This free, guided checker walks your finance team through the key decision points for IFRS 15 Construction Contract Revenue. Answer a few questions to see the likely treatment and the evidence to document.
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This tool is a high-level IFRS screening aid for general information only and is not accounting, audit or legal advice. Conclusions require entity-specific evidence and judgement - confirm the treatment with your advisor.
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Building, infrastructure, shipbuilding, and bespoke manufacturing contracts often create assets with no alternative use and may qualify for over-time revenue recognition. Assess alternative use at contract inception based on contractual restrictions and practical limitations on redirecting the asset (IFRS 15.36; IFRS 15.B6-B8). Highly customized specifications, customer-owned land, and dedicated engineering are the typical indicators to gather.
Apply the general IFRS 15.31-38 transfer-of-control guidance without the construction-specific over-time analysis.
Official guidance: IFRS issued standards
Construction contracts must meet paragraph 9 criteria including collectability before applying the five-step model and over-time tests. Letters of intent and unsigned notices to proceed need careful analysis of enforceability under the governing law, and the criteria are reassessed when significant facts change (IFRS 15.13). Distinguish a genuine collectability failure from an implicit price concession, which reduces the transaction price instead (IFRS 15.9(e); IFRS 15.52(b)).
Do not recognize revenue; account for consideration received as a liability until the IFRS 15.9 criteria are met or an IFRS 15.15 event occurs (IFRS 15.15-16).
Official guidance: IFRS issued standards
Paragraph 35(b) is met when the customer controls the asset as it is created or enhanced, such as a structure built on land the customer owns. Weigh the control indicators in IFRS 15.31-33 - ability to direct use, obtain remaining benefits, legal title, and physical possession of the work in progress. Do not confuse this with 35(a), which addresses services the customer simultaneously receives and consumes; construction of an asset is normally tested under 35(b) or 35(c).
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Official guidance: IFRS issued standards
Paragraph 35(c) requires contractual or legal restrictions preventing redirection plus enforceable payment for work done including a reasonable profit margin. The right to payment must apply throughout the contract, not only at milestones, and enforceability depends on the governing law and any contrary legal precedent (IFRS 15.B11-B13). A deposit-only or cost-reimbursement termination clause typically fails the reasonable-margin test (IFRS 15.B9).
Recognize revenue at the point in time when the customer obtains control of the completed asset, using the IFRS 15.38 indicators.
Official guidance: IFRS issued standards
Over-time recognition requires a supported paragraph 35 criterion before selecting a measure of progress under paragraphs 39-40. Retain the contract clauses on termination compensation, transfer of work in progress, and redirection restrictions that evidence the criterion. A common trap is asserting 35(c) without verifying the right to payment includes a reasonable margin at all times during the contract (IFRS 15.B9-B13).
Document the specific IFRS 15.35 criterion and its contractual support before recognizing construction revenue over time.
Official guidance: IFRS issued standards
Output methods such as milestones or units installed may better reflect performance than cost-to-cost when costs do not correlate with transfer of control. Apply a single method per performance obligation and apply it consistently to similar obligations in similar circumstances (IFRS 15.39-40). Milestone billing schedules negotiated for cash-flow reasons rarely equal value transferred, so validate any output measure against work actually performed (IFRS 15.B15).
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Official guidance: IFRS issued standards
Faithful measurement excludes inefficiencies, wasted materials, and uninstalled materials that do not transfer control to the customer. IFRS 15.44 permits over-time recognition only when progress can be reasonably measured; in early stages where it cannot, IFRS 15.45 limits revenue to recoverable costs incurred with zero margin. Reassess at each reporting date whether the limitation still applies.
Recognize revenue only to the extent of costs incurred until progress can be reasonably measured (IFRS 15.45).
Official guidance: IFRS issued standards
Prefabricated or bill-and-hold materials delivered to the site may not increase progress until installed. When the customer obtains control of goods significantly before installation, IFRS 15.B19(b) requires recognizing revenue for those goods only to the extent of their cost, with no margin, and excluding them from the progress calculation. Screen the cost ledger each period for major equipment and owner-furnished items.
Adjust the input method to exclude uninstalled materials and inefficiencies that do not depict performance (IFRS 15.B19).
Official guidance: IFRS issued standards
Construction contracts often include approved variations and estimates of claims that affect cumulative revenue under the selected progress method. Include claims and incentives only to the extent it is highly probable a significant revenue reversal will not occur (IFRS 15.56), and determine for each variation whether it is a separate contract or a modification accounted for cumulatively (IFRS 15.20-21). Unapproved scope changes with agreed pricing disputes remain modifications with variable consideration (IFRS 15.19).
Update the transaction price and recognize the cumulative catch-up adjustment in the period of change (IFRS 15.87-88).
Official guidance: IFRS issued standards
IFRS 15 contains no onerous-contract guidance; loss-making construction contracts fall under IAS 37.66-68, which requires a provision when the unavoidable costs of meeting the contract exceed the economic benefits expected. Costs of fulfilling comprise the costs that relate directly to the contract - both incremental costs and allocations of other direct costs (IAS 37.68A). Recognize any impairment loss on assets dedicated to the contract before measuring the provision (IAS 37.69).
Recognize an onerous-contract provision for the unavoidable excess of directly related contract costs over expected economic benefits (IAS 37.66-68).
Official guidance: IFRS issued standards
Over-time construction revenue creates contract assets for unbilled work and contract liabilities for billings in advance of performance. Determine the position contract by contract - a single customer can hold both asset and liability positions across different contracts - and present a receivable once the right to consideration becomes unconditional (IFRS 15.105-108). Contract assets carry expected credit loss allowances under IFRS 9.5.5.15.
Reconcile contract balances to progress schedules and billings before finalizing entries (IFRS 15.105-107).
Official guidance: IFRS issued standards
Disclose methods to measure progress, inputs used, and effects of changes in estimates when material to users of the financial statements. IFRS 15.124 requires both the method applied and an explanation of why it faithfully depicts the transfer of goods or services. Remaining performance obligation disclosures cover the aggregate transaction price allocated to unsatisfied obligations and its expected timing (IFRS 15.120-122).
Recognize over-time construction revenue using the selected input or output method, remeasured each reporting date (IFRS 15.39-40). Complete the IFRS 15.110-129 disclosure analysis before publishing construction revenue results.
Official guidance: IFRS issued standards
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