The incorrect statement is: "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." According to IFRS 15, a contract asset arises when the right to receive consideration is dependent on factors other than the mere passage of time. Also, contract assets and receivables, though both exposed to the risk of non-performance by the customer, are not mutually exclusive; a receivable is specifically an unconditional right to receive payment, while a contract asset has conditions beyond time passage for payment to be due. Therefore, contract assets involve additional risks beyond credit risk, such as performance risk. It's crucial to differentiate between these two to provide financial statement users with insights into the entity's risk exposure.
Understanding the Difference Between Contract Assets and IFRS 9 Receivables: Key Distinctions and Risks Explained
IFRS 15 distinguishes between contract assets and IFRS 9 Financial Instruments receivables. Which one of the following statements is NOT correct? Select all that apply.
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.
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 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.
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.
