What's the difference between IAS 11 and IFRS 15 (in the part of construction contracts)?

 

Unlike IAS 11 IFRS 15 prescribes treating construction contracts the same way as any other contract with customers.

The following are issues that were not covered in IAS 11, but are introduced in IFRS  15:

A) IFRS 15 sets up the 5-steps model for revenue recognition:

  1. Identify contract with the customer.
  2. Identify the performance obligations in the contract.
  3. Determine the transaction price.
  4. Allocate the transaction price to the performance obligations in the contract.
  5. Recognize revenue when (or as) an entity satisfies a performance obligation.

B) Revenue should be recognized when (or as) the entity satisfies a performance obligation by transferring a promised good or service (ie an asset) to a customer. An asset is transferred when (or as) the customer obtains control of that asset.

C) If an entity performs by transferring goods or services to a customer before the customer pays consideration or before payment is due, the entity shall present the contract as a contract asset, excluding any amounts presented as receivable. Also, an entity shall assess a contract asset for impairment in accordance with IFRS 9, determine the expected credit loss and recognize a loss allowance.

If a customer pays consideration, before the entity transfers a good or service to the customer, the entity shall present the contract as a contract liability.

D) The entity shall recognize as an asset the incremental costs of obtaining a contract with a customer if the entity expects to recover those costs. Also, the costs incurred to fulfil a contract may be recognized as an asset under conditions that these costs relate directly to a contract, generate resources satisfying performance obligations in the future and are expected to be recovered. An asset recognized shall be amortized on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the asset relates and compulsory tested for impairment.

E) Instead of a variety of methods used to determine the stage of completion of a contract, IFRS 15 prescribes only two methods for measuring progress towards complete satisfaction of a performance obligation - output methods and input methods.

F) In determining the transaction price, an entity shall adjust the promised amount of consideration for the effects of the time value of money if the timing of payments provides the customer with a significant benefit of financing the transfer of goods or services. If a customer promises consideration in a form other than cash, an entity shall measure the non-cash consideration at fair value.

G) An entity has the right to apply IFRS 15 using one of the following two methods:

(a) retrospectively to each prior reporting period presented in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, or

b) retrospectively with the cumulative effect of initially applying this Standard recognized at the date of initial application.


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