Escrow accounts and restricted project cash

Off-plan buyer money sits in legally controlled escrow released only against certified construction progress: it is the developer's cash but restricted, so blending it into free cash overstates liquidity and understates covenant risk. Getting the classification and disclosure wrong can mask a genuine going-concern or funding gap, since large escrow balances (often hundreds of millions of SAR) may be unavailable to service debt or overheads for years.

Which projects fall under a mandatory escrow or restricted-account regime, and what construction milestones trigger release? Is the full escrow balance recognized on the developer's balance sheet as restricted cash, without netting against contract liabilities or project loans? How much cash is restricted at each period end, and is it excluded from the liquidity ratios and covenant calculations used internally and with lenders? Is any portion of escrow reassessed each period as unconditionally releasable and reclassified out of restricted cash?

1) Confirm the developer (not the buyer or a third-party trustee) controls the escrow account, i.e. it is the developer's asset even though use is restricted by law. 2) Recognize the full escrow balance on the developer's balance sheet as cash, not as a receivable or off-balance-sheet item. 3) Map each release condition (engineer-certified construction milestones) so the restriction is understood but does not change recognition. 4) Do not net escrow cash against contract liabilities (advances from customers) or against the developer's own project finance loans. 5) At each reporting date, reassess whether any portion has become unconditionally releasable and confirm classification is still 'restricted cash', not 'cash and cash equivalents' available for general use.

Escrow cash is measured at its face/deposit value (it is a cash balance, not a financial asset requiring fair value or ECL measurement). The key measurement question is classification, not valuation: assess against the IAS 7 definition of cash equivalents (short-term, highly liquid, insignificant risk of value change, readily convertible), balances releasable only against long-dated construction milestones typically fail this test and should be shown as restricted cash separate from cash equivalents used to meet short-term obligations. Subsequently, as construction progresses and portions become certified for release, reclassify those tranches out of restricted cash into unrestricted cash on release, with no gain/loss since the balance was already recognized at face value.

Present restricted escrow cash as a separate line (or clearly labelled sub-total) within cash and bank balances, distinguishing it from unrestricted cash; disclose the nature and amount of the restriction and the regulatory regime creating it; disclose release mechanics/triggers (e.g. engineer certification of construction progress); reconcile the cash flow statement's definition of 'cash and cash equivalents' to the balance sheet caption, explicitly stating whether escrow balances are included or excluded and why; disclose escrow balances excluded from liquidity/working-capital ratios and from covenant headroom calculations; where escrow is pledged as security for project finance, cross-reference the related borrowing disclosures.

• Blending escrow balances into '
• cash and cash equivalents'
• in liquidity ratios and covenant calculations, overstating available liquidity
• netting escrow cash against contract liabilities or project loans instead of presenting both gross
• treating all escrow as a cash equivalent regardless of how remote or milestone-dependent the release is
• omitting escrow restrictions from going-concern and covenant-compliance disclosures, hiding a genuine liquidity constraint
• failing to update the cash flow statement reconciliation when the definition of cash used internally differs from IAS 7'
• s.