[Analysis] Scope & Criteria of Revenue Recognition Under AS 9 & Ind AS 115

Accounting Standard 9, “Revenue Recognition”, defines the term revenue as the gross inflow of cash, receivables or other consideration arising in the course of the ordinary activities of an entity from the sale of goods, the rendering of services and from the use by others of entity resources yielding interest, royalties and dividends.

Ind AS 115 “Revenue from Contracts with Customer” applies to all contracts with customers to provide goods or services that are the output of the entity’s ordinary activities of the business in exchange for consideration, unless specifically excluded from the scope of this Ind AS.

Recognition Criteria as per Ind AS 115

Step 1: Identify the contract with the customer

Step 2: Identify the performance obligation in the contract

Step 3: Determine the transaction price

Step 4: Allocate the transaction price to the performance obligations in the contract

Step 5: Recognize revenue when the entity satisfies its performance obligation

In carrying out the audit of revenue, the following checklist can be helpful for the auditor to obtain reasonable assurance about the reporting of revenue in the financial statements:

I. Has the auditor examined the system and procedure relating to the generation of revenue including the authority to fix prices, offer discounts and other terms of sale

II. Has the auditor checked, whether the accounting procedure, relating to the recognition of revenue is as per AS 9/Ind AS 115

III. Whether the auditor has ensured that the transactions pertaining to a period are recorded in that period and not in a preceding or subsequent period

IV. Whether the actual price charged has been compared with authorised price lists or have been authorised by the appropriate official of the entity

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