This document describes the percentage of completion (POC) methodology for revenue recognition on engineering, procurement, and construction (EPC) projects. It explains that revenue is recognized based on either incurred costs or physical progress. The POC methodology incentivizes on-budget and cost management practices, results in more predictable profit margins, and allows profits to be recognized in a manner that better matches fiscal years. Key concepts discussed include underbilling/overbilling, treatment of client acquisitions and subcontractor billing.

1. POCPOC
Percentage of CompletionPercentage of Completion

2. PRESENTATION GOALSPRESENTATION GOALS
 To Describe how it works the POC methodology;To Describe how it works the POC methodology;
 To Demonstrate its importance and TAX impacts;To Demonstrate its importance and TAX impacts;
 To show the importante how to build and follow theTo show the importante how to build and follow the
budget, implementing a total budget culture.budget, implementing a total budget culture.

3. POC - DESCRIPTIONPOC - DESCRIPTION
 Revenue recognition for EPC Projects (and other industryRevenue recognition for EPC Projects (and other industry
segments) by INCURRED COST or PHISICAL ADVANCE.segments) by INCURRED COST or PHISICAL ADVANCE.
a) INCURRED COST based:a) INCURRED COST based:
Revised Total Price X (Acumulated Cost Incurred / Total Cost Budgeted)Revised Total Price X (Acumulated Cost Incurred / Total Cost Budgeted)
b) PHYSICAL ADVANCE based:b) PHYSICAL ADVANCE based:
% of physical advance X Revenue Budgeted% of physical advance X Revenue Budgeted
% of physical advance X Cost Budgeted% of physical advance X Cost Budgeted

4. Results by Not “Trustable” MethodResults by Not “Trustable” Method
-
5.000
10.000
15.000
20.000
25.000
30.000
35.000
40.000
45.000
50.000
ano 1 ano 2 ano 3
BM
Custos
incorridos
Revenue 100,000
Incurred Costs 80,000
Margin 20.00%
Events:
Year 1 Year 2 Year 3 total
Measured 25,800 45,900 28,300 100,000
Incurred Cost 21,800 30,600 27,600 80,000
Year Margin 15.50% 33.33% 2.47% 20.00%

5. Results by POC MethodologyResults by POC Methodology
-
5.000
10.000
15.000
20.000
25.000
30.000
35.000
40.000
45.000
ano 1 ano 2 ano 3
Receita
Custos incorridos
• Contract Revenue • 100.000• •
• Budgeted Costs • 80.000• •
• Total Margin • 20,00%
• Events:
• Year 1 • Year 2 • Year 3 • total
• Invoice • 25.800• • • 45.900• • • 28.300• • • 100.000• •
• POC Adjust • 1.450• • • (7.650)• • • 6.200• • • -• •
• Incurred Costs • 21.800• • • 30.600• • • 27.600• • • 80.000• •
• Year Margin • 20,00% • 20,00% • 20,00% • 20,00%

6. POC’s METHODOLOGY IMPORTANCEPOC’s METHODOLOGY IMPORTANCE
 Worldwide recognized sistematic IAS 11;Worldwide recognized sistematic IAS 11;
 Incentivate budget/forecasting best practices;Incentivate budget/forecasting best practices;
 Turn Firm’s margin more predictable/stable;Turn Firm’s margin more predictable/stable;
 Incentivate a Firm’s cost management culture;Incentivate a Firm’s cost management culture;
 Account the profit on fiscal years FYs on a “better way”;Account the profit on fiscal years FYs on a “better way”;
 the CEO might see the contract in a big picture and not sliced view;the CEO might see the contract in a big picture and not sliced view;
 TAX basis for income tax return.TAX basis for income tax return.

7. MAIN CONCEPTSMAIN CONCEPTS
 Under/Overbilling – difference between theUnder/Overbilling – difference between the
revenue calculated by POC Methodology vs Issuedrevenue calculated by POC Methodology vs Issued
Invoices;Invoices;
 The physical measured should not be accounted asThe physical measured should not be accounted as
revenue;revenue;
Just a remind that the cost budgeted it is variable.Just a remind that the cost budgeted it is variable.

8. UNDERBILLING / OVERBILLINGUNDERBILLING / OVERBILLING
Less Invoices
More Production (cost)
UNDERSTANDINGUNDERSTANDING UNDERBILLINGUNDERBILLING::
UNDERSTANDINGUNDERSTANDING OVERBILLINGOVERBILLING::
More Invoices
Less Production (cost)
It is an ASSET
The Client owes you
It is a LIABILITY
You owe the Client

9. CLIENT’s PROCUREMENTCLIENT’s PROCUREMENT
 Acquisitons in behalf of the Client should notAcquisitons in behalf of the Client should not
be considered on POC calculation;be considered on POC calculation;
 Nevertheless, the Management FEE for do it,Nevertheless, the Management FEE for do it,
comprehends a revenue and shall be considered.comprehends a revenue and shall be considered.

10. ATTENTION: SUBCONTRACTING...ATTENTION: SUBCONTRACTING...
 Shall not be considered as a revenue the subcontractorsShall not be considered as a revenue the subcontractors
who bill the Clients by the direct method.who bill the Clients by the direct method.

11. Questions / ThanksQuestions / Thanks