Abstract:
At international level, in accounting terms, construction contracts are
covered by IAS 11 "Construction Contracts". This standard deals with the
issue of recognition of revenue and costs of construction, ensuring that
revenue and contract costs to be affected accounting periods in which
construction activity, which was, in fact, the primary problem of accounting
for construction contracts. Standard refers to contracts that run for over
several accounting periods. Specifically, these include contracts on the one
hand, contracts for services that are directly related to asset building (eg,
services of architects and designers) and on the other hand, contracts for
construction or restoration of assets and environmental restoration after
dismantling them. Accounting for construction contracts, IAS 11 recommends
two methods, namely the end of business method and the method of rising
percentage of the work. The essential difference between the two methods is
when to recognize the outcome of the contract.
From research carried out on the financial reports of companies’
active in the construction industry, we found that mentioned methods are
applied sometimes unjustifiably, for the purpose of handling information on
the financial performance of the enterprise. For example, if the losses are
forecasted for the next period, in general, a company will be tempted to apply
the method completion not work and the percentage of advancement or when
using the method the degree of advancement of the work may be overvalued
or undervalued advance work, just to influence the outcome in direction
desired. The study's aims to comment on the accounting treatment of
construction contracts and their implications on the outcome of accounting
recognition highlight strengths and weaknesses of the two methods of
counting.
