IAS 11 vs. IFRS 15
What's the Difference?
IAS 11 and IFRS 15 are both accounting standards that deal with revenue recognition, but they have some key differences. IAS 11 focuses on construction contracts and provides specific guidelines for recognizing revenue from long-term construction projects. On the other hand, IFRS 15 is a more general standard that applies to all types of revenue-generating activities and provides a comprehensive framework for recognizing revenue based on the transfer of goods or services to customers. Additionally, IFRS 15 places a greater emphasis on the concept of performance obligations and requires companies to allocate revenue to each distinct obligation within a contract. Overall, while both standards address revenue recognition, IFRS 15 is more comprehensive and applicable to a wider range of industries.
Comparison
| Attribute | IAS 11 | IFRS 15 |
|---|---|---|
| Scope | Construction Contracts | Revenue from Contracts with Customers |
| Recognition Criteria | Percentage of Completion Method | Performance Obligation Satisfied |
| Contract Modifications | Separate Accounting | Combined Accounting |
| Disclosure Requirements | Less Detailed | More Detailed |
Further Detail
Scope and Objective
IAS 11, Construction Contracts, provides guidance on accounting for construction contracts in the financial statements of contractors. The standard outlines the criteria for recognizing revenue and costs associated with construction contracts. It aims to ensure that revenue and costs are recognized in a manner that reflects the stage of completion of the contract. On the other hand, IFRS 15, Revenue from Contracts with Customers, provides a comprehensive framework for recognizing revenue from customer contracts across all industries. The standard aims to improve comparability and consistency in revenue recognition practices.
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 stage of completion of the contract. It requires estimates of total revenue and costs to be revised regularly to reflect the current status of the contract. In contrast, IFRS 15 introduces a five-step model for recognizing revenue from customer contracts. The model requires entities to identify the contract, identify performance obligations, determine the transaction price, allocate the transaction price to performance obligations, and recognize revenue when performance obligations are satisfied.
Disclosure Requirements
IAS 11 requires entities to disclose information about the amount of contract revenue recognized, the method used to determine the stage of completion, and the amount of costs incurred and recognized profits. It also requires disclosure of the amount of contract revenue not yet recognized and the amount of advances received and retained. On the other hand, IFRS 15 requires entities to provide more detailed disclosures about revenue recognition, including information about performance obligations, transaction price, and significant judgments and estimates used in applying the standard.
Transition and Implementation
IAS 11 provides specific guidance on the transition to the standard, including how to account for contracts in progress at the date of initial application. It also provides guidance on how to implement the standard, including how to account for variations in contract work and claims for losses. In comparison, IFRS 15 requires entities to apply the standard retrospectively, with certain practical expedients available. It also provides guidance on how to implement the standard, including how to identify performance obligations and determine the transaction price.
Impact on Financial Statements
IAS 11 may result in earlier recognition of revenue compared to IFRS 15, as revenue is recognized based on the percentage of completion method. This can lead to fluctuations in revenue and profit recognition as projects progress. In contrast, IFRS 15 aims to provide a more consistent and predictable pattern of revenue recognition, as revenue is recognized when performance obligations are satisfied. This can result in more stable revenue and profit recognition over time.
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