Construction Industry Accounting – Changes to Revenue Recognition

The CFMA (Construction Financial Management Association) recently presented a webinar on the new revenue recognition accounting standard (ASU 2014-09 Revenue from Contracts with Customers (Topic 606)) which was issued May 28, 2014 by the Financial Accounting Standards Board (FASB). If you were unable to participate in the webinar, some valuable highlights introduced certain complexities that will be of interest to accounting professionals in the construction industry, and users of their financial statements. Company management, lenders, sureties/bonding companies and other users of a construction company’s financial statements should plan accordingly for the new standard’s impact. Certain activities and transactions may create unique challenges for accounting and disclosures of these contractors as a result of new definitions and terminology. Some areas that may require special consideration include:

  • Accounting for; revenue upon completion versus during a contract’s performance,
  • Combining or separating of contracts and other services,
  • Accounting for claims and unapproved change orders,
  • Applicability of the time value of money,
  • Accounting for estimated variable consideration (awards/incentives, damages/penalties, unpriced change orders), and
  • Potential non-recognition of profits on uninstalled materials or other costs not currently contributing to the jobs performance.

Since this new standard is principles-based, it will require significant management judgment; therefore, establishing specific accounting policies and procedures in advance of the standard’s implementation will help improve a company’s consistent approach to financial reporting.

The new standard is effective for publicly traded companies with annual reporting periods beginning after December 15, 2016. Non-publicly traded companies are not required to implement the new standard until annual reporting periods beginning after December 15, 2017; however, early adoption is permitted consistent with publicly traded companies’ effective date.

Proper planning for changes to a company’s accounting policies, procedures, and reporting are crucial in order to not only comply with the new accounting standard, but to remain consistent with industry peers and expectations of a company’s financial statement users. To further discuss the standard’s impact on your company, please contact BSSF by calling 717.761.7171 (Camp Hill office), or 717.581.1040 (Lancaster office).

Sources:

CFMA Special Broadcast: It’s Here: The New Revenue Recognition Standard
ASU 2014-09 – Revenue from Contracts with Customers (Topic 606)


ABOUT THE AUTHOR

Ted J. Herold, CPA

Principal

Ted is a Principal and Shareholder with Brown Schultz Sheridan & Fritz and has more than 26 years of experience in public accounting. He provides audit, accounting, tax, and consulting services to clients in a broad range of industries, including construction, engineering, real estate, transportation, manufacturing, distributors, restaurants, and healthcare.