The International Accounting Standard Board

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According to the International Accounting Standard Board, IAS 11 provides for accounting of revenues and costs pertaining to a construction contract. Revenues from a construction contract are only recognized when the contract is complete. However, there is another possibility whereby a proportion of net income is recognized over the period of the contract which is also known as the percentage of completion method. Contract revenues usually comprise of the initial revenue as agreed in the contract and variations in contract work, claims and incentive payments. In addition, IAS 11 consists of two types of contracts which are fixed price and cost plus contracts. Fixed price contracts are contracts whereby a fixed contract price is accepted by…show more content…
This does not transfer title at all. Both IAS 11 and 17 have been a subject of debate for a while in the accounting world due to their weaknesses (subject to manipulation) by firms when accounting for transactions touches on either standard.
“According to the Association of Certified Fraud Examiners, the three types of accounting fraud and they are asset misappropriation, corruption and financial statement misrepresentation.” (Grassi & Co., 2013, p.1) The third type of fraud as classified by Grassi & Co. involves manipulating an organization’s financial records that results in financial statements that are not transparent which is also known as not true or fair presentation of the enterprise’s financial wellbeing. Grassi & Co identified that financial fraud schemes such as the overstatement of assets, and the understatement of liabilities and expenses. This involves the recording of revenue that has yet to be earned. (Grassi & Co., 2014, p.2). Whereas in most industries, business process cycles are completed within relatively short period of time, it is normal in the construction industry for the duration of process to extend beyond one year. Before the introduction of IAS 11 Construction Contracts, the construction firms recognized revenue on Completed Contract Basis under which, profit on the construction contract was deferred until the project is completed. Due to this, there will be a considerable time lag between the performance of committed contract
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