Construction contracts disclosures provides a start to think of what and how to report construction contracts under IFRS 15. And it is more than before. IFRS 15 includes additional qualitative and quantitative requirements on construction contracts disclosures which were not included within IAS 11.
Many of these disclosure requirements are narrative in nature. IFRS 15 refers to qualitative and quantitative disclosures, and the more significant disclosures introduced include the following.
- An entity discloses information about its contracts with customers to help users understand the amount, timing and uncertainty of revenue and cash flows from contracts. This includes dis-aggregation of revenue (for example, by geography, market, contract type) to assist users in meeting their objective. In addition, reconciliations between opening and closing contract balances are required in respect of: Construction contracts disclosures
- contract assets and contract liabilities; Construction contracts disclosures
- revenue recognised in the reporting period that was included in the contract liability (i.e. billings in advance) balance at the beginning of the period; and
- revenue recognised in the reporting period from performance obligations satisfied in previous periods.
- An entity also provides an explanation of the significant changes in the contract asset (i.e. an entity’s right to consideration for assets transferred) and contract liability (i.e. an entity’s obligation to transfer goods or services for which consideration has been received or is receivable) positions during the period.
- An entity discloses information about its performance obligations in contracts with customers, including a description of:
- when the entity typically satisfies performance obligations;
- significant payment terms;
- the nature of the goods or services the entity has promised to transfer; Construction contracts disclosures
- obligations for returns, refunds and other similar obligations; and
- warranties and related obligations.
- For contracts expected to be completed after one year from contract inception, the amount of the transaction price allocated to the performance obligations remaining at the end of the reporting period and an explanation of when the entity expects to recognise that amount as revenue.
- Other disclosures to be included are as follows:
- description of significant judgements in applying IFRS 15; Construction contracts disclosures
- description of the methods used to recognise revenue over time and why these methods provide a faithful depiction of the transfer of goods and services;
- information about the methods, inputs and assumptions used to determine and allocate the transaction price; and
- description of the judgements made in determining the amount of cost incurred and the method used to determine the amortisation of these assets.
Some connections to disclosures – points of interest
Construction is the process of constructing a building or infrastructure. Construction differs from manufacturing in that manufacturing typically involves mass production of similar items without a designated purchaser, while construction typically takes place on location for a known client. Construction as an industry comprises six to nine percent of the gross domestic product of developed countries. Construction starts with planning, design, and financing; it continues until the project is built and ready for use.
Large-scale construction requires collaboration across multiple disciplines. A project manager normally manages the budget on the job, and a construction manager, design engineer, construction engineer or architect supervises it. Those involved with the design and execution must consider zoning requirements, environmental impact of the job, scheduling, budgeting, construction-site safety, availability and transportation of building materials, logistics, inconvenience to the public caused by construction delays and bidding. Large construction projects are sometimes referred to as megaprojects.
See also: The IFRS Foundation