What disclosures are critical for contract assets and contract liabilities under IFRS 15?

• A. Contract liabilities arise when revenue is recognized but not billed.
• B. Contract assets arise when consideration is received in advance.
• C. Contract assets arise when revenue is recognized but not billed; contract liabilities arise when consideration is received or billings exceed revenue; require disclosures on aging, significant judgments, and expected timing of settlement.
• D. IFRS 15 does not require disclosures about contract assets or liabilities.

Answer: (C)

IFRS 15 distinguishes contract assets and contract liabilities to reflect the timing of cash flows and revenue recognition. A contract asset is the entity’s right to consideration for goods or services transferred that has not yet been billed, meaning revenue has been recognized but billing is not completed. A contract liability is an obligation to transfer goods or services for which consideration has already been received or billings exceed recognized revenue.

Because these balances reflect timing and liquidity, IFRS 15 requires disclosures about them. Specifically, entities must provide aging analyses for contract assets and contract liabilities, disclose the significant judgments used in determining when revenue is recognized and how amounts are measured, and explain the expected timing of settlement of these balances. These disclosures help users assess the entity’s cash flow timing and potential credit risk.

So this option is the best because it correctly states when contract assets and contract liabilities arise and the key disclosures IFRS 15 requires. Statements saying there are no disclosures, or mischaracterizing when these balances arise, do not fit.