Revenue recognition for construction industry is a complex area, now IASB and FASB are trying to work out a comprehensive new accounting standard for revenue recognition. Before they issue the new standard, which is best interest for our client to know current standard and development issues for revenue recognition. This article will introduce how the revenue recognised at present within the construction industry at first. Second the process of new standard development will be discussed. In third part of this article will demonstrate reason why it is difficult and time consuming to developing the new standard. In the end, it will consider the lasted exposure draft published by IFRS and past reversions to make a future perspective about some benefits new standard will bring to construction contract.
Current revenue recognition within construction industry
If the construction contract result can be estimated reliably, then at the end of each reporting period revenue related should be recognised according to completion level of the contract and if the outcome cannot be judge reliably, which revenue would be recognised only cover the contract cost(IFRS, 2012). The definition of construction contract is ‘a contract specifically negotiated for the construction of an asset or a combination of assets that are closely interrelated or interdependent in terms of their design, technology and function or their ultimate purpose or use’ (IFRS, IAS11 construction contract, 2012).
IAS 18 is the tandard for revenue recognition, which involved the contract of service (Mckeith and Collins, 2013). But it is difficult apply in certain industries like construction. Because the construction contract will take many years to be finished su...
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...mmittee Due Process Handbook.
IFRS. (01/01/2012). IAS 11 Construction Contract
IFRS. (no date provided). How we develop IFRSs. http://www.ifrs.org/how-we-develop-standards/Pages/how-we-develop-standards.aspx. Viewed at 30/11/2012.
IFRS. (no date provided). Revenue recognition. http://www.ifrs.org/Current-Projects/IASB-Projects/Revenue-Recognition/Pages/Revenue-Recognition.aspx# . Viewed at 06/11/2013.
McKeith, J. and Collins, B. (2013). Financial accounting and reporting (second edition).London: McGraw-Hill Education (UK) Limited.
Melville, A. (2011). International Financial Reporting a practical guide (third edition). Essex: Pearson Education limited.
PWC. (25/11/2013). Dataline A look at current financial reporting issues. No.2013-23 http://www.pwc.com/en_US/us/cfodirect/assets/pdf/dataline/dl-2013-23-boards-revenue-redeliberations.pdf (Assessed 10/12/2013).
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