Fixed-Fee Engagement — Revenue Over Time (% Completion)
Recognizing a portion of a fixed fee based on project completion percentage at month-end.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Contract Asset (Unbilled Revenue) | Asset (+) | 15,000.00 | - |
| Professional Fee Revenue (Fixed Fee) | Revenue (+) | - | 15,000.00 |
💡 Accountant's Note
Under IFRS 15, fixed-fee contracts where the firm delivers a continuous service are recognized over time. Revenue = (costs incurred to date / total estimated costs) × total contract fee. A contract asset is used when revenue outpaces billing milestones.
Practitioner & Systems Framework
💻 ERP Architecture
The cost-to-cost method (input method under IFRS 15.B18) requires the ERP to track both actual costs incurred to date and the total budgeted cost for the engagement. This means every fixed-fee engagement needs a detailed cost budget at inception, updated when scope changes occur. Monthly: actual costs to date ÷ total budgeted cost = completion percentage; completion percentage × total fee = cumulative revenue to recognize; revenue recognized this period = cumulative revenue minus cumulative revenue recognized in prior periods. Accurate budget management is critical — budget overruns increase the completion percentage and accelerate revenue, which can be misleading if the overrun reflects inefficiency rather than progress.
⚠️ Audit Flags
(1) Budget reliability — auditors test whether the total estimated cost is a realistic estimate or is being manipulated to control revenue timing. Systematic budget underestimation accelerates revenue. (2) Cost-to-cost vs. output methods — is the cost-to-cost method the most faithful representation of progress? For engagements where cost does not track value delivered (e.g., complex front-loaded work followed by simple delivery), an output method (milestones, deliverables) may be more appropriate. (3) Contract asset impairment — if the contract becomes loss-making, the contract asset should be assessed for impairment under IFRS 15.105.
📄 Required Documentation
Engagement budget (total estimated cost at inception and as revised), actual costs incurred to date schedule, completion percentage calculation worksheet, cumulative revenue recognition schedule, and scope change documentation affecting the budget.
Automate this entry with the JEH Accounting Suite
Stop doing manual entry. Our VBA-powered ERP automatically generates your ledgers, Trial Balance, and Financial Statements.
No Subscriptions. Own your data.
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.