1.18 The revenue note calls the rebate accrual a contract liability and in the same paragraph says no revenue came from contract liabilities
UK Company A · a UK-listed medical technology group · Regulator-style question
In brief
Note 2.1 says contract liabilities comprise rebates, gives the rebate accrual ([amount]; 2024: [amount]) and says [amount] (2024: [amount]) was 'recognised in revenue'. The same paragraph says no material revenue was recognised from carried-forward contract liabilities. An accrual for rebates and chargebacks owed to customers is a refund liability under IFRS 15 (a term the revenue policy itself uses), not a contract liability, and the [amount] figure is not explained.
The evidence, as filed
Screenshot withheld to protect the company’s identity: Annual Report 2025, page 219; Annual Report 2024, page 201; Annual Report 2025, page 218. Their wording or layout could lead back to the company even with names and figures masked; the evidence list below records what each page shows.
What the report shows, and what the rule requires
| What the annual report shows | What the rule requires |
|---|---|
| What the annual report shows 'contract liabilities comprise rebates'; rebate accrual [amount] (2024: [amount]) 'with [amount] being recognised in revenue in 2025 (2024: [amount])'; also '[wording masked]'. The policy describes 'an estimated refund liability'. | What the rule requires A consistent description: the rebate and chargeback accrual presented and described as a refund liability (variable consideration the group does not expect to retain), with a statement that there are no material contract liabilities; and a clear label for the [amount] (for example, rebates and chargebacks deducted from gross revenue in the year). |
What we checked: Read Note 2.1 in both reports against IFRS 15 paragraphs 55, 116-118 and Appendix A; compared the policy paragraph with the contract balances paragraph.
The rule
IFRS 15 Revenue from Contracts with Customers, paragraph 55
Version relied on: UK-adopted international accounting standards (UK Endorsement Board), as in force for financial years beginning in or after January 2025
A refund liability must be recognised where consideration is received that the entity expects to repay to the customer.
IFRS 15 Revenue from Contracts with Customers, paragraph 116(b)
Version relied on: UK-adopted international accounting standards (UK Endorsement Board), as in force for financial years beginning in or after January 2025
The accounts must disclose how much of the year's revenue was in the contract liability balance at the start of the year.
Why it applies here: Classification and description of the rebate balance are internally inconsistent in both years.
Why it matters
Readers cannot tell whether the group has any contract liabilities, how large its refund liabilities are, or what the [amount] represents.
Exposure
A question on classification and wording; no misstatement of revenue is suggested.
Our workings
the revenue policy says [wording masked]' and that rebates are mainly chargebacks claimed by wholesalers. The contract balances paragraph then says there is no material revenue from carried-forward contract liabilities, but that 'contract liabilities comprise rebates', with a rebate accrual of [amount] (2024: [amount]) and [amount] 'being recognised in revenue in 2025 (2024: [amount])'. The 2024 note uses the same words.
IFRS 15 defines a contract liability as an obligation to transfer goods or services for which consideration has been received or is due; paragraph 55 requires a refund liability where the entity expects to refund consideration, which is what a chargeback or rebate accrual is. The two are measured and presented differently and paragraph 116 asks for the contract liability balance and the revenue released from it. Calling the rebate accrual a contract liability therefore either overstates the contract liability disclosure or contradicts the sentence that none was released to revenue; and '[amount] recognised in revenue' cannot be revenue released from a [amount] opening balance. The most likely reading is that [amount] is the total of rebates deducted from revenue in the year, but the note does not say so. Only management can confirm the classification and the meaning of the figure, so this is a question.
Management’s best defence, and our reply
Management would say that many groups describe customer rebate accruals as contract liabilities, that the amount is small against revenue of [amount] and that the measurement of revenue is unaffected whatever the label. They would add that the [amount] is obviously the rebates deducted in the year. Those points may well be right on the numbers, which is why this is a question; but IFRS 15 draws a deliberate line between refund liabilities and contract liabilities, and the note's own sentences contradict each other on whether revenue came from contract liabilities.
The fix
- Replace the sentence with: 'The Group has no material contract assets or contract liabilities. Refund liabilities for rebates and chargebacks, included in trade and other payables, were [amount] (2024: [amount]); rebates and chargebacks deducted from revenue in the year were [amount] (2024: [amount]).'
Question for the company
Is the rebate and chargeback accrual of [amount] (2024: [amount]) a refund liability under IFRS 15 paragraph 55 rather than a contract liability, where is it presented in the balance sheet, and what does the [amount] (2024: [amount]) 'recognised in revenue' represent?
Evidence relied on
| # | What it shows | Type | Where |
|---|---|---|---|
| 1 | The rebate accrual and the unexplained [amount] | Document | Annual Report 2025, page 219 |
| 2 | The rebate accrual is called a contract liability | Document | Annual Report 2025, page 219 |
| 3 | The same paragraph says no revenue came from carried-forward contract liabilities | Document | Annual Report 2025, page 219 |
| 4 | The policy describes a refund liability | Document | Annual Report 2025, page 218 |
| 5 | The 2024 note uses the same description | Document | Annual Report 2024, page 201 |
Prepared by Pramanex from the company’s published annual reports, without the company’s involvement, to show how an annual report review reads. The company is not named, and nothing on this page is a statement about any identifiable company. Observations are not an audit, review or other assurance engagement, and not legal advice. A regulator-style question is a question, not a conclusion.
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