Original Research

The adequacy of IFRS 15 for revenue recognition in the construction industry

Milan Van Wyk, Danie Coetsee
Journal of Economic and Financial Sciences | Vol 13, No 1 | a474 | DOI: https://doi.org/10.4102/jef.v13i1.474 | © 2020 Milan Van Wyk, Danie Coetsee | This work is licensed under CC Attribution 4.0
Submitted: 09 April 2019 | Published: 24 February 2020

About the author(s)

Milan Van Wyk, Department of Accountancy, College of Business and Economics, University of Johannesburg, Auckland Park Kingsway Campus, South Africa
Danie Coetsee, Department of Accountancy, College of Business and Economics, University of Johannesburg, Auckland Park Kingsway Campus, South Africa

Abstract

Orientation: IFRS 15 Revenue from Contract with Customers replaced the industry-specific financial reporting standard IAS 11 Construction Contracts, becoming effective on or after 1 January 2018. Construction is regarded as a complex industry with regular changes in contract scope and pricing.   

Research purpose: The objective of this article was to evaluate the adequacy of the guidance of IFRS 15 to deal with the complexities of the construction industry in order to recognise revenue derived from construction contracts. In evaluating the application of the principles of IFRS 15 to construction contracts, a structured approach was followed based on the five-step approach followed in IFRS 15. 

Motivation: The lack of industry-specific guidance for construction revenue, together with the complexities of the construction industry, makes the application of IFRS 15 challenging for construction entities. 

Research design: The revenue recognition principles developed in IFRS 15 were assessed through doctrinal research, a research method focusing on the core doctrines developed in practice. Reform-oriented doctrinal research was used to assess the doctrines developed in IFRS 15 by applying authoritative interpretation. 

Main findings: The article found that IFRS 15 provides an appropriate framework.

Implications and contribution: The implications of IFRS 15 are that construction entities need to understand the rights and obligations in contracts and how these affect the revenue recognition of construction contracts.  This article provided insights into the application of IFRS 15 to construction contracts.


Keywords

construction contracts; financial reporting; over time; performance obligations; point-in-time; revenue recognition; transaction price

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Crossref Citations

1. Revenue recognition practices in South Africa: An analysis of the decision usefulness of IFRS 15 disclosures
D. Coetsee, A. Mohammadali-Haji, M. van Wyk
South African Journal of Accounting Research  vol: 36  issue: 1  first page: 22  year: 2022  
doi: 10.1080/10291954.2020.1855886