Introduction

From Jan 1^st, 2018, all the IFRSs adopters started using a new standard IFRS 15, “Revenue from contracts with customers” which was issued in 2014 and re-formatted in 2016. Various studies mention that construction firms represent the major industry impacted by the adoption of this new standard[CITATION IFR l 1033 ]. This standard is reflected as one of the most vital standards since the accounting rules have been rewritten for revenue recognition and measuring items which are recognized in the financial statements. Revenues are reflected as a significant measure of a company’s performance since they are used both by investors and other creditors to make investment decisions. IFRS 15 substitutes IAS 18 “Revenue” and IAS 11 “Construction Contracts” and introduces a new model for recognizing revenue which is based on the transfer of control [ CITATION Ahm132 l 1033 ]. The previous revenue standards had a lack of guidance regarding the revenue recognition for example for arrangements when a contract might include multiple goods or services. They also had an absence of information regarding disclosure requirements; information which would allow them to understand the revenue figures [ CITATION Pau151 l 1033 ]. The influence of IFRS 15 will be most evidently noticeable in the construction sector. New revenue recognition requirements allow the company to generate more accurate qualitative and quantitative data related to nature, amount, time and uncertainty to revenue recognition [ CITATION Bro134 l 1033 ].

This research aims to study the impacts of adopting IFRS 15 on construction industries. The areas which are likely to be affected by IFRS 15 include: timing of revenue recognition, treatment of contract variations, modification of contracts, financing components in contracts and costs of obtaining contract. The research will also focus on methods of revenue recognition in construction industry – i.e. whether performance obligation is satisfied over time or at a point of time. The construction sector is selected due to the new standard (compared to other industries) will probably bring additional difficulties for accountants who prepare financial reports for construction entities in addition to possibly changing the pattern of revenue recognition. This research will contribute to a better understanding of the implications of the new standard especially for construction sector.

Research Aims

This research aims to consider the possible impacts of IFRS 15 in the construction sector. The main issue in the reporting of revenues in financial statements is related with timing[ CITATION Mun161 l 1033 ]. The new standard is based on the core principle that an entity will recognize revenue to exhibit the transfer of promised goods and services to customers in an amount which reflects the consideration to which the entity expects to be entitled to. In the past, the diversity in revenue recognition practices has arisen due to limitations in previous standards on issues such as arrangements with multiple elements, identifying performance obligations or determining transaction price. This research evaluates the effects of IFRS 15 on profits and net assets of construction companies and analyses whether the implementation of new five steps model did improve their revenue recognition process.

Research Objectives

The research objectives include:

1. To study the possible impacts of IFRS 15 on revenue recognition in construction sector.
2. To identify the variations in financial reporting experienced by construction companies after the introduction of IFRS 15.
3. To assess the effects of IFRS 15 on construction contracts and contract modification.

Research Questions

The research questions include:

• What are the benefits of implementing IFRS 15 on financial statements and disclosure requirements in construction industry?
• How revenue recognition under IFRS 15 will impact the construction sector?
• How IFRS 15 will impact the patterns of revenues and profits recognition in construction sector?

Literature Review

The success of any companies is determined by its capability to maintain and establish relationships with its stakeholders. Companies communicate with their shareholders through annual reports and financial and non-financial information which is provided in the disclosures. As revenue is maybe one of the most important numbers in the financial statement, it’s important that all financial statements users understand the impact of the IFRS15.The new rules of IFRS 15 which are effective and adopted by companies now. (Lyons&Tarasovich, 2018). Despite that 2018 marked as the first full year of implementation of IFRS 15 of revenue recognition, “Revenues from Contracts with Customers”, but early adoption was allowed for the contracts that meet certain criteria (Trabelsi, 2018).

Compared to the previous standards covering revenue recognition, the new standard requires more mandatory disclosures. IFRS 15 is designed for improving financial reporting of revenues, the area in which diverse accounting practices for economically similar revenue transactions under IFRS existed. The key aims of this standard is to establish a principle that an entity will use to report data to financial statement users about the nature, amount, time and cash flow arising from contracts with customers [ CITATION Yea151 l 1033 ]. For achieving this objective, the companies need to recognize the revenues from the contracts with customers to portray the transmission of promised goods or services to consumers at an amount that represent the entity’s expectations in exchange for goods and services [ CITATION Blo13 l 1033 ].

Methodology

The methodology to be used in this research will be mixed research approach (qualitative and quantitative). According to Harrison and Reilly [CITATION Har111 n t l 1033 ] mixed research design ensure better objectivity, accuracy and eradicate bias. The research will be focused on construction firms which follow IFRS. For qualitative research, content analyses of notes to financial statements will be conducted in construction sector to assess the impacts of adopting IFRS 15 on their disclosures. For quantitative research, financial statements analysis will be conducted to assess the impact of IFRS 15 on constructions firms. Companies will be analyzed regarding the impacts of IFRS 15 in their financial statements, disclosures, treatments for modifications in construction contracts and methods used for revenue recognition. Secondary data for the research will also be used and collected from journal articles, books, news articles and annual reports.

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