The International Accounting Standards Board (IASB) and U.S. FASB have finally issued their new Standard on revenue – IFRS 15 ‘Revenue from Contracts with Customers’ (ASU 2014-09 or Topic 606 in the U.S.). This bulletin summarises the new requirements and what they will mean for the construction industry
Recently issued IFRS 15 ‘Revenue from Contracts with Customers’ replaces IAS 11 ‘Construction Contracts’ and provides significant new guidance addressing key questions such as:
- Can revenue be recognised over time, or only upon completion?
- When do bundled services represent a separate performance obligation?
- What impact can contract modifications (‘change orders’) have on current and future revenues
- When does entering into a second contract with the same customer impact revenue on the original contract?
- What costs should be included when estimating performance using the cost-to-cost method?
- How should incentive payments be accounted for?
- Can contract acquisition costs be capitalised, or must they be expensed?
With the potential to significantly impact the timing and amount of revenue recognised, construction entities will want to invest time up front to ensure all critical impacts are identified and understood well in advance of implementation
