Question

Question 3 You are the auditor of YFC Airlines, an airline approximately the size of Air Canada, and you find out that the change fees, amounting to $6 million, are collected by third parties on behalf of the airline are recognized into passenger revenue as cash is collected. As at the year-end December 31, 2019 $2 million is attributable to future flights. The auditor has asked management to record a liability for the future change fees. You are a consultant that has been hired to defend management's position to record the entire amount into revenue. 1. Using IFRS use two arguments to support management's accounting choice.

Answer 1

The management should agree with the Auditor's accounting choice.

Explanation:

To recognise revenue under IFRS 15, an entity applies the following five steps:

• identify the contract(s) with a customer.
• identify the performance obligations in the contract. Performance obligations are promises in a contract to transfer to a customer goods or services that are distinct.
• determine the transaction price. The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer. If the consideration promised in a contract includes a variable amount, an entity must estimate the amount of consideration to which it expects to be entitled in exchange for transferring the promised goods or services to a customer.

In the given case, the performance obligation has not been fulfilled (i.e., Amount collected for future flights). Therefore, the amount pertaining to those future flights should not be recognised as revenue in the P&L.