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IASB Meeting Summaries and Observer Notes

 IFRIC May 2007


The IFRIC considered a revised version of a draft Interpretation on real estate sales. It approved the draft Interpretation for release for public comment, subject to drafting changes.

The draft Interpretation would apply to all real estate sales. However, the consensus focuses on transactions in which agreements for sale are reached before construction of the real estate is complete. Among other issues, it addresses the applicable accounting standard. It provides guidance on determining whether the sale agreement is:

  • a construction contract within the scope of IAS 11 Construction Contracts, or
  • an agreement for the sale of goods within the scope of IAS 18 Revenue.

Before approving the draft Interpretation, the IFRIC considered revised text for this guidance. It confirmed its previous decision that the guidance should identify features that, individually or in combination, indicate whether an agreement is for the provision of construction services to the buyer’s specifications (a construction contract) or the sale of goods.

The IFRIC considered proposals that the features of a construction contract would include:

(a) the buyer being able to specify the major structural elements of the design of the real estate and/or specify major structural changes while construction was in progress (whether it exercises that ability or not);
(b) the buyer obtaining control and the significant risks and rewards of ownership of the work in progress as construction progresses.

It also considered proposals that indications of (b) could include:

  • that work in progress takes place on land that is already owned or leased by the buyer
  • the buyer having the right to take over the work in progress during construction, eg to engage a different contractor
  • in the event of the agreement being terminated before construction is complete, the buyer retaining the work in progress and the seller having the right to be paid for work done.

The IFRIC agreed with these proposals but asked the staff to revise the drafting:

  •  to avoid any impression that all of the above features would need to be present for a sale agreement to be classified as a construction contract—either (a) or (b) above might on its own be sufficient basis for a judgement that the agreement is for construction services rather than the sale of goods;
  • to express the indicators in terms of the seller’s, rather than the buyer’s, rights and position; and
  •  to note that the references to work in progress are to the work in progress in its current state and condition.

The IFRIC also approved the rest of the draft Interpretation, subject to drafting changes. The next step will be to inform the Board that the IFRIC has reached a consensus.
Provided that the Board does not object, the draft Interpretation is expected to be released for public comment by the end of June.


Date: 5/3/2007