The Impact of Meeting the International Financial Reporting Standards
(IFRS) No. 15 on the Quality of Financial Reports in the Jordanian
Construction Companies
RAFAT SALAMEH, EYAD HYASAT, KHALID LUTFI, ZAYNAB ALNABULSI,
AMNAH AL-QURAN
Faculty of Business,
Al-Balqa Applied University,
Al-Salt City, Al-Balqa Governorate,
JORDAN
Abstract: - The present study explored the impact of meeting the international financial reporting standards
(IFRS) on the quality of financial reports in Jordanian construction companies. Those standards are represented
in recognition, measurement, and disclosure). The descriptive-analytical approach was adopted by using a
questionnaire. This questionnaire sheds light on the variables and dimensions of the present study. The
population consists of all the auditors practicing the profession (407 auditors). A random sample was chosen
from the population. It consists of 196 auditors. It was found that meeting the international financial reporting
standards (IFRS) No. 15 has a significant impact on the quality of financial reports in Jordanian construction
companies. The researcher of the present study recommends providing more attention to the disclosure of
information about the revenues derived from the contracts in a manner separate from the other revenues. He
recommends providing more attention to the disclosure of information about the derived assets, such as the
contract costs. He recommends increasing the procedures taken for disclosing the data related to guidelines and
the provisions applicable to customers and companies. He recommends showing more attention to meeting the
international financial reporting standards (IFRS) No. 15 due to their positive impacts on the Jordanian
construction companies.
Key-Words: - International financial reporting standards (IFRS) No. 15, financial reports, Jordanian
construction companies, quality of the financial reports, Recognition, Measurement, Disclosure
Received: September 9, 2021. Revised: May 15, 2022. Accepted: June 7, 2022. Published: July 22, 2022.
1 Introduction
In 2002, the International Accounting Standards
Board (IASB) and the Financial Accounting
Standards Board (FASB) collaborated with each
other to eliminate the misunderstanding related to
International Accounting Standard (IAS) No. 18:
Revenue and IAS 11: construction Contracts. Such
standards led to having acts involving failure in
meeting the requirements of recognizing the
revenues. They led to having acts involving false
revenues and problems related to timing [15].
Efforts were exerted to do a joint project for drafting
[17] in order to replace IAS No. 18 and IAS No. 11.
This project was carried out due to the difficulty in
meeting IAS No. 18 and IAS No. 11. IASB
involves a standard comprehensive framework that
meets the requirements of proving revenues and
eliminates the gaps in accounting practices. It aims
at improving some qualitative characteristics of
data. Those characteristics serve as an indicator of
the quality of financial reports. They include
(Relevance, Faithful Representation, Comparability,
Reliability, Understandability and materiality) [4].
IASB enables people to make a comparison between
the items of revenues of companies. In 2014, IFRS
NO. 15 was issued based on IASB and accounting
standards codification issued by (FASB). From the
perspective of [11] improving the quality of
financial data and information is one of the main
goals of the International Financial Reporting
Standards no. 15 (IFRS 15). These goals can be met
through having a standard comprehensive
framework that aims at eliminating the
contradictions in the sources of guidance. This
framework must aim at providing the ability to
compare pieces of data with each other and provide
financial information that is useful for their users
[23].
2 Problem Formulation
The problem of the present study is represented in
exploring the impact of meeting the international
financial reporting standards (IFRS) No. 15 on the
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Rafat Salameh, Eyad Hyasat, Khalid Lutfi,
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quality of financial reports in the Jordanian
construction companies.
The problem of the present study manifests in the
questions below
Q.1. What is the reality of measurement in the IFRS
No. 15 on the quality of financial reports in the
Jordanian construction companies?
Q.2. What is the reality of recognition in the IFRS
No. 15 on the quality of financial reports in the
Jordanian construction companies?
Q.3 What is the reality of disclosure in the IFRS No.
15 on the quality of financial reports in the
Jordanian construction companies?
