IFRIC 15
Withdrawn
Agreements for the Construction of Real Estate
Addresses whether an agreement for constructing real estate falls within IAS 11's construction contract scope or IAS 18's goods-sale scope, based on the buyer's ability to specify major structural elements.
Withdrawn Standard
IFRIC 15 addressed whether an agreement for constructing real estate fell within IAS 11's construction contract scope or IAS 18's goods-sale scope, based on the buyer's ability to specify major structural elements. This binary classification was withdrawn and replaced by IFRS 15's own more rigorous over-time vs point-in-time criteria.
This poster is retained for historical and comparative reference. Entities must now apply IFRS 15's over-time criteria to real estate construction agreements.
Current Standard
IFRS 15 Revenue from Contracts with Customers 1
Conceptual Framework Linkage (Historical)
Why the binary test mattered
IFRIC 15's classification decision was not merely a bookkeeping preference – it determined WHICH STANDARD applied, which in turn determined whether revenue was recognised OVER TIME (percentage-of-completion) or at a POINT IN TIME (completed contract or sale completion). The classification had a direct, material impact on when and how much revenue appeared in each reporting period.
The binary nature of the IFRIC 15 test – construction contract OR sale of goods – reflected the era before IFRS 15, when IAS 11 and IAS 18 were the only revenue-oriented standards and their scopes were strictly divided.
The underlying revenue recognition principle
At its heart, IFRIC 15 sought to determine whether the risks and rewards of the real estate's MAJOR STRUCTURAL ELEMENTS had transferred to the buyer. If the buyer could specify the structural elements – walls, floors, roof – those risks had NOT fully transferred, pointing to a SERVICE/CONSTRUCTION model. If the buyer could NOT specify them, the agreement was more like a SALE OF GOODS.
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Scope & Definitions (Historical)
What IFRIC 15 covered
IFRIC 15 addressed agreements for the CONSTRUCTION OF REAL ESTATE – specifically, situations where an entity (typically a developer or builder) agrees to construct a building, structure, or other real estate asset for a customer, and the customer specifies or has the right to specify MAJOR STRUCTURAL ELEMENTS of the work.
TYPICAL FACT PATTERNS
Custom home construction where the buyer selects architectural design Commercial development agreements where the buyer specifies structural components Speculative construction where the developer retains design control Infrastructure projects with customer-specified structural requirements
Key definitions (historical)
Major structural elements
Elements of a construction project that form the primary load-bearing, enclosure, or foundational components of the real estate – walls, floors, roof, foundations, and similar structural components.
Construction contract
Under IAS 11, a contract specifically for the construction of an asset (or group of assets) that are closely interrelated or interdependent, measured using percentage-of-completion.
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Construction Contract vs Sale of Goods Classification (Historical)
The binary classification test
ClassificationCriteria
Construction contract (IAS 11)Agreement is for the CONSTRUCTION of real estate where the customer can specify MAJOR STRUCTURAL ELEMENTS – revenue recognised over time using percentage-of-completion
Sale of goods (IAS 18)Agreement is for the CONSTRUCTION of real estate where the buyer CANNOT specify major structural elements – revenue recognised at a point in time when risks and rewards transfer
⚠️ The binary nature of IFRIC 15's test – either construction contract OR sale of goods – meant that borderline cases could produce dramatically different revenue recognition patterns. This binary rigidity was one reason IFRS 15 replaced it with a more nuanced criteria-based approach.
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The Continuous Transfer Indicator (Historical)
How IFRIC 15 determined whether control transferred over time
Where the agreement was a SALE OF GOODS (buyer could NOT specify major structural elements), IFRIC 15 required an assessment of whether the buyer could ENJOY BENEFITS AS THE ASSET WAS BEING CONSTRUCTED – the continuous transfer indicator. If the buyer could direct the use of, and obtain substantially all of the remaining benefits from, the asset as it was constructed, revenue was recognised OVER TIME.
FACTORS INDICATING CONTINUOUS TRANSFER
The buyer can direct the use of the asset during construction The buyer obtains substantially all remaining benefits from the asset as it is constructed The asset has no alternative use to the entity
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Percentage-of-Completion vs Completed Contract Method (Historical)
The two measurement bases
Where the agreement was classified as a CONSTRUCTION CONTRACT (buyer could specify major structural elements), IAS 11's percentage-of-completion method applied: revenue was recognised OVER TIME based on the stage of completion, measured by reference to the proportion of costs incurred to date relative to total estimated costs.
WHEN PERCENTAGE-OF-COMPLETION APPLIED
Outcome can be estimated reliably Costs can be identified and measured reliably Stage of completion can be measured reliably Collectability of consideration is probable
When the completed contract method was required
If the conditions for percentage-of-completion were NOT met – for example, if the outcome could not be estimated reliably – the COMPLETED CONTRACT METHOD applied: no revenue was recognised until the contract was substantially complete. This was the default under IAS 11 for high-uncertainty construction contracts.
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Agreements for Rendering Services (Historical)
Service components of real estate agreements
Where a real estate construction agreement included BOTH the construction of the real estate AND the provision of RELATED SERVICES (e.g. ongoing property management, maintenance, or facilities management), IFRIC 15 required those services to be accounted for SEPARATELY under IAS 18 (revenue for services rendered over time), UNLESS the services were so closely interrelated with the construction that they formed part of the construction contract itself.
