Revenue – ifrs 15 handbook

Two definitions of a contract exist in IFRS
IAS
®
32.13
The definition of a contract in the revenue standard focuses on legal 
enforceability. Although the term ‘contract’ is also defined in the standard on 
presentation of financial instruments, that definition is different and stops short 
of requiring the contract to be legally enforceable.
The International Accounting Standards Board (the Board) did not amend the 
definition of a contract in the standard on presentation of financial instruments 
on the grounds that this may have unintended consequences on the accounting 
for financial instruments. As a result, there are two definitions of a contract 
in IFRS.
1.1.1 
Framework agreements
Generally, a framework agreement that includes no minimum purchase quantities 
only establishes the terms under which orders to purchase goods or services may 
be placed, rather than creating enforceable rights and obligations for the parties – 
i.e. it does not create a contract. However, enforceability is a matter of law in the 
relevant jurisdiction and each framework agreement will need to be evaluated based 
on its terms and conditions and local law. 
When a framework agreement on its own does not create enforceable rights 
and obligations, it will normally be the purchase order in combination with the 
framework agreement that creates the enforceable rights and obligations between 
the entity and the customer. Therefore, the purchase order in combination with 
the framework agreement will be evaluated to determine whether the criteria in 
paragraph 9 of the standard are met and a contract exists. 
An entity needs to consider whether the pricing of individual purchase orders is 
inter-related and: 
– the purchase orders need to be combined (see 
Section 1.4
); or
– there are implicit or explicit promises in the framework agreement: i.e. whether 
it includes a material right (see 
Section 10.4
) or any variable consideration 
(see 
Section 3.1
) – e.g. a rebate or discount.

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12 | Revenue – IFRS 15 handbook