Page 50 - Inegrated Annual Report 2020-Eng

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | 31 DECEMBER 2020

COVID-19

On 11 March 2020, the World Health Organization made an assessment that the outbreak of a coronavirus
(COVID-19) can be characterized as a pandemic. In addition, oil prices significantly dropped in January to
March 2020 due to a number of political and economic factors. As a result, businesses have subsequently seen
reduced customer traffic and, where governments mandated, temporary suspension of travel and closure of
recreation and public facilities.

To alleviate the negative impact of the COVID-19 pandemic, the UAE Government, Central Bank and other
independent jurisdictions and regulators have taken measures and issued directives to support businesses and
the UAE economy at large, including extensions of deadlines, facilitating continued business through social-
distancing and easing pressure on credit and liquidity in the UAE.
The situation, including the government and public response to the challenges, continues to progress and rapidly
evolve. Therefore, the extent and duration of the impact of these conditions remain uncertain and depend on
future developments that cannot be accurately predicted at this stage, and a reliable estimate of such an impact
cannot be made at the date of approval of these consolidated financial statements. Notwithstanding this, these
developments could impact the Group’s future financial results, cash flows and financial position.

Estimates and assumptions

The key estimates and assumptions concerning the future and other key sources of estimation uncertainty at the
reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year are discussed below:

Contract revenue

Revenue from construction contracts is recognised in the consolidated statement of profit or loss when the
outcome of the contract can be reliably estimated. The measurement of contract revenue is affected by a variety
of uncertainties (including cost estimation and surveys of work performed) that depend on the outcome of future
events.

As stated in note 3 to the consolidated financial statements, revenue is recognised in the consolidated statement
of profit or loss on the basis of stage of completion of the contracts. The stage of completion can be measured
by various methods. The management uses one of the following methods that measure reliably the actual work
performed on the contract, depending on the nature of the contract:

• surveys of work performed; or
• the proportion that costs incurred to date bear to the estimated total costs of the contract.

When the outcome of a contract cannot be estimated reliably, revenue is recognised only to the extent of
contract costs incurred that it is probable will be recoverable. Contract costs are recognised as an expense in
the period in which they are incurred.

The above estimates often need to be revised as events occur and uncertainties are resolved. Therefore, the
amount of contract revenue recognised may increase or decrease from period to period.

Contract variations and claims

Contract variations are recognised as revenues only to the extent that it is probable that they will result in
revenue which can be reliably measured. This requires the exercise of estimating the value of variations based on
management’s prior experience, application of contract terms and the relationship with the customers.

Contract claims are recognised as revenue only when management believes that an advanced stage of
negotiation has been reached and the revenue can be estimated with reasonable certainty. Management reviews
the judgement related to these contract claims periodically and adjustments are made in the future periods, if
assessments indicate that such adjustments are appropriate.

50 2020 Integrated Annual Report