3 Objectives of the Study
The main goal of the present study is represented in
exploring the impact of measurement, recognition,
and disclosure in the IFRS No. 15 on the quality of
financial reports in the Jordanian construction
companies. Those companies play a major role in
the economic activity in Jordan due to their
contribution in carrying out the construction
projects. Such projects constitute an element of the
state’s infrastructure elements. The construction
sector is a significant part of the state’s economy. It
contributes to 4.4% of the gross domestic product in
the year 2021 [18]. The construction sector faces
great risks, such as: the long duration needed for
carrying out construction projects and problems
related to the recognition of revenues [10]. Due to
obliging the companies that have data deemed
financial –based on IFRS- to meet IFRS NO. 15:
Revenue from Contracts with Customers, it is
necessary to examine the impact of meeting the
international financial reporting standards (IFRS)
No. 15 on the quality of financial reports in the
Jordanian construction companies.
4 Study Importance
The study's theoretical significance originates from
the relevance of adopting International Standard No.
15 in Jordanian construction enterprises, as well as
its influence on financial report quality. The
scientific significance of the study is in identifying
each of the factors in order to offer crucial
information to scholars and individuals interested in
the field. While the study's practical value lies in
assisting decision-makers and introducing them to
an international standard that improves the quality
of their financial reports.
5 Study Significance
This study was distinguished from the studies that
the researcher reviewed by an attempt to verify the
impact of International Standard No. 15 on the
quality of financial reports, which is the first attempt
to the knowledge of the researchers that links these
variables, in general, and in the Jordanian
construction companies sector in particular, which is
considered one of the important sectors and
developing countries in Jordan, which confirms the
research gap that will be the subject of this study.
The researchers also tried in this study to adopt
realistic measures of its variables, after reviewing
many Arab and foreign studies and pairing them
with them to reach results that reflect the actual
reality of how Jordanian construction companies
manage their financial reports.
6 Research Hypotheses
The present study tests the following main
hypothesis:
Main hypothesis: H01: Meeting the international
financial reporting standards (IFRS) No. 15 doesn’t
have any significant impact –at the significance
level of α≤0.05 - on the quality of financial reports
in the Jordanian construction companies from the
perspective of auditors.
The following sub-hypotheses are derived from the
main hypothesis:
H01.1: Meeting the recognition standard in the
international financial reporting standards (IFRS)
No. 15 doesn’t have any significant impact –at the
significance level of α≤0.05 - on the quality of
financial reports in the Jordanian construction
companies from the perspective of auditors.
H01.2: Meeting the measurement standard in the
international financial reporting standards (IFRS)
No. 15 doesn’t have any significant impact –at the
significance level of α≤0.05 - on the quality of
financial reports in the Jordanian construction
companies from the perspective of auditors.
H01.3: Meeting the disclosure standard in the
international financial reporting standards (IFRS)
No. 15 doesn’t have any significant impact –at the
significance level of α≤0.05 - on the quality of
financial reports in the Jordanian construction
companies from the perspective of auditors.
7 Theoretical Framework
International Financial Reporting Standards No.
(15): Based on IFRS (2020), IFRS are based on
having the management recognizing the revenues
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gained from contracts that aim at providing
customers with products or services. Based on IFRS
(2020), recognizing the revenues is carried out
through adopting the five-step approach. Those five
steps are:
1)- Identify the contract(s) with a customer:
Contract is a written agreement between two parties
or more. Under the contract, the parties shall have
rights and obligations that are binding and
enforceable. Such rights and obligations have a
business nature. One of the contract parties shall get
something in exchange for the things he/she is
providing.
2)- Identify the performance obligations in the
contract: The performance obligations serve as
implicit pledges through which one pledges to
deliver services or products to the customer. They
must be mentioned explicitly in the contract.
3)- Determine the transaction price: The transaction
price refers to the amount of money that the entity is
expected to get in exchange for the price or services
it is delivering to the customer. It doesn’t involve
the amount of money that shall be obtained from the
third party. If the transaction price is not fixed, the
entity must estimate this amount.
4)- Allocate the transaction price to the performance
obligations in the contract: In terms of the contract
that includes several performance obligations, such
allocation is made based on the sale price of each
service or commodity mentioned in the contract.
The accepted methods for allocation include: the
adjusted market assessment approach, and the
expected cost in addition to the profit margin and
the residual approach under limited circumstances
(the residual value).
5)- Recognize revenue when (or as) the entity
satisfies a performance obligation:
The entity must recognize the revenues when the
performance obligation is fulfilled through
delivering the service or product to the customer.
