Contract Modification — Additional Scope Agreed
Recording additional revenue when a change order adds new services to an existing engagement.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Accounts Receivable (Additional Scope Invoice) | Asset (+) | 18,000.00 | - |
| Professional Fee Revenue (Change Order) | Revenue (+) | - | 18,000.00 |
💡 Accountant's Note
Under IFRS 15, a contract modification adding distinct services at their standalone selling price is treated as a new contract. The additional revenue is recognized as the new services are delivered. If the price is not at SSP, the modification adjusts the original contract prospectively or as a catch-up.
Practitioner & Systems Framework
💻 ERP Architecture
All scope changes must be formalized in a signed change order or engagement letter addendum before work begins and before any additional revenue is recognized. Many firms experience 'scope creep' — additional work performed informally without a signed change order. This creates WIP that may not be billable if the client disputes the additional scope. The ERP should not allow billing codes to be opened for new scope unless a signed change order exists in the document management system. IFRS 15 change order accounting depends on: (a) are the new services distinct and priced at SSP? → treat as a new contract; (b) are the new services distinct but not at SSP? → modify the existing contract prospectively; (c) are the new services not distinct (adding to an existing bundle)? → cumulative catch-up in the current period.
⚠️ Audit Flags
(1) Documentation of client approval — is the change order signed before work begins or after? Retroactive change orders create uncertainty about whether the client is legally committed to the additional fee. (2) SSP determination — for modifications priced differently from the original contract, confirm whether the new price represents the standalone selling price, and apply the correct modification accounting. (3) Scope creep — compare hours billed per phase against the original engagement budget; overruns without corresponding change orders are a revenue recognition risk.
📄 Required Documentation
Signed change order / engagement letter addendum, scope description of additional services, fee quote and client acceptance, IFRS 15 modification analysis (new contract vs. prospective vs. cumulative catch-up), and updated engagement budget.
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Expert Analysis by Qusai Ahmad
General Accountant Supervisor & IFRS Specialist
Specialized in SAP GUI automation and Middle Eastern tax compliance. Building digital tools for the next generation of finance leaders.