Struggling to match your project progress with your profit reports? The percentage of completion method could be the solution your business needs—especially as Australia sharpens its financial reporting standards in 2025.
Why the Percentage of Completion Method Matters in 2025
Revenue recognition isn’t just an accounting formality. For industries dealing with lengthy projects—think construction, engineering, and IT—the way you report earnings can make or break your financial visibility. The percentage of completion (POC) method stands out as a preferred approach, aligning your revenue with the actual progress of your work. This method has gained further importance in 2025, as the Australian Accounting Standards Board (AASB) continues to align with international standards, putting transparency and accuracy front and centre.
- Who should care? Builders, contractors, large-scale renovators, and software developers managing multi-year contracts.
- Key benefit: Smoothes out revenue and expense fluctuations, giving a true sense of financial performance.
- 2025 update: The AASB 15 Revenue from Contracts with Customers remains the gold standard, enforcing strict criteria for recognising revenue as work progresses.
How the Percentage of Completion Method Works
Under the POC method, businesses recognise revenue based on the proportion of work completed during the reporting period. This is a departure from the completed contract method, where all revenue and profits are booked only at the end of a project—a less realistic picture for ongoing work.
The core calculation involves:
- Estimating total project costs (including materials, labour, and overheads)
- Measuring costs incurred to date
- Calculating percentage complete = (Costs to date / Total estimated costs) x 100
- Applying that percentage to the contract revenue to determine income to recognise
Example: If you’re halfway through a $2 million contract and have incurred $1 million in costs (with $2 million estimated total costs), you can recognise 50% of the contract revenue—$1 million—on your books for the period.
Real-World Examples in Australia
Let’s see how Australian businesses are applying the POC method in 2025:
- Construction Firms: With major infrastructure projects like the Western Sydney Airport and Brisbane’s Cross River Rail underway, contractors must report progress to banks, investors, and regulators. The POC method provides a transparent, phased view of revenue that aligns with project milestones.
- Software Companies: Australian SaaS and IT firms, building bespoke solutions over several months, use the POC method to recognise revenue as specific modules or deliverables are completed—improving cash flow management and stakeholder trust.
- Government Contracts: The Federal Government’s digital transformation projects, which often span years, require transparent reporting. The POC method ensures compliance with both AASB and international IFRS 15 guidelines.
Policy and Compliance Updates for 2025
Financial reporting is under the microscope in 2025. The AASB continues to harmonise with IFRS 15, reinforcing that revenue can only be recognised as performance obligations are satisfied. Key compliance points include:
- Detailed contract analysis: Businesses must break down contracts into separate performance obligations and assess each for POC eligibility.
- Robust documentation: Regulators expect clear evidence of project progress, cost estimates, and adjustments for scope changes.
- Audit readiness: The ATO and ASIC are increasing audits on large-scale projects, making accurate POC reporting more critical than ever.
For small businesses, cloud-based accounting tools like Xero and MYOB have stepped up their POC reporting features, making it easier to stay compliant and transparent.
Making the Most of the Percentage of Completion Method
Adopting the POC method isn’t just about compliance—it’s about strategic financial management. By matching your reported revenue to actual project progress, you:
- Give stakeholders a clearer picture of your financial health
- Improve cash flow forecasting and budgeting
- Reduce the risk of profit shocks at project completion
- Strengthen your hand when negotiating finance or new contracts
Australian businesses that get POC right in 2025 will set themselves apart for transparency and trustworthiness.