The performance obligation may be fulfilled at a
specific date or when the service or product is
delivered to the customer. The management of the
entity shall choose a method for determining the
revenues that must be recognized when fulfilling the
performance obligation [16].
The final step sheds a light on the recognition of
revenues when the management of the entity fulfills
the performance obligation. It sheds a light on the
guidelines of the timing of such recognition. Thus, it
is considered the step that has the strongest
influence on the construction sector and the
contracts of the manufacturing entities. Today, the
real estate companies recognize the revenues when
time passes, because they fulfill the performance
obligation during the period dedicated for carrying
out the project instead of waiting till finishing the
whole project. That makes the process of
recognizing the revenues based on the amount of the
finished tasks each period.
IFRS No. 15 offers a definition for revenues that is
simpler than the previous definitions [22]. It
contributed to setting a new model for recognizing
revenues based on control. It did that through the
binding executive guidelines, such as: changing the
timing and the value of the recognized revenues [9].
However, the new standards offer opportunism for
making estimations and making personal judgment
[22]. They enable people to determine the prices of
revenues, transactions and performance obligations.
The components of finance must be taken into
consideration. They may require making a
professional's judgment. Interpretations constitute a
significant part when meeting those standards. That
may affect the estimated prices and value [15].
According to [11], the improvements made to the
accounting standards shall reduce and eliminate
many fraud operations and the violations related to
revenues. Despite that, some violations –like: fraud,
and manipulation related to revenues - shall emerge
again through professional judgments and
estimations.
In addition, adopting those standards shall lead to
having different results. Some companies may be
forced to make changes to the recognition of
revenues. Hence, they may be forced to make major
changes to the existent operations and policies in
order to register and justify the decisions related to
the recognition and measurement of revenues [29].
From the perspective of [27] the nature and the
amount of the changes resulting from adopting IFRS
no. 15 vary from one sector to another and from one
company to another. The changes resulting from
meeting IFRS no. 15 on the direct and existent
contracts of service delivery or product sales are
minor. In terms of the impact on the other contracts
(e.g., the contracts of the multiple-element
arrangements), it may be more significant.
According to [9], such impact shall be present in all
the entities in all sectors. However, he adds that
such impact shall vary.
Financial Reporting Quality: The accounting data
and information offered by entities serve as a main
source for information about entities. That justifies
the attention of all parties in the quality of such
information. Such parties include FASB (IASB,
IASC). FASB has been always seeking to oblige
entities to comply with the rules governing the
process of drafting financial statements and
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accounting information. Providing information that
has the qualitative characteristics mentioned in the
conceptual framework set by FASB and IASB shall
contribute to providing financial data and
information of high quality. The quality of data is
measured based on its ability to achieve the greatest
benefits for its users [12].
IFRS no. 15 offers improved guidelines for
disclosure and drafting financial data. It aims at
providing information that is more comprehensive
and beneficial. Such information is related to the
nature, and amount of the revenues and the cash
flow derived from the contracts concluded with
customers. It is related to the date of providing such
amounts and way of checking their validity. FASB
exerted effort to issue IFRS no. 15 in order to
eliminate the contradictions through proving
revenues in the recognition standards and definition
of adversaries. It aimed to standardize the multiple
sources of guidance. It aimed to offer a
comprehensive framework for addressing the issues
related to proving revenues. The emergence of new
business model created a gap when recognizing
revenues.
From the perspective of [13] the impacts of meeting
those standards include: raising the quality of the
(qualitative characteristics of the financial data) in
the accounting and financial data reports. Such
quality is raised through promoting transparency
based on meeting the economic standard related to
financial events and operations. The qualitative
characteristics of the financial data include:
Relevance: Those standards contributed to
providing information of high quality for users.
Such information enables users to assess the current,
future and previous events through providing
adequate guidelines. Such guidelines can be used for
addressing the cases of uncertainty when doing
transaction. Such cases include: allowing to
estimate the non-fixed price in the transaction and
determining the time value of money when having a
source funding the transaction). That led to having a
more comprehensive and accurate understanding for
the relationship between revenues and the elements
of the financial statements (e.g. cash flow).
