Die Arbeit stellt die praktischen und theoretischen Konsequenzen der Umstellung der Umsatzerfassung nach International Rechnungslegungsstandards mit der Einführung des IFRS 15 dar. Dabei liegt der Fokus der Arbeit auf der bilanziellen Behandlung von Langzeitfertigungsaufträgen, zB. Eigentumswohnungen.
Table of Contents
I Introduction
II Revenue Recognition under IFRS
1. Purpose of International Financial Reporting Standards
a) Information function
aa) General objective of decision usefulness
bb) Limited role of stewardship
b) Qualitative characteristics of financial statements
aa) Relevance as the dominating criterion
bb) Reliability within the concept of faithful representation
cc) Enhancing qualitative characteristics
2. Revenue recognition under IFRS – Two competing approaches
a) Asset-liability view
b) Revenue-expense view
c) Inconsistencies in revenue recognition under IFRS
III Analysis of the impact of IFRS 15 on the construction industry
1. Characteristics and risks related to construction and real estate
2. Dispartment of construction contracts into separate performance obligations
a) Scope and definition of contracts with customers
b) Identification of separate performance obligations
aa) Distinct goods and services as the key criteria for separability
bb) Combined output through integrating services – A relevant exception
cc) Little guidance on separation of performance obligation under old revenue standards
3. Satisfaction of performance obligations based on the concept of control
a) Concept of control
b) Distinction between different types of performance obligations
aa) Revenue recognition at point in time
bb) Revenue recognition over a period of time – Often the case of construction contracts
aaa) Simultaneous receipt and consumption of benefits
bbb) Performance and enhancement of an asset under customers control
ccc) Creation of an asset with no alternative use and an enforceable right to payment
i) Explanation and meaning
ii) Expansion of the Percentage-of-completion method- A critical evaluation
iii) Consequences for the sale of real estate
4. Measuring progress towards completion
a) Reasonable measures of progress
b) Input methods experience stronger regulations under IFRS 15
c) Output methods
5. Capitalization of pre-contract incremental costs
IV Conclusion
Research Objective and Core Topics
This thesis examines the theoretical and practical implications of the transition to IFRS 15 for the construction and real estate industry, specifically focusing on how the new revenue recognition model alters current accounting practices for long-term contracts.
- Theoretical foundations of the IFRS Conceptual Framework and revenue recognition models.
- Impact of the "control principle" on the identification of performance obligations.
- Challenges in measuring progress towards completion using input versus output methods.
- Treatment of pre-contract incremental costs under the new standard.
- Analysis of sector-specific consequences for construction and real estate accounting.
Excerpt from the Book
Characteristics and risks related to construction and real estate
Today’s construction and building practices are characterized by a strong trend towards more complex and technologically interdependent construction processes and services which extend over several years. Such projects fall under the definition of long-term construction contracts, usually involve multi-element contracts and are frequently encountered in the aerospace or shipbuilding sector, industry construction and the building and real estate industry. In most cases, four elementally order-related sections are identifiable: Order acquisition (front-end planning and development etc.), contract phase with contract conclusion, implementation (construction, commissioning and customer approval) and the warranty period. Every section is linked to a unique combination of risks. Those risks can comprise calculation errors, organizational and technical risks, currency risks, general political and economic uncertainties as well as the overassessment of subcontractors and suppliers. Given the individual character and large financial scale of each project as well as the high complexity, the occurrence of those risks involved can endanger the continued existence of the enterprise. Due to the fact that the asset needs to be constructed under the contract, i.e. it does not yet exist before the contract is concluded and thus cannot be examined by the customer prior to entering the contract, the risk that the asset does not meet all the previously agreed specifications is usually higher in construction contracts than in sales agreements. Since construction generally starts after contract conclusion with the customer, the entity does not face sales risk. However, enterprises are confronted with an increased supply risk due to the elaboration of cost-intensive binding offers with only about 10 % of total offers finally leading to contract conclusion.
Summary of Chapters
I Introduction: This chapter outlines the global economic context, the transition to IFRS 15, and the primary objective of analyzing the shift in revenue recognition standards for the construction sector.
II Revenue Recognition under IFRS: This section discusses the theoretical framework of IFRS, comparing the asset-liability approach against the revenue-expense view and exploring qualitative characteristics of financial reporting.
III Analysis of the impact of IFRS 15 on the construction industry: The main body evaluates the practical and theoretical consequences of the new standard on construction contracts, focusing on performance obligations, the concept of control, measurement of progress, and cost capitalization.
IV Conclusion: The final chapter synthesizes the main findings and discusses the potential long-term impacts of the shift toward the control-based model on the construction industry.
Keywords
IFRS 15, Revenue Recognition, Construction Contracts, Performance Obligations, Control Principle, Percentage-of-Completion, Real Estate, Financial Reporting, Asset-Liability Approach, Conceptual Framework, Incremental Costs, Contract Accounting, Earnings Management.
Frequently Asked Questions
What is the core focus of this bachelor thesis?
The thesis investigates the theoretical and practical changes brought about by the introduction of IFRS 15 regarding revenue recognition, specifically for companies operating in the construction and real estate sectors.
Which accounting frameworks are compared and analyzed?
The paper analyzes the transition from previous standards (such as IAS 11 and IAS 18) to the new principles-based IFRS 15 model.
What is the primary goal of the research?
The primary goal is to examine how the new five-step model for revenue recognition impacts the accounting treatment of long-term construction contracts and whether it effectively addresses previous inconsistencies.
What scientific methodology is utilized in this paper?
The research is based on a critical analytical literature review, evaluating current accounting standards, industry-specific risks, and the normative discussions within the IFRS Conceptual Framework.
What are the key topics covered in the main section?
The main part covers the identification of performance obligations, the shift to a control-based recognition model, methods for measuring project progress, and the capitalization of incremental contract costs.
Which keywords best characterize this work?
Core keywords include IFRS 15, Revenue Recognition, Construction Contracts, Performance Obligations, Control Principle, and Percentage-of-Completion.
How does IFRS 15 change the treatment of "pre-contract costs"?
IFRS 15 introduces more specific guidelines for the capitalization of incremental costs of obtaining a contract, moving away from older, less defined practices under IAS 11.
What is the "control principle" mentioned in the context of construction?
The control principle marks a transition from the old "risks and rewards" approach to assessing whether a customer gains control of an asset as it is being created or enhanced, which is crucial for determining the timing of revenue.
- Quote paper
- Elias Fiebig (Author), 2015, Recognition of Revenue From Construction Contracts According to IFRS, Munich, GRIN Verlag, https://www.grin.com/document/301356
