IFRS 15 Revenue – Building and construction industry | Annualreporting.info

Construction contracts disclosures

IFRS 15 includes additional qualitative and quantitative requirements on construction contracts disclosures which were not included within IAS 11.

Many of these disclosure requirements are narrative in nature. IFRS 15 refers to qualitative and quantitative disclosures, and the more significant disclosures introduced include the following.

  • An entity discloses information about its contracts with customers to help users understand the amount, timing and uncertainty of revenue and cash flows from contracts. This includes dis-aggregation of revenue (for example, by geography, market, contract type) to assist users in meeting their objective. In addition, reconciliations between opening and closing contract balances are required in respect of: Construction contracts disclosures
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Construction contract modifications

Ever heard of a constructing a major new building, large bridge, metro railway or other significant construction project without contract modifications? Especially in the large urban agglomerations in this world….. Well then look at this:Construction contract modifications Construction contract modifications

And technology initiatives to avoid it: Artificial intelligence (AI)

How to account for variations and claims under the construction contract?

IFRS 15 does not include explicit guidance on accounting for contract variations and claims. Instead, it includes general guidance on contract modifications and other changes in the transaction price, which applies to all industries. [IFRS 15 18–21] But it works….

Changes in the scope and/or price of a construction contract

IFRS 15 … Read more

Construction – Variable pricing

How to measure construction contract revenue: variable consideration – variable pricing? Construction – Variable pricing

If the consideration promised in a contract includes a variable amount, then an entity estimates the amount of consideration to which it expects to be entitled. Consideration can vary because of discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, penalties or other similar items. [IFRS 15 50–54, IFRS 15 IE 101 – 108  Example 20 and Example 21]

To estimate the total variable contract price, an entity uses one of the following methods to estimate the amount of consideration to which it expects to be entitled:

  • the expected value – the sum of probability-weighted amounts in a range of possible consideration
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Construction contracts revenue – over time or at a point in time?

The rule: If the contract arrangements do not permit revenue to be recognised progressively, then revenue is recognised at a specific point in time on transfer of control, which for a construction contract will likely be close to completion.

The explanations: Should a contractor recognise revenue as construction work takes place or on practical completion?

While IFRS 15 was under development, a key concern of the construction industry was whether contractors would continue to recognise revenue as the contract progresses, similar to the stage of completion method under IAS 11. Construction over time or at a point in time?  Construction over time or at a point in time?

Under IFRS 15, revenue is recognised when, or as, performance obligations are … Read more

Performance obligations in the Construction industry

A construction contract may, in theory, be broken down into many promises that may need to be accounted for separately. However, the contract for the construction service can continue to be accounted for as one performance obligation if the contractor can demonstrate that: Performance obligations in Construction industry

  • it will provide a significant integration service;
  • the goods or services significantly modify or customise other goods or services promised in the contract; or
  • the goods and services within the contract are highly dependent on or integrated with other goods or services i.e. not distinct.

Given the integrated nature of contracting activities and that goods and services within the contract are generally highly dependent on or highly integrated with other goods or … Read more

Construction contracts computations

As part of the replacement of IAS 11 Construction contracts, IAS 18 Revenue and related interpretations by IFRS 15 Revenue from contracts with customers the presentation and diclosure regarding construction contracts has significantly changed.

The good news for contractors is that the progressive revenue recognition similar to current stage-of-completion accounting is largely retained for many long-term construction contracts. Therefore, in their Financial Statements 2018, contractors have found that applying the new standard to a traditional construction contract results in an accounting outcome broadly similar to IAS 11.

Nevertheless, the devil is in the details. IFRS 15 introduced many new concepts for revenue and cost recognition that are different from IAS 11. Contractors should not assume that their accounting for Read more