PracticeAuditEnd in site for ‘off-plan’ confusion

End in site for 'off-plan' confusion

Contradictory reporting of revenues from 'off-plan' building projects is set to end

The contradictory reporting of revenue from building projects around the
world is set to end after proposals from the accounting standards adjudicator.

The move should end the practice of booking revenues from ‘off-plan’ building
projects, before construction work is even complete.

Off plan projects involve the sale of property based on draft plans only and
before major building works have been finished.

There had been confusion over how such revenues should be booked. But the
proposals from IFRIC, the interpretations committee of
the International
Accounting Standards Board
, should clarify a point of contention in the real

estate sector, which has seen contradictory reporting of revenues around the
world, and in particular those concerned with multiple-unit builds.

The confusion has resulted in a proposal which attempts to standardise
accounting practice among real estate developers for sales of units such as
apartments or houses off-plan.

IFRIC panel member Ken Wild said the question of the correct way to record
revenues in real estate developments needed clarity.

‘Real estate units off-plan have been viewed in two different ways. In some
countries the prevailing practice has been to view them as contracts for the
sale of goods. In others, the sale agreement is viewed as a construction
contract where revenue is recorded as construction progresses,’ said Wild.

IFRIC proposes that revenue be recorded as construction progresses, only if
the developer is providing construction services, rather than simply selling a
property ‘off-plan’.

‘In many countries these features are currently not interpreted in this way.
And in many, building won’t even begin until 75% of the units are sold off-plan,
while revenue is also recorded,’ said Wild.

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