the contract. For many small clients there is no signed document at all: a regular customer phones in an order, or accepts a price by e-mail. That can still be a contract. The point to test is enforceability and collectability, not the paperwork. A sale to a customer the client already doubts will pay deserves a second look before revenue is booked.

Steps two to four: obligations, price, allocation

Step two: what was promised. IFRS 15 describes performance obligations as promises to transfer goods or services that are distinct. ACCA explains that a good or service is distinct 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.

Apply that to the quote:

• The laptops are distinct. The customer could use them without this supplier's installation.
• Standard installation that any competent technician could do is usually distinct too, because the customer could buy it elsewhere. Heavy customisation that turns hardware and work into one combined system may not be.
• The support plan is distinct. It is a separate service the customer benefits from over its term.

Step three: the price. The transaction price is the consideration the client expects to be entitled to. For the IT company that is the quoted total, less any discount it has already agreed to give.

Step four: allocation. IFRS 15 allocates the transaction price on the basis of the relative stand-alone selling prices of each distinct good or service. If the quote bundled a "free" first month of support, part of the total still belongs to that support, because the customer would pay for it if bought on its own. The client's price list is usually the best evidence of stand-alone prices.

Step five: satisfying the obligation, whatever the payment date

Revenue is recognised as each obligation is satisfied. The laptops are handed over on delivery. Installation is done on the day the technician finishes. Support is given across the plan's term, so its share of the price is earned as the months pass. Whether a particular obligation is satisfied over time or at a point in time is its own question, covered in revenue over time or at a point in time.

ACCA notes that the timing of the customer's payment is not relevant to when revenue is recognised. If the office paid the full quote upfront, the support share is still not revenue on the day the cash arrived; it waits until the support is given. If the office pays thirty days after delivery, the laptops are still revenue on delivery. The year-end question for this client is therefore simple: how much of the support plans sold before year end relates to months after it?

A quick summary for the file:

Turning the analysis into the client's policy and notes

The analysis matters only if the statements reflect it. Achekam's Studio includes standard accounting policy wording based on IFRS for SMEs, labelled for review before issue, and staff can write the client's own policies. A full IFRS client applying IFRS 15 needs a policy that names its actual revenue streams, in this case hardware, installation and support, and states when each is recognised. A policy that repeats the standard's general wording tells the reader nothing about this client; writing the revenue recognition policy goes further on that.

Where an AI key is set up, the Studio can also draft narrative text, such as the nature of the business and note wording, with figures still coming from code. That text is labelled "AI draft - review before issue". There is no separate approval for each paragraph; the safeguard is the firm's review stages and the partner's signature, so the reviewer should read the revenue wording against the five-step analysis above, not just for style. Without a key, standard wording is used instead.

The IFRS Foundation's IFRS 15 page summarises the standard and its five-step model, and is worth reading before meeting any client whose quotes bundle goods and services.

For the next file, start by listing the client's revenue streams and asking, for each, what exactly is promised and when it is handed over. The steps follow naturally from those two answers.

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