Faithful Representation: Those standards
contributed to having consistency through defining
the terms (assets, revenues and recognition of assets
and revenues). They contributed to reducing the
extent of embedding the values that don’t represent
the economic events in the facility in the financial
statements. They provide information that one can
rely on. Such information represents certain things
fairly. They are free from major errors and bias.
They are provided through following the guidelines
of the standards that are based on systematic
approach (the five-step approach).
Comparability: Those standards are based on a
specific standard model that applies without
exceptions to all sectors and entities. They ensure
having compatible accounting processing for the
economic events that are similar throughout time in
all sectors and entities. They ensure having
accounting processing for the similar economic
events of the same entity throughout various fiscal
periods. That indicates that the information of
entities, sectors and capital markets is compatible.
Reliability: Those standards include a standard
comprehensive model and adequate guidelines for
recognizing revenues and reducing the extent of
making interpretations and estimations for each case
in a separate manner that facilitates the process of
doing tasks by the independent bodies. Such tasks
include enforcing control on accounting reports
and achieving agreement between the results of
processing data and the accounting methods used
for recognizing revenues.
Understandability: Those standards contributed to
increasing the level of disclosing revenues through
financial statements through increasing the
qualitative and descriptive information on the
revenues earned through contracts with customers.
They contributed to classifying the revenues into
categories. They contributed to disclosing more
information about performance obligation, contract
credit, estimation, and important judgments. They
contribute to having a better understanding for the
amount and nature of revenue and time of receiving
it.
Materiality: Those standards contributed to
determining the performance obligation resulting
from the contracts of service and products. The
same applies to the minor performance obligations
which represent a separate unit. Under such
standards, information about performance
obligations are processed, providing that the relative
significant characteristics is existent in the financial
statement.
Those goals are common and consistent with IASB.
They aim at providing a standard comprehensive
model that is consistent for recognizing the revenues
[11]. IFRS NO. 15 contributed to developing the
philosophy of recognizing the revenues earned
through concluding contracts with customers. They
allow offering a valid representation for the
company’s earnings. They contribute to reducing
the use of revenues for managing profits [29].
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8 Literature Review
While [4] aimed to explore the impact of meeting
IFRS No. 15 to the revenues earned from the
contracts concluded with customers on the quality
of the financial reporting. They chose a sample from
the faculty members in the accounting department in
Iraqi universities and auditors. They found that a
strong relationship exists between meeting IFRS
No. 15 and the quality of the financial reporting
process.
While [14] aimed to explore the impact of meeting
IFRS No. 15 on the revenues earned from the
contracts concluded with customers in the Spanish
and Portuguese telecommunication companies. It
was found that determining the change to the
operation fund serve as the main impact resulting
from meeting IFRS No. 15 in the
telecommunication companies. It was found that the
impact of meeting IFRS No. 15 in those companies
is connected to the concept of contract costs and
consumption. Meeting such standards is connected
to the drop of net profit in the telecommunication
sector.
From the perspective of [28] it is difficult to
determine the ability of IFRS No. (15) to reflect the
economic reality. According to [7], that meeting
IFRS No. (15) has an impact on improving
alignment and the valid representation of the
accounting information mentioned in the reports.
They found that Jordanian companies have been
facing difficulty in meeting such standards when
drafting their financial data.
While [21] found that the listed Italian and Spanish
telecommunication companies have been exerting
effort to meet IFRS no. 15. It is mandatory to meet
those standards by companies since 1/1/2018.
9 Methodology
The study relied on the descriptive approach, which
is concerned with a set of methods concerned with
collecting, summarizing, organizing and displaying
data in a clear way in the form of tables and graphic
forms, and calculating the various statistical
measures for them such as measures of central
tendency and dispersion. The study relied on the
analytical method. This method relies on
extrapolating what the numbers mean, knowing
their statistical significance, interpreting and
describing them more broadly than the descriptive
approach. This step is after tabulating and testing
the sample’s opinions to reach larger and broader
results in general about the community [25].
10 Population and Sample
The population consists from all the auditors who
are practicing the profession (407 auditors). This
number was obtained from the reports published by
the Jordanian Certified Accountants Association. A
simple random sample was chosen from the
population. It consists from 196 auditors. This
number was chosen based on the reference of [19].
The questionnaire forms were passed in an
electronic manner. 160 valid forms were retrieved.
That represents 83% of the original sample size.
