On August 30, 2007, the Accounting Standards Board of Japan (ASBJ) issued an exposure draft, which proposes accounting for construction contracts.
The long-lived, existing standards allows constructors to account for construction contracts based on either of "completion method" and "percentage-of-completion method".
Completion method, which is based on a narrower concept of realization, had been widely used in practice, but recently most major constructors are said to have alreadly changed their accounting policies to percentage-of-completion method.
ASBJ's proposed standards would require entities to identify which contracts should be accounted for by percentage-of-completion method. Total revenues and costs must be measurable with reliability. Percentage of completion also must be measurable with reliability. Other unqualified contracts should be accounted for by completion method.
The exposure draft is part of ASBJ/IASB convergence project. The proposed standards would eliminate one of major differences between Japanese GAAP and IASB standards.
Comment period will end on October 1, 2007.