Key Points
- Over-time recognition requires meeting at least one IFRS 15.35 criterion; point in time is the default when none is met.
- Construction and bespoke manufacturing contracts typically qualify for over-time treatment; standard product sales do not.
- Applying the wrong model can shift revenue by 40%-60% of contract value between reporting periods on a multi-year engagement.
- The auditor assesses which model applies at the performance obligation level, not the contract level.
Side-by-side comparison
| Dimension | Over time (IFRS 15.35) | Point in time (IFRS 15.38) |
|---|---|---|
| Trigger | At least one of three criteria satisfied | None of the three criteria satisfied (default) |
| Recognition pattern | Progressive, using a measured method of progress (output or input) | Full amount at the moment control transfers |
| Measure of progress | Required: cost-to-cost, milestones, units delivered, or surveys of work completed | Not applicable; the entity identifies a single transfer date |
| Typical fact patterns | Construction on customer land, recurring cleaning or payroll services, bespoke engineering | Retail goods, standard equipment shipments, off-the-shelf software licences |
| Key audit judgment | Whether the selected progress measure faithfully depicts transfer of control | Which of the five IFRS 15.38 indicators pinpoints the transfer moment |
| Period-end risk | Cost-to-complete estimate is stale or excludes known cost overruns, accelerating revenue | Goods in transit recorded as revenue before delivery completes the control transfer |
Decision rule: If the customer receives benefits as the entity performs, or the entity builds an asset the customer controls during construction, or the asset has no alternative use and payment for work done is enforceable, recognise over time. Otherwise, recognise at a point in time.
What is IFRS 15 Over Time vs Point in Time Recognition?
Dupont Ingenierie S.A.S., a French engineering firm, signs two contracts in the same month. The first is a EUR 4.8M bespoke water-treatment plant built on the customer's site. The second is a EUR 1.2M standard filtration unit shipped from stock. If the engagement team applies over-time recognition to both without testing the IFRS 15.35 criteria separately, the filtration unit's revenue is spread across production months rather than recognised on delivery. That timing error shifts EUR 900,000 from Q1 (when the unit ships) into the prior year's Q3 and Q4.
IFRS 15.32 requires the entity to assess each performance obligation individually. The water-treatment plant meets IFRS 15.35(b) because the customer controls the asset during construction. The filtration unit fails all three criteria: the customer does not consume benefits during production, does not control the unit as it is assembled, and Dupont could redirect the standard unit to another buyer. ISA 315.12(f) directs the auditor to understand these revenue policies at the obligation level, not to accept a blanket "percentage-of-completion" policy inherited from the old IAS 11 era.
Worked example: Dupont Ingenierie S.A.S.
Client: French engineering services company, FY2025, revenue EUR 92M, IFRS reporter. Dupont holds two active contracts with the same customer, a municipal water authority.
Contract A — bespoke water-treatment plant, fixed price EUR 4.8M, estimated total cost EUR 3.84M, construction on customer-owned land, 18-month build.
Contract B — standard filtration unit from Dupont's catalogue, price EUR 1.2M, shipped from the Lille warehouse on completion.
Step 1 — Test IFRS 15.35 criteria for Contract A
The plant is constructed on municipal land. The customer controls the structure as it rises. IFRS 15.35(b) is satisfied. Over-time recognition applies.
Documentation note: record that legal title to the land and the structure in progress rests with the municipality. Cite the construction permit and contract clause 7.2 confirming customer ownership during the build. Conclude: IFRS 15.35(b) met.
Step 2 — Select a measure of progress for Contract A
Dupont uses cost-to-cost (costs incurred divided by total estimated costs). By 31 December 2025, Dupont has incurred EUR 2.30M of the EUR 3.84M estimate. Progress = 59.9%. Revenue recognised = EUR 4.8M x 59.9% = EUR 2,875,200.
Documentation note: record cumulative costs (EUR 2.30M), total cost estimate (EUR 3.84M, updated by the project director on 10 January 2026), progress percentage (59.9%), and revenue recognised (EUR 2,875,200). Cross-reference the cost ledger to the project cost report. Confirm no uninstalled materials requiring IFRS 15.B19 adjustment.
Step 3 — Test IFRS 15.35 criteria for Contract B
The filtration unit is a catalogue product assembled in Dupont's facility. The customer does not consume benefits during assembly. The customer does not control the unit while it sits in Dupont's workshop. Dupont could sell the same unit to another buyer without significant modification, so the asset has alternative use. None of the three criteria is met. Point-in-time recognition applies.
Documentation note: record that IFRS 15.35(a), (b), and (c) are each not satisfied. Document the alternative-use analysis: the unit matches catalogue specification FU-400, with four other customers on the order book for the same model. Conclude: point in time.
Step 4 — Identify the control-transfer point for Contract B
The contract specifies Incoterms DAP to the customer's treatment facility. Dupont ships the unit on 18 December 2025; it arrives on 22 December 2025. All five IFRS 15.38 indicators (right to payment, title, possession, risk, acceptance) converge on 22 December 2025. Revenue of EUR 1.2M is recognised on that date.
Documentation note: record the delivery confirmation dated 22 December 2025, the signed goods-received note, and the Incoterms clause. Map each IFRS 15.38 indicator to the supporting evidence.
Conclusion: Contract A produces EUR 2,875,200 of revenue spread across FY2025 via cost-to-cost; Contract B produces EUR 1.2M on a single date. If the team had applied over-time recognition to Contract B, it would have recognised approximately EUR 780,000 of the EUR 1.2M in FY2025 based on assembly costs incurred before shipment, overstating revenue in the months before delivery and understating it in December.
Why it matters in practice
- Teams with legacy IAS 11 experience apply percentage-of-completion to all contracts without performing the IFRS 15.35 gateway test for each performance obligation. IFRS 15.35 requires one of three specific criteria to be met before over-time treatment is permitted. A standard product with minor customisation may fail the "no alternative use" test in IFRS 15.35(c) if the entity could redirect it to another customer without significant rework. ISA 500.9 requires the auditor to evaluate whether the evidence supports the chosen model, not merely to accept the entity's historical policy.
- The FRC's 2023/24 thematic review of revenue recognition found that entities in construction and engineering sectors often applied a single revenue policy across all contract types rather than testing each obligation against the IFRS 15.35 criteria individually. The finding was most common where entities combined bespoke project work with catalogue product sales under one revenue stream.
Related terms
Frequently asked questions
Can a single contract have some obligations recognised over time and others at a point in time?
Yes. IFRS 15.22 requires the entity to identify each distinct performance obligation in a contract. The over-time vs point-in-time assessment under IFRS 15.32 applies separately to each obligation. A construction contract bundled with equipment delivery can produce two different recognition patterns for the same customer. The auditor tests each obligation individually per ISA 315.12(f).
How do I audit the IFRS 15.35(c) "no alternative use" test?
Examine whether the entity could redirect the partially completed asset to another customer without significant cost or rework. IFRS 15.36 states that the assessment is made at contract inception, not at each reporting date. Inspect the product specifications, review the order book for comparable items, and assess contractual restrictions (such as customer-specific branding or regulatory approvals) that would prevent redirection. Document the conclusion with reference to the specific design features or contractual terms.
What happens if the entity picks the wrong recognition model?
The entity restates the affected revenue under IAS 8.42 as a correction of a prior-period error. If the entity recognised over time when point in time was correct, revenue recorded in earlier periods is reversed and re-recognised at the delivery date. The contract asset or contract liability balance changes accordingly. The auditor evaluates whether the misstatement is material under ISA 450.11.