This percentage is a good one [25].
11 Instrument Reliability and Validity
The reliability coefficient of the instrument is 0.901.
The Cronbach alpha coefficient values range
between .725 and .840 for all the dimensions. Those
values are accepted [25].
12 VIF and Normal Distribution Test
To make sure that there isn’t any Multicollinearity
between the independent variables, the VIF and
Tolerance values were calculated for each
independent variable. The VIF value mustn’t exceed
10. The tolerance value mustn’t exceed 0.05. The
researcher of the present study made sure that the
data can be normally distributed through calculating
the Skewness value. Such a value must be less than
1 to consider one capable of distributing the data
normally.
13 Testing the Hypotheses
Table 1. Results of the multiple regression analysis for testing the main hypothesis
Dimension
B
T
(sig.)
R Square
Adjusted R Square
Recognition
0.313
5.615
0.000
0.453
0.462
Measurement
0.252
3.943
0.000
F Statistic
Α
Disclosure
0.341
5.556
0.000
55.99
0.000
*: This value means that the value is statistically significant at the statistical significance level of (a 0.05≥)
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Based on table (1), 46.2% of the changes to the
quality of the financial reports in Jordanian
construction companies are attributed to the
dimensions (measurement, Recognition and
Disclosure). Thus, the null main hypothesis is
rejected. The alternative hypothesis is accepted.
That is consistent with the things suggested by [25].
Table 2. Results of the simple regression analysis
for testing the sub-hypotheses
Dimensi
on
R
R2
B
SE
Bet
a
T
Sig
Recognit
ion
0.2
11
0.2
15
0.2
33
0.0
41
0.3
13
5.6
15
0.0
00
Measure
ment
0.2
82
0.2
86
0.2
23
0.0
56
0.2
52
3.9
43
0.0
00
Disclosu
re
0.2
80
0.2
84
0.2
90
0.0
52
0.3
41
5.5
56
0.0
00
*: This value means that the value is statistically
significant at the statistical significance level of (a
0.05≥)
The first sub-hypothesis: The regression coefficient
value () is 0.313. The calculated t value is 5.615.
The latter value is statistically significant at the
statistical significance level of (a 0.05≥). The r2
value is 0.215. Thus, meeting the recognition
standard in the international financial reporting
standards (IFRS) No. has a significant impact –at
the significance level of α≤0.05 - on the quality of
financial reports in the Jordanian construction
companies from the perspective of auditors. That
means that the null first sub-hypothesis is rejected
and the alternative one is accepted.
The second sub-hypothesis: The regression
coefficient value () is 0.252. The calculated t value
is 3.943. The latter value is statistically significant at
the statistical significance level of (a 0.05≥). The r2
value is 0.286. Thus, meeting the measurement
standard in the international financial reporting
standards (IFRS) No. has a significant impact –at
the significance level of α≤0.05 - on the quality of
financial reports in the Jordanian construction
companies from the perspective of auditors. That
means that the null first sub-hypothesis is rejected
and the alternative one is accepted.
The third sub-hypothesis: The regression coefficient
value () is 0.341. The calculated t value is 5.556.
The latter value is statistically significant at the
statistical significance level of (a 0.05≥). The r2
value is 0.284. Thus, meeting the disclosure
standard in the international financial reporting
standards (IFRS) No. has a significant impact –at
the significance level of α≤0.05 - on the quality of
financial reports in the Jordanian construction
companies from the perspective of auditors. That
means that the null first sub-hypothesis is rejected
and the alternative one is accepted.
Results related to the descriptive analysis of the
respondents’ answers:
Based on the means of the respondents’ answers on
the items related to meeting IFRS No. 15, the
respondents’ attitudes are neutral. That is because
the overall mean is 3.63. The overall standard
deviation is 0.506. The mean of the measurement
dimension is 3.79. It is ranked first. The mean of the
recognition dimension is 3.66. It is ranked second.
The mean of the disclosure dimension is 3.45. It is
ranked third. Based on the results, it was found that
the Jordanian construction companies show much
attention to meeting IFRS No. 15
Based on the results, it was found that the Jordanian
construction companies provide attention to a
moderate degree to meeting IFRS No. 15. However,
those companies have weaknesses in some points
related to the disclosure dimension. That can be
attributed to having difficulties in understanding and
interpreting the disclosure and recognition standards
in IFRS., which includes the situation where income
tax is calculated in some contracting companies
without consideration to bookkeeping using the
lump-sum tax method, which is a certain percentage
of total revenue (assessed by tax assessors) of a
financial period. This type of company does not
comply with IFRS 15 requirements.