The service vs construction separation under IFRIC 15 required judgement about whether the services were "integral to" the construction – a binary test that IFRS 15 later replaced with a more practical approach using relative standalone selling prices.
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How This Guidance Became Part of IFRS 15
The IFRS 15 replacement of IFRIC 15's binary classification
IFRS 15 replaced IFRIC 15's binary construction-vs-goods test with a much more nuanced, criteria-based approach. Under IFRS 15, an entity assesses whether a contract with a customer is an "agreement for construction of real estate" by applying the OVER-TIME CRITERIA in IFRS 15: control must transfer to the customer over time, assessed using one of THREE specific criteria (create/enhance an asset the customer controls, create/enhance an asset without alternative use, or a contractually enforceable right to payment for performance completed).
The IFRS 15 approach is fundamentally different – rather than a binary structural-elements test, it uses a five-step model focused on when the customer gains control. Real estate construction agreements that previously fell into one category under IFRIC 15 may now fall into a different revenue recognition pattern under IFRS 15.
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The Significant Real Estate Sector Transition Impact
Why the transition from IFRIC 15 to IFRS 15 was particularly impactful
AspectIFRIC 15 impactIFRS 15 impact
Revenue timingBinary – either over time or at a pointMore nuanced – multiple over-time criteria, point-in-time default
Measurement methodPercentage-of-completion under IAS 11Input/output methods, but must depict progress in satisfying the performance obligation
Contract costsIncremental costs of obtaining a contract not separately addressedCosts to obtain and fulfil a contract explicitly addressed
DisclosureLimited to IAS 11/18 requirementsExtensive qualitative and quantitative disclosure about performance obligations, transaction prices, and timing
The transition from IFRIC 15 to IFRS 15 required many real estate and construction entities to reconsider not just revenue recognition timing, but the entire measurement approach to construction contracts – a significant accounting policy change when IFRS 15 was first adopted.
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Disclosure (Historical)
Historical disclosure requirements under IFRIC 15
Method used to determine stage of completion (for percentage-of-completion) Amount of revenue recognised in the period Stage of completion at the reporting date Contract balances (amounts due from/to customers) Significant judgements made in determining whether an agreement was a construction contract or sale of goods
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Judgments & Estimates (Historical)
Where judgement historically mattered most
SIGNIFICANT JUDGEMENTS
Whether the buyer could specify "major structural elements" – the central binary test Whether services were "integral to" the construction or separable Whether the outcome of a contract could be estimated reliably enough to use percentage-of-completion
SIGNIFICANT ESTIMATES
Stage of completion measured by cost-to-cost or other methods Total estimated contract costs affecting revenue recognition over time When risks and rewards had sufficiently transferred for point-in-time recognition
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IFRIC 15 vs the Current IFRS 15 Approach
What changed and what did not
FeatureIFRIC 15 (historical)IFRS 15 (current)
Classification testBinary: can buyer specify major structural elements?Criteria-based: does control transfer over time? (three criteria under IFRS 15)
Revenue timingPercentage-of-completion (IAS 11) or point-in-time (IAS 18)Over time (if criteria met) or point-in-time (default if not)
MeasurementCost-to-cost or other IAS 11 stage-of-completion methodsInput/output methods depicting progress, must align with transfer of control
Contract costsLimited guidance under IAS 11Separate treatment of costs to obtain and costs to fulfil
WithdrawnYes – 2016N/A
IFRS 15's five-step model fundamentally changed the analysis for real estate construction agreements. Rather than a binary structural-elements test, entities now apply the over-time criteria, which consider whether the customer controls the asset as it is created – a conceptually different and more economically grounded approach.
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Statement Mapping (Historical)
Where IFRIC 15 items historically appeared
ItemStatement(s) affectedNotes
Revenue recognised over time (construction contract)P&LPercentage-of-completion under IAS 11
Revenue at point in time (sale of goods)P&LRecognised when risks and rewards transfer under IAS 18
Contract asset / liabilityBalance SheetBillings in excess of costs/costs in excess of billings
Costs recognisedP&L Balance SheetExpensed as incurred or capitalised as work-in-progress depending on recoverability
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Related Standards
Cross-reference map
StandardConnection
IFRS 15The current successor standard replacing IFRIC 15's binary test with a three-criteria model
IAS 11The construction contract standard IFRIC 15 historically cross-referenced
IAS 18The sale of goods standard IFRIC 15 historically cross-referenced
Quick-reference glossary
Major structural elements
Load-bearing, enclosure, or foundational components of real estate (walls, floors, roof, foundations) whose specification was IFRIC 15's binary classification test.
Percentage-of-completion
The IAS 11 revenue recognition method for construction contracts, recognising revenue based on the proportion of work completed to date.
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Glossary
Major structural elements
Load-bearing, enclosure, or foundational components of real estate (walls, floors, roof, foundations) whose specification determined the binary classification under IFRIC 15.
Percentage-of-completion
The IAS 11 revenue recognition method for construction contracts, recognising revenue based on the proportion of work completed to date.
Continuous transfer indicator
IFRIC 15's test for whether the buyer could enjoy benefits as the asset was being constructed, determining whether control transferred over time.
Financial statement key
BS Balance sheet
IS Income statement
SE Statement of changes in equity
OCI Other comprehensive income
SCF Statement of cash flows