In May 2014 the IASB and FASB issued their new Standard on revenue recognition – IFRS 15 ‘Revenue from Contracts with Customers’ (ASU 2014-09 in the US). For companies with real estate development, property management or construction activities, accounting for revenue already involves a number of unique challenges, from dealing with complex bundles of interrelated goods and services to vendor guarantees, financing and other forms of continuing involvement. IFRS 15 supersedes several existing standards and provides significant new guidance in a number of key areas.
Among the more significant changes, IFRS 15 introduces new criteria for determining whether revenue is recognised at a point in time or over time. These new criteria replace the familiar guidance in IFRIC 15 and entities will need to apply their professional judgement when determining whether revenue from off-plan sales of residential units and other real estate transactions is required to be recognised over time or at a point in time. Companies will need to consider their contracts carefully.
Disclosures about revenue are also expanded and improved and will now include information about contract balances and changes, remaining performance obligations (backlog), and key judgements made.
Companies are required to apply IFRS 15 to their annual reporting periods beginning on or after 1 January 2018 although early application is permitted. With the potential to significantly impact the timing and amount of revenue recognised, entities in the real estate and construction industries will want to invest time up front to ensure all critical impacts are identified and understood well in advance of implementation.
Filled with practical insights and examples, this publication offers companies operating in the real estate and construction industries helpful guidance in identifying and responding to the most significant impacts of the new Standard.
For further information about IFRS 15, please contact us.