Follow AASB 15 Revenue
This was copied during May 2025:
Work in Progress (WIP) requires estimating the assets or liabilities accumulated from construction contracts based on what is entitled to be invoiced for works performed under the contracts, less what has been invoiced at a particular point in time.For construction contracts, WIP should be calculated in accordance with the provisions of AASB 15 Revenue from Contracts with Customers (which replaced the previous accounting standard of AASB 111).
It is not the QBCC’s role to advise a licensee how to calculate their work in progress, as each business is different – bigger companies may use the percentage complete method, smaller businesses may use costs incurred but not yet invoiced. Both methods are acceptable under the accounting standards.
The calculation of work in progress is the outcome of a construction contract that can be estimated reliably, with contract revenue and contract costs to be recognised by applying the stage of completion method. That includes billable work performed up to and including the balance sheet date that has not been invoiced plus an element of the expected profit on the project.
Contractors can include profit in the calculation of WIP but it should be relevant to the portion of work they have undertaken and therefore only be a percentage of the total profit they expect to make. A contractor cannot bring all of their profit to account prior to the completion of a job. For example, if a contact is on target at 40% stage of completion, then 40% of the anticipated profit can be brought to account.
Where a job appears as if a loss will result, then all costs must be written off in the books of account.
Where the outcome of a construction contract cannot be estimated reliably, costs incurred are to be recognised as expenses and revenue is to be recognised only to the extent that it is probable that the costs incurred will be recoverable.
Work in progress is NOT:
- Bringing to account the value of work remaining to be undertaken on a contract where the work has not been done;
- Doing 25% of the work on a contract but bringing to account more than 25% of the estimated profit;
- Projected or actual loss on a contract brought to account over time (losses must be brought to account immediately).
- Work in progress amounts are actively reviewed to ensure accuracy of calculations and appropriateness of estimates and assumptions made.
Key areas of review may include:
- How entities determine their estimated profit margin applied to construction WIP - i.e. the QBCC may ask you to identify the estimated profit margin you have applied to individual contracts and provide support for these figures. We may review historical trends or interrogate aggressive assumptions.
- When and how entities take into account anticipated losses on individual construction contracts
- How the value of total contract consideration was determined, measured and applied
- How any/all approved variations have been incorporated into the calculation of WIP