Managing trading profiles in the construction industry
For construction firms undertaking long-term, high-budget projects, accounting for long-term contracts (project accounting) is a requirement under IFRS. However, many construction businesses struggle to meet some key requirements. These include capturing and allocating all costs to projects/jobs, accurately assessing appropriate stages of project completion and allocating profits on projects to the correct accounting period. As a result, they may fail to accurately calculate profitability by project, resulting in poor decision-making.
To bring in additional complexities, IAS 11: Construction Contracts has now been replaced by a new standard called IFRS 15 Revenue from Contracts with Customers in order to provide a more robust framework for addressing revenue issues and to improve comparability of revenue recognition practices across industries.
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