Hong Kong Financial Reporting Standard (HKFRS) 15 Revenue from Contracts with Customers became effective for annual accounting periods beginning on or after 1 January 2018. The standard supersedes Hong Kong Accounting Standard (HKAS) 18 Revenue, HKAS 11 Construction Contracts and several revenue interpretations, including Hong Kong (IFRIC) Interpretation 15 Agreements for the Construction of Real Estate. This article considers the accounting treatment for contracts of engineering and construction entities (E&C entities).
HKFRS 15 provides a comprehensive revenue recognition framework for all contracts with customers with limited exceptions. Although many of the principles in HKFRS 15 are similar to those in HKAS 11, E&C entities will likely have experienced some changes to their existing contract accounting. The differences in requirements between the standards, together with the more robust guidance included in HKFRS 15, may lead to different accounting outcomes.
The following are some key areas where E&C entities are likely to encounter changes.
To help practitioners better understand the issues above and how HKFRS 15 affects E&C entities, the Financial Reporting Standards Committee of the Institute has prepared detailed questions and answers “Revenue recognition considerations in the engineering and construction industries under HKFRS 15,” which are available on the Institute’s website.
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