Revenue Recognition for Contractors: Seminar Takeaways
There aren’t many instances when the businesses face a game changer, but that what every company will experience in its day-to-day accounting practices with the Revenue Recognition Standards.
To help make sense of the change, we hosted an educational seminar on November 14th that focused on how this standard applies to construction contractors and provided best practices for practical implementation. In case you missed it, we’ve highlighted the top takeaways from the session.
Know the 5 STEPS to follow in determining Revenue Recognition
- Identify the contract
- Know the definition of a contract, including that collection is probable. Need to consider due diligence on owner before entering the contract.
- Identify the performance obligation
- Is the performance obligation capable of being distinct and is it distinct within the context of the contract?
- Be aware of warranties and maintenance agreements that are part of contracts.
- Determine the transaction price
- Need to identify fixed, variable and non-cash consideration.
- Variable consideration needs to be evaluated for determining the amount
- Allocate the transaction price
- Utilize stand-alone pricing, adjusted market assessment, expected cost plus margin or residual.
- Recognize revenue
- At a point in time or over a period of time?
- Determine if you will use input or output method when using over a period of time.
Be aware of items unique to the construction industry and their impact:
- Uninstalled materials
- Cost inefficiencies
- Costs incurred not indicative of performance (wasted materials/labor)
- Fulfillment costs
- Mobilization costs
Understand the disclosure requirement including:
- Transition Method (Full Retrospective vs Modified Retrospective)
- Required footnote disclosures
Know the Deliverables:
- Implementation Guide / White Paper
- Contract Analysis Form
- Materiality planning with Auditors
- Required internal control policies and procedures for revenue recognition.
Understand the impact and presentation of the new standard on your financial statement.
Dale A. Ruther?>
CPA, CIT, CDS, CCIFP
Dana E. Mountjoy?>
About the Authors
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