Veidekke ASA: New revenue recognition standard takes effect - IFRS 15
Residential projects in property development operations
In the financial statement, Veidekke has, in accordance with the previous standard IAS 11, recognised revenue from residential projects on the date of contractual delivery to the purchaser (IFRIC 15). In accordance with the new standard, revenue from residential projects in Sweden and Denmark will be recognised on an ongoing basis in line with estimated final profit, stage of completion and sales ratio, while the revenue recognition principles applicable to residential projects in Norway remain unchanged. The different revenue recognition approaches in the different countries are due to variations in national legislation governing residential construction and sales.
Veidekke will contine to report revenue from residential projects on a percentage-of-completion basis in its segment accounts. This is deemed to best reflect the company's value creation in the property segment, and ensures consistency with Veidekke's internal reporting. Veidekke's segment accounts for residential projects will thus be unaffected by the new revenue recognition standard. Going forward, any difference between the financial and segment accounts will be due solely to the Norwegian property development operations.
Implementation of the new standard has added NOK 695 million to Veidekke's equity as at 31 December 2017. The revised financial statements for 2017 show an increase of NOK 198 million in the company's pre-tax profit compared to the accounts issued under the previous standard.
Change orders and supplementary work in construction operations
Under the previous standard, revenue related to unresolved claims in construction projects was recognised based on the likely outcome of the claim against the customer. The new standard contains more stringent requirements concerning recognition of such revenue: it may only be recognised when it is deemed highly probable that it will not be reversed later. The new standard will primarily affect revenue recognition in projects where the contract may result in different interpretations of contractual scope and calculation of compensation. Such situations will mainly arise in the civil engineering segment.
Projects with material unresolved claims against customers as at year-end 2017 have been revalued in accordance with the new standard. The effect is a reduction of NOK 323 million in Veidekke's equity as at 31 December 2017. The revised pre-tax profit for 2017 is NOK 130 million lower than in the accounts issued pursuant to the previous standard. The accounting of change orders and supplementary work in construction projects is identical in the segment reporting and in the financial statements, and both sets of accounts for 2017 have been restated.
Revised group and segment-level accounting figures for 2017 are appended.
Veidekke is one of Scandinavia's largest construction and property development companies. The company undertakes all types of building construction and civil engineering contracts, develops residential projects, maintains roads, and produces asphalt and aggregates. The company is known for its involvement and local knowledge. Its annual turnover is NOK 32 billion, and half of its 8,000 employees own shares in the company. Veidekke is listed on the Oslo Stock Exchange and has always posted a profit since it was founded in 1936.