IFRS 15: How to Integrate App B in CPA Canada Exams

Let’s say you are faced with IFRS 15 revenue recognition question on the CPA Canada PEP exam or CFE, and it involves discussing Appendix B. How do you go about integrating it into the IFRS 15’s 5-step model? Let’s take a look at it in this post. 

Understanding the importance of the IFRS 5-step revenue model

In CPA Canada’s Handbook, IFRS 15 standard consists of 5 steps:

  1. Identify the contract with a customer (further reading: How to Format Step  1)
  2. Identify the performance obligations
  3. Determine the overall transaction price
  4. Allocate the transaction price to the performance obligations
  5. Recognize revenue as the entity satisfies a performance obligation

Some AOs need to be solved by simply listing the 5 steps, analyzing with case facts, and concluding. However, more complex AOs require discussion and integration of Appendix B items.

What is Appendix B?

IFRS 15 Appendix B is called Application guidance. Its purpose is to help users with treatment of non-routine revenue issues. Given the complexity of revenue, knowing when to recognize revenue is not as simple as listing the 5 steps; there are many nuances and exceptions.  Appendix B was created to give additional guidance to revenue recognition.

In CPA Canada exams, you would use Appendix B when faced with non-routine revenue recognition AOs. For example, you would use Appendix B for:

  • Sale with a right of return
  • Warranties
  • Principal versus agent
  • Loyalty points (customer options for additional goods)
  • Non-refundable upfront fees
  • Licensing
  • Consignment arrangements
  • Bill-and-hold arrangements

There are more Appendix B items, which are listed in my FR technical study notes, but the above are the most commonly tested.

How do you integrate App B to IFRS 15 analysis?

There is no set rule on which IFRS 15 step you must integrate, it depends on the nature of the Appendix B item. Some items are integrated into step 2 , while others are integrated into step 4 or step 5.

For example, below is a screenshot from CFE 2015 Day 2 case K-Med, where Appendix B consignment was integrated into step 5:


Here is another example from CFE 2019 Day 2 case Elcar, where Appendix B customer options for additional goods (i.e loyalty points) was integrated into step 2:


The integration depends on the nature of the Appendix B item. Think about which step it relates the most and slot it there. Step 2 , step 4 and step 5 are the most common places to integrate.

Extra resources

Extra resources are available at FR technicals.