Which is the correct first step in IFRS 15 for revenue recognition?

The correct first step in IFRS 15 for revenue recognition is to identify the contract with the customer. This step is essential because a contract is the foundation for all subsequent revenue recognition. It establishes the rights and obligations of each party involved, which allows for a clear understanding of how and when to recognize revenue.

By defining the contract upfront, it sets the stage for identifying performance obligations, determining the transaction price, and ultimately allocating that price to the performance obligations. The contract must meet certain criteria to be recognized under IFRS 15, such as being approved by the parties, having commercial substance, and clearly stating the rights and payment terms.

If the initial step of identifying the contract is overlooked, it can lead to misunderstandings about the nature of the transaction and can have significant implications for revenue recognition in later steps. Therefore, ensuring that a contract exists and is well-defined is critical for accurate and consistent revenue reporting.