Abstract
Revenue is an important aspect of the construction industry and an important measure of financial performance. The recognition of revenue from construction contracts is complex since it is exposed to recognition over a period of time, and there is exposure to many variables that could influence the recognition. International Accounting Standards 11 was previously used by the construction sector as guideline for recognising revenue from construction contracts. The International Accounting Standards Board subsequently issued International Financial Reporting Standards (IFRS) 15 to provide holistic guidance on revenue recognition. The objective of IFRS 15 disclosure requirements is to provide adequate information on the nature, amount, timing, cash flows, and uncertainty of revenue arising from contracts with customers to enable the users of the financial statements to understand. In addition, IFRS 15 provides disclosure requirements that are comprehensive and coherent. Construction entities must comply with disclosure requirements, similarity with all other entities. For most construction entities, transitioning to the new disclosure requirements was a significant challenge and may continue to be so. The level of detail required to satisfy the disclosure objective and the emphasis to be placed on each disclosure requirement must be considered by construction entities. In addition, it is important that construction entities do not obscure useful information with other information or by aggregating items with substantially different characteristics. This study evaluated the appropriateness of IFRS 15 disclosure requirements applied to the disclosure practices of entities in the construction industry listed on the JSE. Furthermore, the study evaluated the impact of COVID-19 on IFRS 15 disclosures and whether improvements had been made since its initial implementation. The study took a two-step approach, first conducting a literature review, and then a thematic content analysis. The study conducted a comparative content analysis of the financial statements of the selected construction entities for the reporting periods ending 30 June 2019 and 31 March 2021. The analysis was done using a Likert scale showing areas of non-compliance, meeting the requirements, and exceeding the requirements. As part of its key findings, the study also identified non-compliance areas, as well as disclosures that exceeded the requirements in order to help preparers better understand where the information provided falls short of the standard requirements and best practices. Compared to the year of adoption, the subsequent years showed slight improvements in adhering with IFRS 15 disclosure requirements. Despite this, there is considerable room for improvement by all entities. The study found that the disaggregated revenue categories within the construction sector were inconsistent, limiting the comparability between entities and
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limiting the usefulness of the disclosures. The extent of disclosures about contract balances was disappointing, particularly the lack of clarity in some of these entities` accounting policies regarding the differences between contract assets and trade receivables, which made it difficult for the researcher to understand the risks associated with each balance. The accounting policies for revenue recognition need to be explained in more detail, including the particular nature of performance obligations and when they are satisfied. When it came to the disclosure requirement for transaction prices allocated to remaining performance obligations, generic or boilerplate accounting policies caused problems. Furthermore, significant judgments regarding revenue were lacking in the study. There was lack of clarity about the specific judgments made in the descriptions. According to the findings of the study, construction entities overlooked reporting requirements regarding contract costs, which may have led to the lack of information disclosed. The study also found that sampled entities failed to disclose a clear impact of COVID-19. In the conclusion of the dissertation, recommendations based on the empirical evaluation and limitations are presented. Among the recommendations of the study, the views of companies regarding the application of IFRS 15 may be assessed in future studies using other strategies such as surveys, interviews, and even case studies. Furthermore, this study was conducted within a South African context. This study can be compared with similar studies from other countries to gain further knowledge regarding IFRS 15's application and disclosures of revenue. The study contributes to the existing body of knowledge regarding IFRS 15 disclosure requirements for construction entities and fills a gap in the literature in this area. Construction companies can use the results of this study to determine what level of detail they should provide to satisfy the disclosure objective and how much emphasis should be placed on each of the requirements. The study can also contribute to the JSE proactive monitoring process with specific industry related feedback on revenue recognition within the construction industry. This study makes recommendations for detailed entity-specific disclosures, so that industry-wide comparisons are possible.