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© 2017 KPMG IFRG Limited, a UK company limited by guarantee. All rights reserved.
ConstructionIFRS 15 Revenue – Are you go...
© 2017 KPMG IFRG Limited, a UK company limited by guarantee. All rights reserved.
Areyougoodtogo?
2
IFRS 15 will change th...
© 2017 KPMG IFRG Limited, a UK company limited by guarantee. All rights reserved.
3
For each of the following,
documenting...
© 2017 KPMG IFRG Limited, a UK company limited by guarantee. All rights reserved.
Performanceobligations
4
Do the differen...
© 2017 KPMG IFRG Limited, a UK company limited by guarantee. All rights reserved.
Over-timerecognition
5
Meeting the defin...
© 2017 KPMG IFRG Limited, a UK company limited by guarantee. All rights reserved.
Workinprogress
Does your accounting poli...
© 2017 KPMG IFRG Limited, a UK company limited by guarantee. All rights reserved.
Measureofprogress
7
Does your measure of...
© 2017 KPMG IFRG Limited, a UK company limited by guarantee. All rights reserved.
Loss-makingcontracts
8
There is no speci...
© 2017 KPMG IFRG Limited, a UK company limited by guarantee. All rights reserved.
Claimsandvariations
9
Does your accounti...
© 2017 KPMG IFRG Limited, a UK company limited by guarantee. All rights reserved.
Bidcosts
10
Will you capitalise or expen...
© 2017 KPMG IFRG Limited, a UK company limited by guarantee. All rights reserved.
Variableconsideration
11
Expected value
...
© 2017 KPMG IFRG Limited, a UK company limited by guarantee. All rights reserved.
Significantfinancingcomponents
12
Constr...
© 2017 KPMG IFRG Limited, a UK company limited by guarantee. All rights reserved.
Transitionadjustments
13
Have you identi...
© 2017 KPMG IFRG Limited, a UK company limited by guarantee. All rights reserved.
Disclosurerequirements
14
Have you ident...
© 2017 KPMG IFRG Limited, a UK company limited by guarantee. All rights reserved.
Checklistofactions
Have you…? 
Determin...
© 2017 KPMG IFRG Limited, a UK company limited by guarantee. All rights reserved.
Howdidyoudo?
16
How many of our 11 quest...
© 2017 KPMG IFRG Limited, a UK company limited by guarantee. All rights reserved.
Don’tforgetthebroaderbusinessimpacts
Hav...
© 2017 KPMG IFRG Limited, a UK company limited by guarantee. All rights reserved.
Findoutmore
18
Talk to your
usual KPMG
c...
© 2017 KPMG IFRG Limited, a UK company limited by guarantee. All rights reserved.
© 2017 KPMG IFRG Limited, a UK company l...
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Construction | IFRS 15 Revenue - Are you good to go?

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Practical guidance for construction companies on implementing the new revenue recognition standard. Find out more at kpmg.com/ifrs.

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Construction | IFRS 15 Revenue - Are you good to go?

