Developers and real estate businesses, where a single project spans years and several statutes.
When revenue on a project is recognised, and on what measure of progress, is the central reporting question. It turns on the terms of the agreements with buyers and on the applicable financial reporting framework, and the answer drives the reported result for years.
Alongside it sits regulation. Projects within the scope of the Real Estate (Regulation and Development) Act, 2016 carry registration, disclosure and separate bank account requirements, with their own reporting and certification, and the indirect tax position differs between a unit sold before completion and one sold after it.
Accounting and reporting
- Revenue recognition on projects and the measure of progress used
- Land, development rights and the treatment of acquisition cost
- Project cost accumulation, borrowing costs and inventory of unsold units
- Customer advances, cancellations and the amounts refundable
- Joint development arrangements and the accounting for the developer's share
Regulatory
- Registration, disclosure and the separate project account required under the Real Estate (Regulation and Development) Act, 2016, where it applies
- GST treatment, which differs between units sold before and after completion
- Tax deduction at source on the purchase of immovable property and on contractor payments
- Stamp duty and registration, which vary by state
Internal controls
- Project-wise cost records reconciled to the general ledger
- Controls over collections from buyers and over withdrawals from project accounts
- Certification of work done before contractor bills are passed
- Reconciliation of units sold, booked and unsold against the inventory records
Questions that arise
- Is revenue recognised on a basis consistent with the agreements and the applicable framework?
- Are project costs and borrowing costs allocated to the right project and period?
- Are collections and withdrawals consistent with the regulatory requirements for the project?
- Is unsold inventory assessed for net realisable value?