Impact of Applying ISA 11 Construction Contracts on The profitability in Jordanian Contracting Companies

Abstract

The study aims at identifying accounting measurement problems that affect the profitability of contracting companies in the Hashemite Kingdom of Jordan. It is also to identify the impact of the commitment to apply the requirements of  International Accounting Standards (IAS 11) Construction Contracts on the profitability of contracting companies in The Hashemite Kingdom of Jordan. In addition, the study aims to identify the most significant problems the contracting companies Face in applying and using ISA 11 Construction Contracts while preparing financial accounts.  In order to achieve the purposes of the study, the researcher has used descriptive analytical method for studying IAS 11 Construction Contracts. A questionnaire has been designed and distributed to a study sample of constructing companies in Jordan in order to measure to which extent they are committed to apply the requirements of IAS 11 Construction Contracts and to figure out the impact of this standard on the profitability of these companies. The study has concluded that the commitment of contracting companies in Jordan to apply the requirements of IAS 11 Construction Contracts affects highly their profitability. It also found that Jordanian contacting companies face various difficulties in applying and using IAS 11 Construction Contracts while preparing financial accounts; these difficulties include a lack of scientific knowledge and vocational experience of IAS 11 and a lack of accounting system of the costs of accounting records and books which contribute to determine constructions' costs and apply IAS 11 in contracting companies. In addition, laws governing construction sector in Jordan are not obliged to apply IAS 11 Construction Contracts in contracting companies. The study has recommended that organizing legislative and legal environment which governs the work of contracting companies is a necessity; these companies shall be obliged to adopt international accounting standards; the awareness of applying and using IAS 11 Construction Contracts shall be raised among the departments of contracting companies which preparing financial statements; in addition, training courses on the importance of accounting of construction contracts using IAS 11 Construction Contracts  shall be held for the employees working in construction section.

Keywords , IAS 11, accounting of construction contracts