Are like business transactions reflected similar in the financial reports? A study of Swedish construction companies' appliance of IFRIC 15

Abstract

Title: Are like business transactions reflected similar in the financial reports? A study of Swedish construction companies’ appliance of IFRIC 15 Background and Problem: Since 2005 all listed companies within the European Union are obligated to establish their consolidated financial statements according to IFRS. IASB is responsible for issuing these accounting standards. The revenue standards - IAS 11 and IAS 18 express very different methods for revenue recognition and since no clear distinction between the two seemed to exist - IFRIC 15 was issued to help clarify this matter. Confusion still, however, seems to exist since in regards to construction of cooperative apartments some companies apply IAS 11 and some apply IAS 18. Previous studies observe that this divergence in practice exists, but do not examine the reasons for it. The divergence could be caused by differences in business transactions and it is therefore essential to study the underlying business transactions in detail in order to conclude the reasons for the divergence. Aim of the study: This thesis has examined the underlying business transactions that occur in the process of construction of cooperative apartments. These have then in combination with the companies’ presented arguments been used to help explain the reason for the differences in the applied accounting methods. Methodology: The divergence in practice has been examined by studying the four listed construction companies in Sweden. Interviews have been conducted with respondents at these companies as well as with the companies’ signing auditors. The interviews have addressed both the business transactions of the underlying construction process and the arguments presented for the used accounting method in regards to IFRIC 15. Analysis and conclusion: This thesis shows that the business transactions in regards to the construction of cooperative apartments are very similar between the studied companies. These similarities are, however, not reflected in the financial reports since both IAS 11 and IAS 18 are applied to reflect the same business transactions even after the issuing of IFRIC 15. Our study indicates that it is rather the room for interpretation in IFRIC 15 than differences in business transactions that causes the divergence in practice.