Based on the results, it was found that the overall
mean of the items related to the dependent variable
(the quality of financial reports) is 3.59. The latter
mean is moderate. That indicates that the quality of
the financial reports in Jordanian construction
companies is moderate. This quality level enables
employees to make comparisons between various
situations, increasing the financial statement’s data
reliability for best economic decisions by supporting
the understanding of its current performance,
financial position. It also supports future cash
predictions by comparing its data across entity’s
different financial periods and through the sector.
14 conclusion and Recommendations
The results of the present study match the result
reached by [3]. The latter researcher found that
benchmarking has an impact on the quality of
financial reports in the Jordanian pharmaceutical
companies. The results of the present study agree
with the result reached by [2]. The latter researchers
found that all the qualitative characteristics of the
(financial reports) improved after meeting IFRS No.
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15. The results of the present study agree with the
result reached by [20]. The latter researchers found
that IFRS have a major impact on the reliability and
relevancy of financial data.
The results of the present study agree with the result
reached by [7]. The latter researchers found that
IFRS no. 15 have an impact on improving the
quality of accounting information from the
perspective of external auditors in the four main
auditing companies [1]. The results of the present
study agree with the result reached by [5]. The latter
researchers found that IFRS have a great impact on
the valid representation of the accounting
information and focusing on the development of
accounting policies. The results of the present study
agree with the result reached by [10]. The latter
researcher found that the achievement percentage
method is the most accurate method in terms of
recognition of revenues. The latter method is
characterized with being flexible in terms of
modifying the estimated costs. It contributes to
raising the reliability of the financial reports [24].
The results of the present study agree with the result
reached by [21]. The latter researchers found that
the Italian and Spanish telecommunication
companies have been providing attention to meeting
IFRS NO. 15. It is mandatory to meet those
standards by companies.
The results of the present study agree with the result
reached by [1]. The latter researcher found that it’s
necessary to keep meeting the recognition and
measurement standards based on the Egyptian
accounting standards No. 11 and international
accounting standards No. 18. He suggests that such
standards must be met based on the fair value basis
with taking any business discount or discount to a
quantity into consideration. He recommends doing
that with providing attention to meeting IFRS NO.
15 that consider the price in the transaction as a
price that the entity shall get in exchange for the
services or products delivered to the customer.
While [26] found that meeting IFRS has an impact
on the sustainability of profits. Meeting those
standards reflects knowledge about the
sustainability of profits. According to [8], the level
of disclosing information through the annual
financial reports of the Jordanian stock companies is
affected by the independent variables jointly. The
latter variables include: (the type of sector
(industrial, service, or financial sectors). That is
consistent with the results of the present study. It is
consistent with the results reached by [6].
Therefore, the researcher of the present study
suggests that it is necessary to assess service and
products by the Jordanian construction companies.
Doing that serves as a fulfilment of one of the
contract obligations. The researcher of the present
study recommends taking the contract conditions
and business practices into consideration when
setting the price in the contract. He also
recommends providing more attention to the
disclosure of quantitative and qualitative
information about the contracts signed with
customers. He also recommends providing more
attention to the disclosure of information about the
revenues derived from the contracts in a manner
separate from the other revenues. He also
recommends providing more attention to the
disclosure of quantitative and qualitative
information about the opening and closing balances
for receivables. He recommends providing more
attention to the disclosure of information about the
derived assets, such as: the contract costs. He
recommends increasing the procedures taken for
disclosing the data related to guidelines and the
provisions applicable to customers and companies.
The researchers stress the need of introducing (IFRS
15) requirements in Specialized, professional
courses and workshops in the field of accounting,
auditing and related parties to face any crises that
Jordanian contracting companies may face.
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Zaynab Alnabulsi, Amnah Al-Quran
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Zaynab Alnabulsi, Amnah Al-Quran
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DOI: 10.37394/23207.2022.19.106
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Zaynab Alnabulsi, Amnah Al-Quran
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