With the forthcoming changes to the revenue recognition standard as part of Accounting Standards Update (ASU) No. 2014-09, Revenue From Contracts with Customers, contractors need to be mindful of the additional disclosures that will be required as part of this change. The AICPA’s Engineering & Construction Contractors Revenue Recognition Task Force is currently working to provide additional guidance to all contractors about the many aspects of the new standard, including the disclosure requirements.
Some of the key items that all entities will need to disclose include:
- General information about its contracts, including the amount of revenue derived from contracts from customers, any impairment of receivables or contract assets or credit losses on financing receivables, unless these are separately distinguished on the income statement.
- Disaggregation of revenue into categories to permit the users to understand how revenue may be impacted by the nature, timing, amount or any other uncertainties of economic factors that could impact revenue recognition. Some of those factors could include, but are not limited to, the type of customer or geographic locations. In addition, if the entity is required report information by segment, this should be reconciled to the segment reporting.
- How the timing of the satisfaction of performance obligations may impact the typical time frame for payments associated with the contract and the impact on the contract assets or liabilities, if any.
- Any balances associated with customer contracts such as contract assets or liabilities, if not separately presented or disclosed in the financial statements.
- Information about performance obligations, such as how the transaction is allocated to various performance obligations, methods to recognize revenue for each performance obligation, how they are satisfied, any impact on payment terms, nature of goods and services transferred, warranties, and any obligations for returns or refunds.
- How transaction price is allocated to performance obligations that are unsatisfied and when this may be recognized, and any items such as significant factors that may impact this.
These disclosures are expected to be significant for all entities and will require a significant amount of additional detail to be captured and analyzed to comply with these disclosure requirements. Entities should begin to plan now on how they will be able to comply with these additional disclosure requirements and what enhancements need to be made to existing systems or what data fields should be added to capture this data.
As always, we invite you to contact your Schneider Downs representative if you’d like advice or guidance navigating the new standard. We’re happy to help. For additional information, visit the Our Thoughts On... blog.