  1. 1. © 2017 KPMG IFRG Limited, a UK company limited by guarantee. All rights reserved. ConstructionIFRS 15 Revenue – Are you good to go? April 2017 kpmg.com/ifrs
  2. 2. © 2017 KPMG IFRG Limited, a UK company limited by guarantee. All rights reserved. Areyougoodtogo? 2 IFRS 15 will change the way many construction companies account for their contracts. To help you drive your implementation project to the finish line, we’ve pulled together a list of key considerations that all construction companies need to focus on.
  3. 3. © 2017 KPMG IFRG Limited, a UK company limited by guarantee. All rights reserved. 3 For each of the following, documenting your analysis and the conclusions drawn will be essential
  4. 4. © 2017 KPMG IFRG Limited, a UK company limited by guarantee. All rights reserved. Performanceobligations 4 Do the different elements of your construction contracts meet the new ‘distinct’ test to be accounted for separately? Capable of being distinct Distinct in the context of the contract+ Multi-stage developments | Construction service | Specialised fit-outs A traditional construction contract will often be a single PO, but think about…
  5. 5. © 2017 KPMG IFRG Limited, a UK company limited by guarantee. All rights reserved. Over-timerecognition 5 Meeting the definition of a construction contract is no longer a reason to use percentage of completion accounting e.g. construction services e.g. building on customer land e.g. non-cancellable contracts Customer consumes benefits as entity performs Customer controls asset as it’s created Asset has no alternative use and right to payment exists Instead, assess whether one of these three criteria are met
  6. 6. © 2017 KPMG IFRG Limited, a UK company limited by guarantee. All rights reserved. Workinprogress Does your accounting policy for work in progress meet the requirements of IFRS 15? Capitalise amounts related to future performance Recognise work in progress as a balance sheet ‘true up’ to ensure a smooth profit margin You’ll need to… You can no longer… 6
  7. 7. © 2017 KPMG IFRG Limited, a UK company limited by guarantee. All rights reserved. Measureofprogress 7 Does your measure of progress depict performance under the contract? Output method Input methodor e.g. survey of construction e.g. cost-to-cost method Use either Don’t assume existing policy will be fully compliant e.g. different treatment for uninstalled materials
  8. 8. © 2017 KPMG IFRG Limited, a UK company limited by guarantee. All rights reserved. Loss-makingcontracts 8 There is no specific guidance in IFRS 15 on accounting for loss-making construction contracts You are now required to assess losses at the contract level using the onerous contract guidance in IAS 37
  9. 9. © 2017 KPMG IFRG Limited, a UK company limited by guarantee. All rights reserved. Claimsandvariations 9 Does your accounting policy reflect the enforceability requirement for contract modifications? Is the contract modification enforceable? Account for it Do not account for it Yes No Don’t ask ‘Will it be approved?’ Ask ‘Has it been approved?’ !
  10. 10. © 2017 KPMG IFRG Limited, a UK company limited by guarantee. All rights reserved. Bidcosts 10 Will you capitalise or expense your bid costs? Incurred as a result of obtaining the contract Recovery is expected As a cost of obtaining the contract if… + e.g. sales commissions Relates directly to anticipated contract Is part of the cost of satisfying the contract As a cost to fulfil a contract if it… + e.g. design work included in bid document
  11. 11. © 2017 KPMG IFRG Limited, a UK company limited by guarantee. All rights reserved. Variableconsideration 11 Expected value If the contract price contains variable consideration, have you decided on the estimation method and applied the constraint ? Most likely amount or Could there be a significant revenue reversal? CPI escalators | Cost escalation clauses | Completion and performance bonuses For example…
  12. 12. © 2017 KPMG IFRG Limited, a UK company limited by guarantee. All rights reserved. Significantfinancingcomponents 12 Construction contracts can include significant financing components Do deferred or advance payment terms in your contracts give rise to one? Practical expedient – No need to recognise if period between payment and performance is < 1 year Calculations can be complex, especially for contracts recognised over time
  13. 13. © 2017 KPMG IFRG Limited, a UK company limited by guarantee. All rights reserved. Transitionadjustments 13 Have you identified all of the areas where differences exist between IFRS 15 and your existing accounting? Use the helpful guidance in our Transition Options and Issues In-Depth publications IFRS 15 is more detailed than the existing revenue requirements, so you may find unexpected changes in your accounting !
  14. 14. © 2017 KPMG IFRG Limited, a UK company limited by guarantee. All rights reserved. Disclosurerequirements 14 Have you identified the additional information and processes needed to meet the disclosure requirements? Read our Guide to annual financial statements – IFRS 15 supplement Under IFRS 15, you’ll need to provide more detailed information about contract terms, as well as how and when you recognise revenue
  15. 15. © 2017 KPMG IFRG Limited, a UK company limited by guarantee. All rights reserved. Checklistofactions Have you…?  Determined whether your contracts include more than one performance obligation?  Identified contracts that meet the criteria for over-time recognition?  Checked that your accounting policy for work in progress meets IFRS 15’s requirements?  Checked measure of progress for contracts recognised over time?  Assessed your loss-making contracts using the guidance in IAS 37?  Documented your accounting policy for claims and variations?  15 Have you…?  Decided whether you will capitalise any of your bid costs?  Revised your estimates of variable consideration elements – e.g. completion and performance bonuses?  Identified and calculated any significant financing components?  Identified and quantified your transition adjustments?  Identified the additional information needed to meet the disclosure requirements? 
  16. 16. © 2017 KPMG IFRG Limited, a UK company limited by guarantee. All rights reserved. Howdidyoudo? 16 How many of our 11 questions have you answered ‘yes’? All 11 – You’re good to go! 5-10 – You’re on your way 0-4 – You really need to engage
  17. 17. © 2017 KPMG IFRG Limited, a UK company limited by guarantee. All rights reserved. Don’tforgetthebroaderbusinessimpacts Have you… ― updated your management reporting, including KPIs? ― developed a transition plan for parallel runs, including reconciliations? ― thought about the tax implications? ― calculated the impact on bonus schemes? ― compared your approach with peers? Revenue Accounting Change Accounting, tax and reporting Data, systems and processes Business People and change 17
  18. 18. © 2017 KPMG IFRG Limited, a UK company limited by guarantee. All rights reserved. Findoutmore 18 Talk to your usual KPMG contact Use our Transition toolkit Follow the discussion on LinkedIn
  19. 19. © 2017 KPMG IFRG Limited, a UK company limited by guarantee. All rights reserved. © 2017 KPMG IFRG Limited, a UK company limited by guarantee. All rights reserved. KPMG International Standards Group is part of KPMG IFRG Limited. KPMG International Cooperative (“KPMG International”) is a Swiss entity that serves as a coordinating entity for a network of independent firms operating under the KPMG name. KPMG International provides no audit or other client services. Such services are provided solely by member firms of KPMG International (including sublicensees and subsidiaries) in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any other member firm, nor does KPMG International have any such authority to obligate or bind KPMG International or any other member firm, in any manner whatsoever. The KPMG name and logo are registered trademarks or trademarks of KPMG International. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. kpmg.com/socialmedia

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