How To Identify Performance Obligations in IFRS 15?

More than 140 jurisdictions now require IFRS Accounting Standards, so the IFRS 15 model for revenue runs through a large share of global reporting. 

The UAE follows that direction, with listed companies required to use IFRS for statutory accounts and now for corporate tax too. 

For finance teams handling IFRS registration 15 in Dubai, the hardest step is often not the maths. It is judging what the performance obligations in a contract really are.

IFRS 15 and Why Performance Obligations Matter

IFRS 15 replaces mixed rules on “risks and rewards” with a single five-step model for revenue. The steps are:

• Identify the contract
• Identify performance obligations
• Determine the transaction price
• Allocate that price 
• Recognise revenue when each obligation is satisfied.

The standard defines performance obligations as promises in a contract to transfer distinct goods or services to a customer. Each separate obligation becomes a unit for measurement. 

Revenue then follows the pattern of control transfer for that unit, not for the contract as a whole. Getting the list wrong shifts revenue between periods, which can affect covenants and tax.

First Pass: List the Promises in the Contract

Work usually starts by listing the promises that sit inside a customer contract. IFRS 15 asks entities to consider everything that is explicit in writing or implied by past practice, not only line items on the invoice.

In a software licence deal, obvious promises might include delivery of the licence key and ongoing support. In a construction project, the contract might promise design services and build activity under one price. 

Loyalty points, reseller incentives and rights of return can also be promised. Each one is a candidate performance obligation until tested.

Distinct or Not Distinct: The Core Test

IFRS 15 sets out two linked tests. A promised good or service is “distinct” only if both are met.

• The customer can benefit from the good or service on its own or with other readily available resources.
• The good or service is separately identifiable within the contract, rather than being highly integrated with other promises.

If both tests fail, the promise is combined with others until a larger, distinct bundle appears. In some cases, the entire contract becomes a single performance obligation because the supplier is providing one combined output, such as a completed building.

When to Combine Promises into one Performance Obligation

Judgement becomes critical when a contract contains many linked activities. IFRS 15 gives indicators that promises are not distinct in context. That may be the case when the supplier provides a significant integration service or when one promise modifies another.

Take an engineering, procurement and construction contract in Dubai. Design, procurement and build phases could technically be sold separately. Yet in this contract the customer expects one combined asset delivered to an agreed specification. 

The supplier integrates all tasks into that output. In that setting, the phases typically form a single performance obligation, with revenue recognised over time as the asset is built.

Series of Distinct Goods or Services

IFRS 15 also allows a “series” approach. A series of distinct goods or services that are substantially the same and have the same pattern of transfer counts as a single performance obligation.

This often applies to cleaning, support or subscription contracts. Each month’s service is capable of being distinct. Still, the customer receives the same type of benefit and the supplier uses the same method to measure progress. 

Treating the series as one obligation reduces complexity, yet timing still follows the transfer pattern, often straight-line.

Contract Types Common in Dubai

In practice, IFRS 15 performance obligations arise in familiar contract types seen across Dubai: real estate development, software, media retainers and long-term facility management.

A property developer that sells off-plan units might promise construction, handover and limited post-completion fixes. Many projects treat this as a single obligation because the buyer expects one completed apartment, not separate goods. 

Software firms supplying licences plus configuration often split the contract into licence and implementation where the customer can benefit from the licence without the custom work.

For retainer-style advisory or maintenance contracts, the series guidance usually fits. Each month’s service is distinct, yet combined into one performance obligation for presentation. Clear scoping and milestones help support that decision during the audit.

Link to Revenue Recognition Under IFRS 15

Once performance obligations are identified, the rest of the model follows. The transaction price is allocated to each obligation, then revenue is recognised as control of that good or service passes to the customer.

This is the heart of revenue recognition under IFRS 15. Obligations satisfied at a point in time, such as delivery of a standard product, trigger revenue on transfer. 

Obligations satisfied over time, such as construction of a customer-controlled asset, use progress measures like costs incurred, surveys of work or units produced. Mis-identifying obligations distorts these patterns, which is why early contract review matters.

Governance, Documentation and Local Regulatory Links

Dubai boards now need revenue policies that stand up to both auditors and tax reviews. Corporate tax guidance already points to IFRS as the accepted accounting base for profit, with IFRS for SMEs allowed only below certain revenue levels.

That makes IFRS 15 implementation in Dubai a governance topic, not just an accounting change. Committees expect to see policy papers explaining how performance obligations are identified by sector, sample contract walk-throughs and evidence that controls pick up unusual deal structures. 

Working papers should show why certain promises are combined or kept separate, and how those decisions affect revenue timing.

How Arnifi Helps with IFRS 15 Contracts

Many finance teams now handle complex customer contracts but have limited time for deep technical projects. This is where IFRS advisory services in Dubai become useful. Arnifi works with management to build a contract-review framework that fits local industries and the five-step model.

Typical support includes mapping key revenue streams, drafting policy notes for common contract types and designing checklists for front-office staff so new deals are flagged early if they break the usual pattern. 

Arnifi also helps align chart-of-accounts codes and systems so that performance obligations and transaction prices flow naturally into ledgers, instead of being tracked inside spreadsheets.

Conclusion

IFRS 15 pushed revenue into a contract-based world where performance obligations sit at the centre. The standard treats each distinct promise as a separate unit, then ties revenue timing to the transfer of control for that unit.

For entities handling IFRS registration 15 in Dubai, careful contract reading and clear documentation now matter as much as calculations. 

Arnifi supports boards and finance leaders by turning these dense rules into practical review tools and policy sets. Hence, contracts, systems and tax filings all tell the same story.

FAQs

1. What is a performance obligation under IFRS 15?

A performance obligation is a promise in a contract to transfer a distinct good or service, or a series of similar services, to a customer in exchange for consideration.

2. How many performance obligations can a single contract contain?

There is no fixed limit. A simple contract may contain one obligation, while complex arrangements can contain several, depending on how many distinct goods or services exist.

3. Why does identifying performance obligations affect revenue timing?

Revenue is recognised when each obligation is satisfied. If promises are split or combined differently, the pattern of satisfaction changes, which moves revenue between reporting periods and can influence profit trends.

4. Do all support services create separate performance obligations?

Not always. Support can be a distinct service or part of a single combined obligation. The answer depends on the contract, the customer’s ability to benefit separately and how integrated the promises are.

5. How can businesses in Dubai manage IFRS 15 contract judgements?

Many create standard policy papers, train commercial teams to flag unusual deals and involve advisers such as Arnifi early. That combination keeps decisions consistent and easier to defend during audit or tax review.