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There are some myths rolling around the construction industry relating to Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606) addressing changes to revenue recognition. Hopefully many of these myths can be put to rest with the issuance of the final standard. Until then, Doeren Mayhew’s construction CPAs highlight some of the top myths related to revenue recognition.
1. Revenue can be recognized on uninstalled materials.
True â€“ The Financial Accounting Standards Board (FASB) included specific language whereby, in certain circumstances, contractors may be allowed to recognize revenue equal to the cost of the uninstalled materials if the customer obtains control of the goods.
2. Contractors will have to recalculate all completed contracts under the new standard when implemented.
False â€“ During the transition period, FASB has allowed for two options: restate prior periods presented or account for contracts in progress and all new contracts going forward.
3. Percentage completion accounting has been eliminated.
False â€“ While the thought process and terminology will be different, revenue recognized under the new standard may be similar to the percentage of completion method used today
4. Contractors will add significantly more footnotes to the financial statements.
Depends â€“ New disclosures will be required, with some relief for non-public entities.
5. All contracts will have multiple performance obligations.
False â€“ Many (not all) construction contracts may have one performance obligation. Contractors will still need to evaluate each contract for separate performance obligations and document their conclusions.
6. Cost-to-cost can still be used to determine percentage complete on contracts in progress.
True â€“ The new standard allows for the use of input or output methods to determine percentage complete.
Need more clarity on the new standard and what to expect? Contact Doeren Mayhewâ€™s dedicated construction CPAs to stay informed and get answers to any questions you may have.
Source: Construction Financial Management Association
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