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AFS provides audit services to WBC with a 15% margin (matching AFS's typical margin). If WBC terminates other than for AFS's failure, the contract requires WBC to compensate AFS for costs incurred plus 15%. Under Ind AS 115:
ARevenue is recognised under criterion (a) — the customer simultaneously receives and consumes the benefits as AFS performs
BRevenue is recognised under criterion (b) — AFS creates an asset (the audit file) that WBC controls
CRevenue is recognised OVER TIME under criterion (c) — the audit opinion has no alternative use to AFS AND AFS has a legally enforceable right to payment for performance to date
DRevenue is recognised at a POINT IN TIME — audit revenue is recognised only when the audit opinion is delivered
Answer & Solution
Correct answer: C. Revenue is recognised OVER TIME under criterion (c) — the audit opinion has no alternative use to AFS AND AFS has a legally enforceable right to payment for performance to date
Criterion (c) of para 35 is met: (i) the audit opinion is specific to WBC (no alternative use to AFS), and (ii) AFS has an enforceable right to costs + 15% margin if WBC terminates other than for non-performance. Criterion (a) fails (WBC consumes benefit only on opinion delivery; another firm would need to re-perform). Criterion (b) fails (a service contract, no customer-controlled asset).
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