Accounting for Long-Term Contracts Under ASPE 3400: A Complete Guide for Canadian Businesses

Long-term construction and service contracts create unique revenue recognition challenges — revenue must be matched to the work performed across reporting periods, not recognized at a single point in time. Under ASPE Section 3400, Canadian private companies have two policy choices, but the percentage-of-completion method is required whenever the contract outcome can be reliably estimated.

What is the percentage-of-completion method and when must it be used?

The percentage-of-completion method recognizes revenue based on the stage of completion of the contract at each reporting date. It is the preferred method under ASPE 3400 and must be used whenever the outcome — meaning total contract revenues, costs to complete, and stage of completion — can be reliably estimated. Most fixed-price contracts with experienced contractors meet this test. The stage of completion is commonly measured as: costs incurred to date ÷ total estimated contract costs (cost-to-cost measure).

When is the completed-contract method permitted?

The completed-contract method defers all revenue and profit recognition until the contract is substantially complete. ASPE 3400 permits this only when the contract outcome cannot be reliably estimated. In practice, this is a narrow exception — contractors with multi-year project histories rarely qualify. Using completed-contract when the percentage-of-completion method is applicable is an accounting policy error that auditors will flag.

How are contract losses treated under ASPE 3400?

When total estimated costs exceed total contract revenues, the full expected loss must be recognized immediately in the income statement — in the period the loss first becomes apparent. There is no smoothing or deferral of contract losses. A cost overrun identified in Q3 that will result in an overall loss cannot be deferred to Q4 or the project’s end.

What is an overbilling and how is it presented in ASPE financial statements?

An overbilling (contract liability or deferred revenue) occurs when progress billings to date exceed the revenue recognized to date under the percentage-of-completion method. It is presented as a current liability on the balance sheet. An underbilling (contract asset or costs in excess of billings) occurs when recognized revenue exceeds billings — presented as a current asset.

What disclosures are required for long-term contracts under ASPE?

ASPE 3400 requires disclosure in the notes of: (1) the accounting policy used; (2) the aggregate amount of costs incurred and recognized profits/losses for contracts in progress; and (3) the amount of advances and progress billings outstanding. These disclosures allow financial statement readers to assess the stage of completion and billing position across the contractor’s portfolio.

How does ASPE 3400 differ from IFRS 15 for long-term contracts?

IFRS 15 requires a five-step model identifying distinct performance obligations and allocating transaction price — a more complex analysis. ASPE 3400’s percentage-of-completion approach is conceptually similar for single-obligation contracts but does not require the IFRS 15 performance-obligation disaggregation. For most construction companies with single-scope contracts, ASPE 3400 requires significantly less documentation and disclosure.

Reviewed by: Bader A. Chowdry, CPA CA LPA — Insight Accounting CPA Professional Corporation, Mississauga, Ontario. Last reviewed: June 6, 2026.