What is Contract Asset?
A contract asset under IFRS 15 is a company’s right to receive consideration from a customer in exchange for goods or services already delivered, conditional on something other than the passage of time. It is distinct from an unconditional trade receivable.
How It Works
- Identify each performance obligation in the contract.
- Track delivered performance against customer billings.
- When performance exceeds the right to bill, recognise a contract asset.
- Reclassify the asset to a trade receivable when billing becomes unconditional.
- Apply expected credit loss assessment under IFRS 9 to the asset.
Saudi Context
Saudi construction, engineering, and consulting firms often recognise contract assets for milestone-based work performed but not yet invoiced. SOCPA-adopted IFRS 15 and ZATCA tax treatment both rely on the same performance-based recognition.
Example
A contractor delivers SAR 2 million of construction work but cannot invoice until the next milestone certification. It recognises a SAR 2 million contract asset, reclassified to AR upon certification.