Serie 2 Identification of Customer Contracts According to PSAK 72.
PSAK 72, which governs revenue recognition from contracts with customers, stipulates that the first step in its five-step model is to identify the customer contract. This contract is defined as an agreement between two or more parties that creates legally enforceable rights and obligations, whether written, oral, or in accordance with common business practice. The purpose of this identification is to ensure that only transactions that meet certain criteria are recognized as the basis for revenue recognition, thus reflecting their true economic substance.
According to Paragraph 9 of PSAK 72, an entity may only recognize a customer contract if all of the following criteria are met:
- 1. The parties to the contract have agreed to the contract and committed to perform their respective obligations.
- This agreement may be through a written document, an oral agreement, or established business practice. This commitment demonstrates that both parties are ready to exercise their rights and obligations without hesitation.
2. The entity can identify each party's rights regarding the goods or services to be transferred.
- These rights must be clear, for example, the entity is entitled to consideration and the customer is entitled to specific goods or services. If rights cannot be identified, the contract is not recognized.
3. An entity can identify the payment terms for the goods or services to be transferred. - This includes explicit or implicit payment schedules, such as upfront payment, installments, or upon delivery. Unclear terms may preclude recognition.
4. The contract must have commercial substance. - This means it must significantly affect the risk, timing, or amount of the entity's future cash flows. Contracts that are merely formalities without economic effect (for example, unrealistically implicit prices) do not meet this criterion.
5. It is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services transferred.
This evaluation considers the customer's ability and intention to pay when due, based on credit history, economic conditions, or collateral. If the risk of default is high, the contract is not recognized.
- If any of the criteria are not met, no contract is recognized, and the entity should not apply the PSAK 72 model. However, if the entity has received consideration despite the criteria not being met, the consideration can be recognized as revenue only if there is no remaining obligation or the contract is terminated without repayment.
In addition, PSAK 72 also regulates contract combinations (when multiple contracts are negotiated as a single or interdependent package) and contract modifications (scope or price changes that are reevaluated as separate contracts or as part of an existing contract).
Example 1: Simple Sales Contract (Meets All Criteria)
PT XYZ signs a written contract with a customer to sell 100 units of electronic products for Rp100 million, with 50% payment upfront and the remainder due upon delivery within 30 days.
Criteria 1: Both parties agree and commit through signature.
Criteria 2: Rights are clear—PT XYZ is entitled to Rp100 million, and the customer is entitled to the 100 units of product.
Criteria 3: Payment terms: 50% immediately, 50% within 30 days.
Criteria 4: Commercial substance exists because PT XYZ's cash flows have changed significantly.
Criteria 5: The customer has a good payment history, making collection highly probable.
Result: The contract is recognized, and revenue will be recognized when control of the goods is transferred (shipment).
Example 2: Contract That Doesn't Meet Criteria (Low Probability of Collection)
ABC offers 12 months of consulting services for Rp50 million to a new customer with a poor credit history and no collateral. The customer verbally agrees, but there is no clear payment schedule.
- Criterion 5 is not met:
The probability of collection is low due to the high risk of default.
Result: The contract is not recognized as a revenue base; ABC should only recognize revenue upon receipt of actual payment, and it is recorded as other revenue, not from the customer contract.
