The new revenue standard will result in significant impacts across the sector.
Now that the IASB and FASB have published a new joint standard on revenue recognition, the real work for housebuilders is just beginning.
We look at how IFRS 15 Revenue from Contracts with Customers will affect companies in the housebuilding sector, and how KPMG can help.
The new standard will result in significant impacts across the housebuilding sector. In particular, some revenue may be recognised earlier than today, whilst some costs may be deferred. And the new disclosure requirements are extensive.
However, the impacts will be felt far beyond accounting change. A number of sector-specific arrangements will be affected, including:
Under the new standard, housebuilders will need to determine whether a buyer controls the asset as it is created or enhanced.
If the buyer does control the asset, then revenue will be recognised over time, using a method that depicts performance.
This may bring revenue recognition forward for some cases in which revenue is currently recognised on completion.
You will need to evaluate your contracts against the new criteria to determine whether revenue should be recognised over time or at a point in time. This may require legal consulation.
You may also need to develop processes, systems and internal controls needed to recognise revenue over time rather than at a point in time.
However, modifying contract terms or business practices in response to the new standard could give rise to commercial opportunities.
Under the new standard, non-cash consideration received from a customer is included in revenue and measured at fair value. However, there is no guidance on the measurement date.
The fair value of a part-exchanged property may change between contract inception and fulfilment. You will need to exercise judgement in determining the measurement date, and therefore the amount of revenue to recognise.
The subsequent sale of the property received from the customer in part-exchange is accounted for as a separate contract with another customer. This transaction results in revenue.
This may be a change to current practice, and affect your margin, because the margin earned on a second-hand home may be lower than on a new-build home.
You may need to amend existing systems to track and record sales of part-exchanged properties as separate contracts.
Read Accounting for revenue is changing: Impact on housebuilders to further understand how these and other housebuilding sector-specific arrangements are affected, and the actions you may need to take.
It gives examples of how our cross-functional team of experts has helped clients across various sectors – including housebuilding and construction – with the accounting and operational challenges of the new revenue standard.
Please speak to your usual KPMG contact if you would like to find out more about how KPMG can help your business.
For KPMG’s most recent publications on the new standard, visit our IFRS hot topics page.