How will IFRS 15 Revenue from Contracts with Customers affect you!

The International Accounting Standards Board (IASB) published IFRS 15[1] Revenue from Contracts with Customers in May 2014 effective for reporting periods commencing on or after 1 January 2018.  During the development of IFRS 15 the construction and property industry was identified as one of those most likely to be impacted upon by the new standard.

As part of the In:sight Construction and Property Industry workshop we will discuss the following areas and illustrate (using examples) the impact of IFRS 15 on your business.  Given the long term nature of contracts within the construction and property industry it is vital that you understand and prepare for the impacts of IFRS 15 now.

1. Pre-contract costs

  • Only the incremental costs of obtaining a contract are capitalised (for example, a sales commission).
  • Costs that would have been incurred regardless of whether the contract was obtained (except those that are explicitly chargeable to the customer regardless of outcome) shall be recognised as an expense when incurred.

2. Revenue recognition – % of completion versus a point in time

  • In order to recognise revenue over the life of the project one of the following must be met:
a) the customer simultaneously receives and consumes the benefits provided;
b) the entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced; or
c)the entity’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date.
 

3. Bundling of contracts and performance obligations

  • Contracts are combined where at least one of the following is met:
a) the contracts are negotiated as a package with a single commercial objective;
b) the amount of consideration to be paid in one contract depends on the price or performance of the other contract; or
c) the goods or services promised in the contracts are a single performance obligation.
 

4. Variable consideration – how is it measured

  • An entity use one of the following models depending on which best predicts the consideration the entity will receive:
a) the expected value; or
b) the most likely amount.

5. Loss making contracts

  • Now accounted for under AASB 137 as an onerous contract.

6. Contract modifications

  • Depending on the nature of the contract modification it may be accounted for as either a change to the existing contract or the issue of a new contract.

7. Financing components within contracts

  • Where the period between the payment and provision of the good or services is greater than one year an adjustment needs to be made for the implicit financing arrangement in the contract.

8. New disclosures

  • More extensive and onerous!
We will be discuss these areas in more detail as part of the In:sight Construction and Property Industry workshop. Register your attendance to ensure you are prepared for the impacts of IFRS 15.

To get in contact with one of our advisors and find out how you will be impacted by IFRS 15, fill in this short form or call +61 3 9909 7371
 
 
[1] AASB 15 Revenue from Contracts with Customers in Australia.