Uncertainty in revenue and cost estimates under the percentage-of-completion method

「当社は、案件１の事業環境、Ａ社との協議状況および今後発生が見込まれる費用等を総合的に勘案した結果、債権回収不能見込額の全額に相当する3,123百万円を貸倒引当金繰入額として特別損失に、今後発生が見込まれる不可避的な費用等1,313百万円を工事損失引当金繰入額として売上原価に、それぞれ計上いたしました。」

「Questions have been raised regarding the permits for this project, creating material uncertainty regarding the business plan. ... For Project 2, the financial position of the Company's customer (hereinafter, “Company B”) has deteriorated significantly, increasing the likelihood that it may be unable to bear costs that Company B should originally bear.」

「Revenue from construction projects for which revenue is recognized over time as performance obligations are satisfied is calculated based on the progress toward satisfying the performance obligations. The percentage of completion is measured based on the proportion of construction costs incurred by the end of each reporting period to the expected total contract costs. Estimating total contract costs involves a degree of uncertainty, including whether all work required for completion has been identified, whether the construction cost estimates are based on reasonable grounds, and whether changes in the assumptions underlying the estimates resulting from changes in conditions after construction begins, such as soaring raw-material prices and specification changes, are reflected in the estimated total contract costs in a timely manner.」

「Following this additional matter, the company determined that there may be issues because the additional construction costs that should have been included in total contract costs, the basis for calculating the percentage of completion, had not been compiled and estimated in a timely and appropriate manner, and revenue, cost of revenue, provisions for construction losses and other items may not have been recognized in a timely and appropriate manner. The company decided on 15 January 2024 to commission the external investigation committee to conduct an additional investigation, and the investigation is currently continuing.」

「Following this additional matter, the company determined that there may be issues because the additional construction costs that should have been included in total contract costs, the basis for calculating the percentage of completion, had not been compiled and estimated in a timely and appropriate manner, and revenue, cost of revenue, provisions for construction losses and other items may not have been recognized in a timely and appropriate manner. Because this could materially affect the accounting treatment, including account classifications, amounts and timing of recognition, as well as previously disclosed financial figures, the company decided on 15 January 2024 to commission the external investigation committee appointed to investigate the initial matter to conduct an additional investigation into the facts relating to the construction project, whether similar construction projects with the same potential problems exist, and the impact on the company's financial statements and other matters. The investigation has now begun.」

「During the first three months of the consolidated fiscal year, there were no material changes concerning matters described in the quarterly securities report that could materially affect investors' decisions, or to the business and other risks described in the securities report for the previous fiscal year.」

「Revenue from construction projects for which revenue is recognized over time as performance obligations are satisfied is calculated based on the progress toward satisfying the performance obligations. The percentage of completion is measured based on the proportion of construction costs incurred by the end of each reporting period to the expected total contract costs.」

「During the cumulative third quarter under review, there were no significant changes in the matters described in this quarterly report regarding the business and accounting conditions that management recognizes could materially affect the financial position, operating results and cash flows of the consolidated companies, or in the “Business and Other Risks” described in the securities report for the previous fiscal year.」

「During the cumulative second quarter under review, there were no significant changes in the matters described in this quarterly report regarding the business and accounting conditions that could materially affect investors’ decisions, or in the “Business and Other Risks” described in the securities report for the previous fiscal year.」

「For construction contracts involving performance obligations satisfied over time, revenue from construction projects is recognized when the outcome of the work through the relevant stage of progress can be determined with reasonable certainty. Application of this method requires reasonable estimates of total contract revenue, total contract costs and the percentage of completion at the reporting date.」

「During the cumulative third quarter under review, there were no significant changes in the matters described in this quarterly report regarding the business and accounting conditions that could materially affect investors’ decisions, or in the “Business and Other Risks” described in the securities report for the previous fiscal year.」

「During the cumulative third quarter under review, there were no significant changes in the matters described in this quarterly report regarding the business and accounting conditions that could materially affect investors’ decisions, or in the “Business and Other Risks” described in the securities report for the previous fiscal year.」

「During the cumulative second quarter under review, there were no significant changes in the matters described in this quarterly report regarding the business and accounting conditions that could materially affect investors’ decisions, or in the “Business and Other Risks” described in the securities report for the previous fiscal year.」

「During the first three months of the consolidated fiscal year, there were no material changes concerning matters described in the quarterly securities report that could materially affect investors' decisions, or to the business and other risks described in the securities report for the previous fiscal year.」

「In recognizing revenue under the percentage-of-completion method, estimates of total contract revenue and total contract costs are important. However, these estimates involve a degree of uncertainty, including changes in the scope of work resulting from changes in conditions after construction begins, such as soaring raw-material prices and specification changes.」