IAS 18
Withdrawn
Revenue
Governed revenue recognition for sale of goods, rendering of services, and interest/royalties/dividends, based primarily on the transfer of risks and rewards of ownership. Superseded by IFRS 15 Revenue from Contracts with Customers.
Withdrawn Standard
IAS 18 (issued 1982, revised 1993) governed revenue recognition for sale of goods, rendering of services, and interest/royalties/dividends, based primarily on the transfer of risks and rewards of ownership. It was superseded by IFRS 15 Revenue from Contracts with Customers, effective for periods beginning on or after 1 January 2018, which replaced the risks/rewards test with a control-based five-step model.
It is retained here for historical reference. For current revenue recognition, always apply IFRS 15.
Current Standard
IFRS 15 Revenue from Contracts with Customers 1
Conceptual Framework Linkage
Risks and rewards – an earlier proxy for "control"
The Conceptual Framework requires income recognition when an entity's assets increase (or liabilities decrease) in a way that increases equity. IAS 18 operationalised this for revenue using a risks and rewards test: revenue from selling goods was recognised when the significant risks and rewards of ownership had transferred to the buyer – a reasonable, but ultimately less precise, proxy for what IFRS 15 later reframed directly as the transfer of control.
HOW IAS 18 MAPPED TO THE FRAMEWORK
Faithful representation – recognising revenue only once risks/rewards genuinely transferred avoided overstating income for goods the seller still effectively "owned" in substance A single-transaction, rather than obligation-based, view – IAS 18 analysed revenue transaction by transaction (a sale, a service), rather than IFRS 15's more granular performance obligation concept, which could split a single contract into multiple distinct revenue streams Limited guidance for complex, multi-element arrangements – IAS 18's relatively brief guidance struggled with increasingly common bundled contracts (software plus support, goods plus installation), a key driver of IFRS 15's much more detailed replacement
IAS 18's risks/rewards test and IFRS 15's control test often produced the same answer in straightforward transactions – the practical divergence mattered most for complex, multi-element, or long-term service arrangements that IAS 18's relatively brief guidance handled less precisely.
The three revenue categories IAS 18 addressed
CategoryRecognition trigger
Sale of goodsTransfer of significant risks/rewards of ownership
Rendering of servicesStage of completion (percentage of completion method)
Interest, royalties, dividendsEffective interest method / accrual basis / when the right to receive payment is established
IFRS 15's single five-step model replaced this three-category structure with one unified approach, applied consistently across all types of contracts with customers.
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Scope & Applicability (Historical)
What IAS 18 covered
IAS 18 applied to accounting for revenue arising from the sale of goods, rendering of services, and use by others of entity assets yielding interest, royalties, and dividends.
IAS 18 explicitly excluded lease income (IAS 17), insurance contracts, and changes in fair value of financial instruments/biological assets/agricultural produce (IAS 39, IAS 41) – a scope structure broadly carried forward, with refinement, into IFRS 15's own exclusions.
Key definitions you must know (historical)
Revenue (original)
The gross inflow of economic benefits during the period arising in the course of ordinary activities, when those inflows result in increases in equity, other than increases from equity participants.
Risks and rewards of ownership
The exposure to loss/gain associated with holding an asset – the central concept determining when revenue on the sale of goods was recognised.
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Sale of Goods – The Risks/Rewards Test (with worked example)
Five conditions, all required
Revenue from the sale of goods was recognised when all of: significant risks/rewards of ownership had transferred; the seller retained neither continuing managerial involvement nor effective control; revenue could be measured reliably; it was probable economic benefits would flow to the entity; and costs incurred (or to be incurred) could be measured reliably.
Example 1: A sale with a right of return
A retailer sells goods for $80,000, allowing customers a 30-day unconditional right of return. Based on extensive historical data, the retailer reliably estimates 5% of sales will be returned.
Since the risk of loss (via returns) has been reliably estimated and is not so significant as to prevent revenue recognition, revenue is recognised net of the expected returns: 80,000 × 95% = $76,000, with a $4,000 refund liability recognised – broadly the same outcome IFRS 15 would produce today via its variable consideration and refund liability mechanics, though arrived at through a different conceptual route.
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Rendering of Services – Stage of Completion (with worked example)
The percentage of completion method
Where the outcome of a service transaction could be estimated reliably, revenue was recognised by reference to the stage of completion at the reporting date – the "percentage of completion" method, using surveys of work performed, proportion of costs incurred, or physical proportion of the contract work completed.
Example 2: Service revenue by stage of completion
A consultancy firm enters a 12-month advisory contract for a total fee of $600,000. At the reporting date, 40% of the contracted work has been completed, based on hours logged relative to total estimated hours.
Revenue recognised = 600,000 × 40% = $240,000 – this stage-of-completion approach is conceptually very similar to IFRS 15's own "over time" recognition using an input method, reflecting genuine continuity in the underlying logic despite the standards' different overall structures.
