The Financial Accounting Standards Board (FASB) issued new rules for how to recognize revenue from contracts with customers. The new revenue rules contain a number of considerable changes that impact the ways companies account for revenue, including those in the construction industry.

Significant changes include:

• Claims

• Incentives

• Damages

• Warranties

• Design-build

• Uninstalled materials

• Precontract costs

• Mobilization costs

• Sales commissions

• Presentation of retainage

• Unbilled receivables

• Current vs. long-term assets

• Accounting for change orders

• Engineering vs. construction contracts

According to the FASB (The Financial Accounting Standards Board) criteria, the following conditions must be met for revenue to be recognized:

1. Risks and rewards have been transferred from the seller to the buyer.

2. The seller does not have control over the goods sold.

3. The collection of payment from goods or services is reasonably assured.

4. The amount of revenue can be reasonably measured.

5. Costs of revenue can be reasonably measured.

Under the new rules, construction companies and contractors will be required to reveal both quantitative and qualitative data in their financial statements when the services are carried out or upon completion of service.

According to the FASB, “the objective of the new guidance is to establish principles to report useful information to users of financial statements about the nature, amount, timing, and uncertainty of revenue from contracts with customers.”

The new guidance:

• Removes inconsistencies and weaknesses in existing revenue requirements

• Provides a more robust framework for addressing revenue issues

• Improves comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets

• Provides more useful information to users of financial statements through improved disclosure requirements

• Simplifies the preparation of financial statements by reducing the number of requirements to which an organization must refer

Meaden & Moore has created an implementation service customized for construction contractors facing new revenue rules beginning in 2019.

What Can We Do?

Meaden & Moore can meet with you to discuss the nature of operations and review example contracts. By using our internally developed implementation aid/tool, we will identify the impact the new rules have on your opening 2019 retained earnings as well as the impact they have on earnings going forward.

We also can implement a new standard on all open contracts beginning in 2019, as well as calculate the ‘catch-up’ adjustment to retained earnings as of January 1, 2019.

We will work with accounting software vendors to ease implementation issues and assist in changing job schedule presentation to conform to new rules. Additionally, we will take a look at the pro forma 2019 financial statements to avoid surprises for users of financial information. Pro forma requires 2018 disclosures on next year implementation.

To learn more about the new revenue recognition rules, or to speak with an expert about what we can do to help, please contact us today.