The IAS 11 standard of International Accounting Standards sets requirements for the accounting treatment of the revenue and costs associated with long-term construction contracts. By their nature, construction activities and contracts are long-term projects, often beginning and ending in different accounting periods. IAS 11 helps accountants with measuring to what extent costs, revenue and possible profit or loss on the project need to be incurred in which period.
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History
This is a timeline of IAS 11:
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How accounting revenue and costs need to be recognized depends first on whether the stage of completion of a project can be reliably measured. If this is the case, cost and revenue (including profit if any) can be recognized up to the percentage of completion during the current accounting period. If the stage of completion of a project cannot be reliably measured, the revenue can only be recognized up to the costs that have been incurred and any profit is only recognized at the end of the last accounting period. In the case a company is expecting to make a loss on the contract, this loss will be immediately recognized in the current accounting period.