Pitfall One: Recognising Revenue at Invoice Date Instead of Transfer of Control

The most common AASB 15 error is not a five-step-model failure at all — it is a bookkeeping habit that predates the standard. A business invoices a customer for goods on the day the order is dispatched and books revenue on the invoice date, without checking whether control of the goods has actually transferred by that date. For goods shipped FOB destination, or under delivery terms where risk and control pass only on the customer’s receipt and acceptance, revenue recognised at dispatch is recognised too early — sometimes by only a few days, but consistently early across every transaction compounds into a material overstatement at any cut-off date, including year end.

The fix is not complicated once identified: map the actual delivery terms in the standard sales contract (or the terms that override it on a given order) against the five indicators of control transfer in AASB 15 — the entity has a present right to payment, the customer has legal title, the customer has physical possession, the customer has the significant risks and rewards of ownership, and the customer has accepted the asset. For most straightforward goods contracts, physical possession and risk transfer are the indicators that actually move the needle, and they are usually a matter of days, not judgment calls — but only if someone checks the delivery terms rather than defaulting to invoice date.

Pitfall Two: Missing a Material Right (Customer Options for Future Goods or Services)

A subscription or membership business offers existing customers a discount voucher, loyalty point, or renewal incentive as part of a sale — “spend $200 today, get a $30 voucher off your next purchase.” If that discount is incremental to what the customer would otherwise be offered without the original purchase (i.e. it is not simply the standard discount available to anyone), AASB 15 treats it as a separate performance obligation: a material right that the customer is, in substance, paying for as part of the original transaction, even though no separate fee is charged for it.

The error is treating the entire $200 as revenue from the original sale and expensing the voucher as a marketing cost when it is redeemed. The correct treatment allocates part of the original transaction price to the material right, based on its standalone selling price (estimated, if necessary, using the value of the discount adjusted for the probability of redemption), and defers that portion until the voucher is redeemed or expires. For a business running loyalty programs, subscription renewal discounts, or “buy X get a credit toward Y” promotions at scale, failing to identify the material right systematically overstates current-period revenue and understates a real contract liability sitting on the balance sheet.

Pitfall Three: Applying Over-Time Recognition Without Meeting Any of the Three Criteria

Services and construction-type businesses often default to recognising revenue “as the job progresses” because that feels intuitively right for work that takes months to complete. But AASB 15 only permits over-time recognition when at least one of three specific criteria is met: the customer simultaneously receives and consumes the benefits as the entity performs (typical of routine, recurring services); the entity’s performance creates or enhances an asset the customer controls as it is created (typical of construction on the customer’s own land or existing asset); or the entity’s performance creates an asset with no alternative use to the entity, and the entity has an enforceable right to payment for performance completed to date (typical of a customised, made-to-order asset under a services or supply contract with adequate payment protection).

A business that builds a customised product to a customer’s specification but sells any unsold units to other customers if the original buyer walks away — that is, the asset does have an alternative use — fails all three criteria and must recognise revenue at a point in time (typically on delivery and acceptance), not progressively as production occurs, however long the build takes. Conversely, some fixed-fee project engagements genuinely do meet criterion one or three and are incorrectly recognised only on final invoice or completion, understating revenue during a long project and overstating it in the delivery month. The direction of the error runs both ways — the fix is testing the actual criteria on each material contract type, not defaulting to whichever recognition pattern matches how the business happens to invoice.

Practical Takeaway

All three pitfalls share a root cause: recognition driven by an administrative event — an invoice, a standard discount policy, a project timeline — rather than by the actual transfer of control specified in the five-step model. The fix in each case is the same discipline: map the real contract terms (delivery terms, promotional mechanics, the nature of the asset being created) against the specific AASB 15 tests, rather than applying a house convention that predates the standard or that was copied from a different contract type. A short annual review of the standard sales, subscription, and project contract templates against these three tests catches the majority of recurring AASB 15 errors before they compound across a full reporting period.