IAS 11 Construction Contracts and IAS 18 Revenue: Pre-completion contracts for the sale of residential properties.

Date recorded:


The IFRIC considered a question on the application of IAS 11 Construction Contracts and IAS 18 Revenue that had been referred to it by the Urgent Issues Group of the Australian Accounting Standards Board.  The UIG was concerned that its Abstract 53 Pre-completion Contracts for the Sale of Residential Development Properties might not comply with IFRSs.


Decision not to add

November 2004



The IFRIC agreed that pre-completion contracts might not meet the definition of construction contracts set out in IAS 11 because the contracts in question are not specifically negotiated for the construction of residential units. Rather, they are agreements for the purchase and sale of such units. In addition, when pre-completion contracts did not meet the definition, the guidance in IAS 18 would prohibit revenue recognition before legal title is transferred, if the risks and rewards of ownership did not pass to the buyer before then.

The IFRIC agreed that the issue should not be added to the agenda. The IFRIC noted that the definition of a construction contract in IAS 11 was sufficiently clear on this matter; it did not include typical pre-completion contracts and further guidance was not required. The IFRIC also has a project on its agenda seeking to clarify the criteria for combining and segmenting contracts. The features of pre-completion contracts that might have a relevance to the criteria for combining contracts could be considered as part of that project. The Board is also undertaking a project on revenue recognition, which will address revenue recognition on real estate transactions. The IFRIC agreed that, in the meantime, the guidance in the Appendix to IAS 18 is sufficient to prevent premature recognition of revenue on pre-completion contracts.


IFRIC reference: IAS 11, IAS 18

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