We have identified 10 areas of the new standard that we believe will have a significant impact on the construction industry. While this list is not exhaustive, it should help you identify areas to consider under the new revenue recognition standard. While the facts and circumstances will vary depending on the situation, the general observation is that if engineering and construction work is for the design and construction of a single capital, these contracts probably require a combination. Under the combined contract requirement, revenues are accounted for over the entire duration of the contract and there is no need to identify separate performance obligations. Note: While many contractors believe that the cost-cost input method (percentage of the completion method) is still used, it is important to recognize that an analysis should be done to determine whether this method of revenue recognition is most relevant to the presentation of the transfer of goods or services to the client. publication of accounting methods for the proceeds of contracts with the client. publication of accounting methods used to record revenue. If the company has different guidelines for different types of revenue bookings, the directive is generally disclosed for each essential booking method. If a sales accounting has multiple item agreements (for example. B the provision of multiple products, services or usage rights), the indication may indicate the accounting method used for each unit of account and how the accounting units are identified and evaluated. Disclosure may involve an important judgment on the adequacy of revenue recognition principles. The information may also indicate the entity`s handling of unearned or deferred income resulting from the transaction.
3. Do you have variable consideration components? Variable consideration is an important element in determining the transaction price. Among the types of variable counterparties often found in the construction industry: performance bonuses, penalties, claims, unauthorized/non-price modification orders, liquidated damages, unit prices, return fees, refunds, rebates and rebates. Variable consideration requires companies to refrain from accounting for revenue until it is likely that there is no significant conversion of revenue recognition. While the new standard does not provide for a percentage for the term “probable,” the industry often cites 70-75% as the threshold of probability of admission.