Solution

As per IFRS 15, a contract may contain a significant financing component if the timing of payments agreed to by the parties to the contract provides the customer or the contractor with a significant benefit of financing the transfer of goods or services to the customer.

In this case, the EPC contractor receives payment from the customer in monthly progress payments, but the final 25 percent payment is withheld until completion of the contract. This means there is a period of time where the EPC contractor has performed work (and hence transferred control of that work to the customer) but has not received all the consideration for it.

This creates a financing component as the EPC contractor effectively finances the customer's use of the asset during the period between when the work is performed and when the final payment is received. This may be considered significant if the timing of the transfers of the promised goods or services is significantly different from the timing of the payment and the contractor has effectively provided the customer with financing.

However, IFRS 15 provides an exception that when the period between the transfer of the promised goods or services and the payment by the customer is expected to be less than one year, the entity need not adjust the promised amount of consideration for the effects of a significant financing component.

If the period between when the contractor transfers control of the work and when it receives the final payment is more than a year, then it may be significant, and the transaction price would be adjusted to reflect this. If the period is less than a year, then it may not be considered significant, and no adjustment is required.

As always, specific conditions and interpretations could vary, so it's recommended to consult with a finance professional or advisor.