IAS 11 explained for 2026: percentage-of-completion, expected losses, disclosures, and how the standard maps to IFRS 15 and Ind AS 115 today.
IAS 11 - Construction Contracts was the historic IFRS standard prescribing accounting for fixed-price and cost-plus construction contracts. While IAS 11 has been superseded globally by IFRS 15 - Revenue from Contracts with Customers, and Ind AS 11 has been replaced by Ind AS 115 in India, understanding IAS 11 remains essential. Many EPC, infrastructure and real estate contracts written before the transition still reference its principles, and the percentage-of-completion logic it championed continues under IFRS 15's input method. In 2026, finance teams must read IAS 11 alongside the new revenue framework.
Scope and Core Definitions
IAS 11 applied to contracts specifically negotiated for the construction of an asset or a combination of assets that are closely interrelated. The standard recognised two categories:
- Fixed-price contracts - contractor agrees to a fixed contract price, with possible escalation clauses
- Cost-plus contracts - contractor is reimbursed for allowable costs plus a fee or margin
Recognition: Percentage of Completion
Contract revenue and costs were recognised over time using the stage-of-completion method, provided the outcome could be estimated reliably. Stage of completion was typically measured by:
- Cost-to-cost method - contract costs incurred to date over total estimated contract costs
- Surveys of work performed by independent engineers
- Physical proportion of work completed against total contract
When the outcome could not be estimated reliably, revenue was recognised only to the extent of costs probable of recovery, with all costs expensed as incurred.
Contract Revenue and Contract Costs
Contract revenue comprised the initial agreed amount plus variations, claims and incentive payments, to the extent it was probable that they would result in revenue and could be reliably measured. Contract costs included:
- Direct costs - labour, materials, depreciation on contract-specific plant
- Allocable costs - insurance, overheads, design and technical assistance
- Specifically chargeable costs - reimbursable expenses agreed with the customer
General administrative costs, selling costs and R&D not chargeable to the contract were excluded.
Expected Losses and Onerous Contracts
When total contract costs were expected to exceed contract revenue, the entire expected loss was recognised immediately as an expense, regardless of stage of completion. This conservative principle remains intact under IFRS 15 read with IAS 37 for onerous contracts and is critical in down-cycle infrastructure portfolios.
Disclosure Requirements
Entities had to disclose:
- Amount of contract revenue recognised in the period
- Methods used to determine contract revenue and stage of completion
- Aggregate costs incurred and recognised profits less recognised losses
- Advances received and retentions
- Gross amount due from and to customers for contract work
Transition to IFRS 15 / Ind AS 115
IFRS 15 replaced IAS 11 and IAS 18 from 1 January 2018, and Ind AS 115 became effective for Indian companies from 1 April 2018. The new model uses the five-step framework: identify the contract, identify performance obligations, determine the transaction price, allocate the price, and recognise revenue when (or as) performance obligations are satisfied. For most construction contracts, revenue is still recognised over time using an input method that closely resembles the percentage-of-completion approach, but with sharper rules on variable consideration, significant financing components and contract modifications.
Practical Implications for Indian EPC and Real Estate
For Indian EPC contractors, the move from Ind AS 11 to Ind AS 115 changed the precision required around variable consideration. Liquidated damages, performance bonuses, change orders and claims are no longer recognised at the contractor's optimism - they require an explicit estimation using either the expected value method or the most likely amount method, constrained by a probability test that the cumulative revenue recognised will not subsequently reverse. This constraint typically suppresses revenue recognition compared with the old Ind AS 11 treatment.
Real estate developers were similarly affected. The earlier Guidance Note on Real Estate revenue, which permitted percentage-of-completion based on the stage of construction, was replaced by control-based revenue recognition under Ind AS 115. For most under-construction residential projects, revenue is recognised over time because the asset has no alternative use to the developer and the developer has an enforceable right to payment. EPC companies should also document the choice of input method (cost-to-cost) versus output method (units completed) consistently, since regulators and auditors now compare disclosure choices across peer companies.
Conclusion
IAS 11 shaped how the world accounted for long-term construction projects for two decades. Its core ideas - measuring progress, recognising expected losses immediately, and disclosing contract balances - live on inside IFRS 15 and Ind AS 115. For Indian EPC, infrastructure and real estate companies in 2026, the imperative is to read legacy contracts in light of the new five-step model while preserving the disciplined estimation culture IAS 11 instilled.
