IAS 11 vs. IAS 18

Attribute	IAS 11	IAS 18
Scope	Construction Contracts	Revenue Recognition
Recognition Criteria	Percentage of Completion Method	When it is probable that economic benefits will flow to the entity
Measurement	Cost Model	Fair Value Model
Disclosure Requirements	Contract revenue, costs incurred, progress towards completion, etc.	Nature, amount, timing, and uncertainty of revenue and cash flows

Scope and Objective

IAS 11, Construction Contracts, provides guidance on accounting for revenue and costs associated with construction contracts. The standard aims to ensure that entities recognize revenue and expenses related to construction contracts in a manner that reflects the stage of completion of the contract. On the other hand, IAS 18, Revenue, provides guidance on when to recognize revenue from the sale of goods, rendering of services, and the use of others' assets. The objective of IAS 18 is to ensure that revenue is recognized when it is probable that economic benefits will flow to the entity and the revenue can be reliably measured.

Recognition of Revenue

IAS 11 requires revenue from construction contracts to be recognized based on the percentage of completion method. This method recognizes revenue in proportion to the work completed on the contract. In contrast, IAS 18 provides specific criteria for recognizing revenue from the sale of goods, rendering of services, and the use of others' assets. Revenue is recognized when it is probable that economic benefits will flow to the entity and the revenue can be reliably measured.

Measurement of Revenue

IAS 11 requires the use of the percentage of completion method to measure revenue from construction contracts. This method involves estimating the percentage of completion of a contract based on the costs incurred to date compared to the total estimated costs of the contract. On the other hand, IAS 18 allows for different measurement methods depending on the type of transaction. For example, revenue from the sale of goods is measured at the fair value of the consideration received or receivable, while revenue from rendering of services is measured at the fair value of the services provided.

Disclosure Requirements

IAS 11 requires entities to disclose information about the amount of revenue recognized, the method used to determine the stage of completion, and the amount of costs incurred and recognized profits or losses. Entities must also disclose the amount of contract revenue, costs incurred, and recognized profits or losses for each reporting period. Similarly, IAS 18 requires entities to disclose information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Entities must also disclose any significant judgments made in applying the standard.

Impact on Financial Statements

IAS 11 can have a significant impact on the financial statements of entities engaged in construction contracts. The percentage of completion method can result in revenue and profit recognition at different points in time compared to other revenue recognition methods. This can affect the reported financial position and performance of the entity. On the other hand, IAS 18 may not have as significant of an impact on the financial statements of entities that do not engage in construction contracts. Revenue recognition under IAS 18 is generally more straightforward and may not result in significant fluctuations in reported revenue and profit.

Conclusion

While IAS 11 and IAS 18 both provide guidance on revenue recognition, they apply to different types of transactions and have different measurement and disclosure requirements. IAS 11 is specific to construction contracts and requires the use of the percentage of completion method, while IAS 18 applies to a broader range of transactions and provides specific criteria for revenue recognition. Entities must carefully consider the requirements of each standard to ensure compliance and accurate financial reporting.