SEC further defers the adoption of IFRIC 15
SEC further defers the adoption of IFRIC 15
11 August 2011
The Philippine Securities and Exchange Commission (SEC) has posted a notice to the public to further defer the adoption of International Financial Reporting Interpretation Committee (IFRIC) 15, Agreements for the Construction of Real Estate, in the Philippines after giving due consideration to the Position Paper submitted by various real estate industry associations in the Philippines and the on-going deliberation on the Revenue Recognition standard by the International Accounting Standard Board (IASB). The further deferral is made until the Revenue Recognition standard is issued by the IASB and after an evaluation on the requirements and guidance in the said standard vis-a-vis the practices and regulations in the Philippine real estate industry is completed. Currently, the Revenue Recognition standard, which is expected to address some of the issues relevant to the adoption of IFRIC 15, is exposed for comments by the IASB and is expected to be made effective by 2015.
About IFRIC 15
The Interpretation Committee of IASB issued IFRIC 15 in July 2008 to standardize accounting practice among real estate developers for 'off-plan' sale or pre-selling arrangement for real estate property (i.e., sale before the construction of houses or condominium projects is complete). There have been significant differences in the way real estate developers have accounted for such sales, with some recording revenue only when the completed unit is handed over to the buyer, and others recognizing revenue as construction progress in accordance with PAS 11, Construction Contracts.
IFRIC 15 will make it more difficult to argue that pre-selling arrangement of multi unit real estate project (such as condominium project) falls within the scope of PAS 11. It emphasizes that a feature of construction contracts is the buyer’s ability to specify major structural components of the design both before and during construction activity. Therefore, it seems likely that revenue from the sale of multi unit real estate projects will be recognized upon completion of the project which is contrary to most common practice of real estate developers in the Philippines wherein revenue is recognized on a 'continuing basis' based on the percentage of completion of the project.
IFRIC 15 became effective at the international level on January 1, 2009. However, the SEC previously deferred the adoption of this interpretation in the Philippine effective January 1, 2012. As discussed above, it was further deferred by the SEC pending the completion of IASB's Revenue Recognition standard.