Distinguishing Contract Assets vs. IFRS 9 Receivables: Understanding the Risks Under IFRS Accounting Standards

IFRS 15 distinguishes between contract assets and IFRS 9 Financial Instruments receivables. Which one of the following statements is correct? A contract asset and a receivable are both subject to the risk that the customer will cause a loss for the entity by failing to pay, but a receivable is also subject to the risk of non-performance. It is important to distinguish between a contract asset and a receivable because it provides financial statement users with relevant information about the risks associated with the entity’s rights. A contract asset arises if nothing other than the passage of time is required before payment of the customer’s consideration is due. Contract assets must be presented separately from receivables. A contract asset and an IFRS 9 Financial Instruments receivable are both subject to the risk of non-performance, but an IFRS 9 Financial Instruments receivable is also subject to the credit risk.

The correct statement is: "It is important to distinguish between a contract asset and a receivable because it provides financial statement users with relevant information about the risks associated with the entity’s rights."

According to IFRS 15, a contract asset arises when the entity has fulfilled its performance obligations but the customer's payment is not yet due; hence, it is subject to the risk that the customer will cause a loss for the entity by failing to pay. On the other hand, a receivable under IFRS 9 Financial Instruments refers to an entity's right to receive cash or other resources from another entity, and it is subject not only to the risk of non-performance but also to credit risk, which is the risk that the debtor may default on the payment due to financial difficulties or other reasons. Therefore, recognizing the distinction between contract assets and receivables gives users of financial statements valuable insights into the different risks associated with each type of asset.

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