Sunday, March 10, 2013

Proposed Revenue Recognition Changes Update

You may have heard over the last year or so about the proposed changes for how contractors will recognize revenue.  For those of us who have been in the in the industry for a while, we are most familiar with Statement of Position (SOP) 81-1 (Accounting for Performance of Construction-Type and Certain Production-Type Contracts, 1981) which was replaced by Accounting Standards Codification (ASC) 605-35.  These pronouncements dictate the current standards for revenue recognition, Percentage of Completion based primarily on costs.

The world is changing, in many ways getting "smaller".  Convergence is a word we hear tossed around regularly in terms of reporting standards internationally.  I've been following these drafts as they are called, published by the Financial Accounting Standards Board (FASB) for some time now.  They seem to be getting closer to pulling the trigger on what will change after much back and forth between industry participants and the FASB.  I'm personally a fan of how we report now, I'm not sure what is "broken" so to speak.  Again, I think it has more to do with consistency across industries and nations rather than how we here in the US Construction Industry feel about the current model for revenue recognition.

The CFMA has done a nice job of summarizing the current state of affairs.  We won't be dealing with any changes for a few years as they've set 2018 as the first year private companies will need to comply.  Here's the CFMA Synopsis...

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