IFRIC 15 Agreements for the Construction of Real Estate
The IFRIC issued IFRIC 15 Agreements for the Construction of Real Estate on 2 July 2008. IFRIC 15 is available for eIFRS subscribers or can be purchased via our online shop.
The IFRIC released draft Interpretation D21 Real Estate Sales for public comment in July 2007 and received 51 comment letters in response.
The IFRIC redeliberated the issue at its meetings in January and March 2008. At its meeting in May 2008, the IFRIC completed its redeliberations, voted, and confirmed the consensus (see summary of decisions).
Reasons for IFRIC 15
Agreements for the construction of real estate are widespread and may relate to residential, commercial or industrial developments. Construction often spans more than one accounting period, may take place on land the buyer owns or leases before construction begins and agreements may require progress payments.
The main area of divergence in practice concerns the identification of the applicable accounting standard. In some jurisdictions, the prevailing practice is to apply IAS 11 Construction Contracts and to recognise revenue as construction progresses. In others, it is to apply the requirements for the sale of goods in IAS 18 Revenue and to recognise revenue only when the completed real estate is delivered to the buyer.
Impact of IFRIC 15
The objectives of the Interpretation are to clarify the definition of a construction contract and the articulation between IAS 11 and IAS 18 and to provide guidance on how to account for revenue when the agreement for the construction of real estate falls within the scope of IAS 18.
The main expected change in practice is a shift from recognition of revenue using the percentage of completion method to recognition of revenue at a single time (eg at completion, upon or after delivery). Affected agreements will be mainly those accounted for in accordance with IAS 11 that do not meet the definition of a construction contract as interpreted by the IFRIC and do not result in a "continuous transfer" (ie agreements in which the entity transfers to the buyer control and the significant risks and rewards of ownership of the work in progress in its current state as construction progresses).
Discussed by the IFRIC