Revenue recognition in the construction industry
In 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606), to provide a robust framework and comprehensive principles for addressing revenue recognition issues. Additionally, the guidance on accounting for certain costs related to a contract with a customer in the scope of Topic 606 was codified in ASC 340-40, Other Assets and Deferred Costs – Contracts with Customers.
Our white paper, Revenue recognition for construction contractors, highlights aspects of the guidance that are particularly pertinent for construction contractors, including:
- Evaluating the contract existence criteria, including assessing collectibility
- Accounting for contract modifications, including change orders
- Identifying promised goods or services in a contract and determining the units of account (i.e., performance obligations)
- Measuring variable consideration, including unpriced change orders, claims, incentives and penalties
- Identifying and accounting for a significant financing component
- Allocating the transaction price to the performance obligations and determining whether the transaction price allocated to a performance obligation should be recognized as revenue over time or at a point in time
- Accounting for contract costs, including learning, start-up and mobilization costs
- Addressing the presentation and disclosure requirements
For additional information about all of the revenue recognition guidance, including those aspects discussed in this white paper, as well as numerous examples illustrating how to apply the guidance, refer to our publication, A guide to revenue recognition.