Smart Money Determining the stage of completion of contract work IFRS
IAS 11 provides detailed guidance on how to determine the stage of completion of a contract. The basis used depends on the nature of the contract work and may be either: • The proportion of contract costs incurred for work performed to date to estimated total contract costs. (“Incurred costs” exclude materials delivered to the site but that are not yet incorporated into the construction, unless the material is made specifically for the contract); • Surveys of work performed (such as assessments by the owner’s consultant); or • Completion of a physical proportion of the contract work.
Canadian GAAP
Determining the stage of completion under PE GAAP is consistent with IFRS, in that the determination should be based on the work accomplished by reference to an appropriate measure depending on the nature of the contract work. While examples of appropriate measures are provided (sales value, associated costs or the extent of progress), the application of the principle is likely to be the same under both IFRS and PE GAAP.
Disclosure requirements IFRS
IAS 11 requires the following disclosures, which are effectively the same as PE GAAP: • The amount of contract revenue recognized in the period; and • The methods used to determine the contract revenue recognized in the period, including the method used for contracts in progress. Additional disclosures required in IFRS include: • For contracts in progress at the end of the period: the total of costs incurred and profits recognized to date, and the total advances received and retentions. • On the balance sheet, the gross amount due from customers for contract work as an asset and the gross amount due from customers as a liability.
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Canadian GAAP
In PE GAAP, the following should be disclosed: • The revenue recognition policy, including the basis used to measure work accomplished; and • The major categories of revenue, which should appear separately on the face of the income statement. PE GAAP intentionally reduces the disclosures that private enterprises are required to make.
This article has been prepared for general information. Specific professional advice should be obtained prior to the implementation of any suggestion contained.
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