Wiley International Trends in Financial Reporting under IFRS: Including Comparisons with US GAAP, Chinese GAAP, and Indian GAAP

CHAPTER 8

Construction Contracts (IAS 11)

1. OBJECTIVE

1.1 This Standard prescribes the accounting treatment for construction contracts in the financial statements of contractors.

1.2In November 2011, the International Accounting Standards Board (IASB) and the US-based Financial Accounting Standards Board (FASB) reissued an Exposure Draft (ED) titled Revenue from Contracts with Customers with the aim of improving financial reporting by creating a single revenue recognition Standard, clarifying the principles for recognizing revenue, and creating consistent principles that can be applied across various transactions, industries, and capital markets. The comment letters on the revised ED were due by March 13, 2012. If adopted, the proposals would supersede International Accounting Standard (IAS) 11, Construction Contracts, and IAS 18, Revenue, and the related Interpretations.

2. SYNOPSIS OF THE STANDARD

This Standard, which is applicable in accounting for construction contracts in the contractor’s (not contractee’s) financial statements, is summarized next.

2.1 A construction contract is a contract specifically negotiated for the construction of an asset or combination of assets that are closely interrelated or interdependent in terms of their design, technology, and function or their ultimate purpose or use. Construction contracts also include contracts for rendering services that are directly related to the construction of assets.

2.1.1 Construction contracts can either be fixed-price ...