International Financial Reporting Standards

The International Accounting Standard 11 (IAS 11 ) is an accounting standard issued by the IASB on accounting for revenue and expenses from construction contracts. These are those jobs that have custom features, such as the construction of a bridge or a factory.

IAS 11 requires certain conditions for revenue recognition under the percentage of completion ( percentage of completion method, percentage of completion method ). Under this method, according to the stage of completion of contract costs incurred are allocated to the contract revenue. This leads to a consideration of income, expenses and profits in accordance with the progress. This method provides useful information on the extent of contract activity and performance during a period.

In contrast, (252 I 4 HGB for Germany in particular §) are allowed under the provisions of ( German and Austrian ) German Commercial Code gains from such projects due to the precautionary principle and the principles of proper accounting records are only recognized when they have actually been implemented, such as transfer of beneficial ownership ( completed contract method ).

IAS 11:03 distinguishes the following types of contracts:

  • Fixed-price contract ( "fixed price" ): a fixed price or a fixed price per unit of output has been agreed, which may be coupled to a price adjustment clause
  • Cost plus contract ( "cost plus " ): on the billable or otherwise defined costs an agreed percentage of these costs or a fixed fee will be added.

For the application of the percentage of completion method must be the result of a construction contract can be estimated reliably. In accordance with IAS 11.23 which is as follows the case:

  • Fixed price contract: The total contract revenue can be measured reliably;
  • It is probable that the economic benefits will flow to the company under the contract;
  • Both to completion of the contract to be incurred and the degree of completion can be measured reliably at the balance sheet date;
  • The costs attributable to the contract can be clearly identified and measured reliably so that actual contract costs incurred can be compared with prior estimates.
  • Cost plus contract: It is probable that the economic benefits will flow to the company under the contract;
  • The contract costs attributable to the contract can be clearly identified and measured reliably, irrespective of whether or not specifically reimbursable.

When the outcome of a construction contract can not be estimated reliably, contract revenue is recognized only to the extent of contract costs incurred that are expected to be recoverable, with the registration of the contract costs incurred as an expense in the period. This is - as in the HGB - a measurement at cost the same.

When it is probable that total contract costs will exceed total contract revenue, the expected loss should be recognized immediately as an expense.

The percentage of completion ( percentage of completion ) is calculated as follows:

Example

  • Production period from 1 January 2005 to 31 December 2009.
  • The total manufacturing cost is 500.000, - Euro.
  • Estimated EUR - As total profit 80,000 are.
  • Until December 31, 2005 are already 100.000, - Euro incurred at cost, which corresponds to 20% of total costs.
  • Now, - equivalent to the cost - also allocated 20% of profits in 2005, making 2005 a profit of 16.000, - Euro arises.
  • To be noted here is the consideration of deferred taxes ( in this case a tax provision and deferred tax) as the IFRS and tax balance by 16 thousand differ. Thus dutifully a tax provision is the amount of 16,000 x tax ​​rate formed.
International Accounting Standards Board Deloitte
199083
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