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Interest, Royalties, and Dividends
Three distinct recognition bases
Interest – recognised using the effective interest method, a basis carried forward identically into IFRS 9 today Royalties – recognised on an accrual basis, in accordance with the substance of the relevant agreement Dividends – recognised when the shareholder's right to receive payment is established, a principle retained identically under IFRS 9 today
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Measurement of Revenue
Fair value of consideration received or receivable
Revenue was measured at the fair value of consideration received or receivable, taking into account trade discounts and volume rebates – a measurement principle conceptually similar to, though less elaborately developed than, IFRS 15's "transaction price" concept and its detailed variable consideration guidance.
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Multiple-Element Arrangements (Historical)
Limited, principles-only guidance – a key source of later reform
IAS 18 stated only briefly that recognition criteria were usually applied separately to each transaction, but sometimes needed to be applied to separately identifiable components of a single transaction (e.g. goods bundled with subsequent servicing) – but offered little detailed guidance on how to identify or measure such components. This gap was one of the clearest drivers of IFRS 15's far more elaborate "distinct performance obligation" and stand-alone selling price allocation framework.
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Why IAS 18 Was Replaced
A joint IASB/FASB response to widespread diversity and gaps
Both IAS 18 (IFRS) and the pre-2018 US GAAP revenue guidance suffered from significant industry-specific diversity, numerous interpretations plugging gaps, and inadequate guidance for increasingly common complex, multi-element, and long-term contracts (software, telecoms, construction). The IASB and FASB undertook a genuinely joint project resulting in IFRS 15/ASC 606 – a single, converged, comprehensive revenue standard replacing both IAS 18 and its numerous predecessor US GAAP standards/interpretations.
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Disclosure Requirements (Historical)
Required disclosures under IAS 18
Accounting policies adopted for revenue recognition, including methods for determining stage of completion The amount of each significant category of revenue (goods, services, interest, royalties, dividends) The amount of revenue arising from exchanges of goods/services
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Critical Judgments & Estimates (Historical)
Where management judgement mattered most
SIGNIFICANT JUDGEMENTS
Whether significant risks/rewards of ownership had genuinely transferred Identifying separately identifiable components within a single, bundled transaction
SIGNIFICANT ESTIMATES
Stage of completion for service contracts Fair value of consideration received/receivable, particularly for non-cash consideration
IAS 18's relatively brief guidance for complex, multi-element arrangements was widely regarded as a genuine gap – leading to significant diversity in practice for software, telecoms, and similar bundled-service industries, directly motivating IFRS 15's much more detailed replacement.
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IAS 18 vs Modern IFRS 15
Comparison – IAS 18 (1993 revision) vs current IFRS 15
FeatureIAS 18 (withdrawn)Current (IFRS 15)
Core recognition triggerTransfer of significant risks and rewards of ownershipTransfer of control – a more precise, though often similar-in-outcome, concept
Multi-element arrangementsBrief, principles-only guidanceDetailed "distinct performance obligation" identification and stand-alone selling price allocation framework
Variable considerationNot explicitly addressed as a distinct conceptExplicit estimation methods (expected value/most likely amount) and the "constraint" reliability safeguard
Over-time vs point-in-time recognitionSeparate categories (goods vs services) with different testsA single unified test (Step 5) applicable to all performance obligations, regardless of goods/services distinction
The single biggest structural change was unifying what IAS 18 treated as separate categories (goods, services, interest/royalties/dividends) into one consistent five-step model applied universally.
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Statement Mapping (Historical, Under IAS 18)
Comprehensive event-to-statement mapping table
Event / transactionStatement(s) affectedNotes
Sale of goods – risks/rewards transferredSOPLRevenue recognised at fair value of consideration
Service revenue – stage of completionSOPLPercentage of completion method
Interest incomeSOPLEffective interest method
Dividend incomeSOPLRecognised when the right to receive is established
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Related Standards
Cross-reference map
StandardConnection
IFRS 15The direct successor, replacing risks/rewards with control, and adding detailed multi-element guidance
IAS 11 (also withdrawn)Governed long-term construction contracts specifically, also replaced by IFRS 15
IFRS 9Continues to govern interest and dividend income recognition
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Quick-Reference Glossary
Stage of completion
The proportion of total service/contract work completed at the reporting date, used to recognise revenue for services under IAS 18.
Continuing managerial involvement
Ongoing involvement retained by the seller to the degree usually associated with ownership, preventing revenue recognition even after physical delivery.
Risks and rewards of ownership
The exposure to loss/gain associated with holding an asset – the central concept determining when revenue on the sale of goods was recognised.
Revenue (original)
The gross inflow of economic benefits during the period arising in the course of ordinary activities, when those inflows result in increases in equity, other than increases from equity participants.
Effective interest method
A method of calculating the amortised cost of a financial asset or liability, and of allocating interest income/expense over the relevant periods, carried forward identically into IFRS 9.
Financial statement key
BS Balance sheet
IS Income statement
SE Statement of changes in equity
OCI Other comprehensive income
SCF Statement of cash flows