Construction Today - May 2017 - 8
executives and CFOs
should reassess the way they
run their companies.
Transparency may be the future for construction. BY HOGI KURNIAWAN
ransparency might be the future
for the construction industry,
whether developers and contractors want it or not. In order to comply with a new update from the Financial
Accounting Standards Board (FASB), more
information will have to be shared through
additional disclosures, more judgment
involved and possibly more oversight will
have to be implemented.
While the thought process and terminology will be different under the new standard, revenue recognized under the new
standard may be similar to current practice.
Entities will be required to select an input
method (such as cost-to-cost method) or
output method (such as units-produced or
CONSTRUCTION-TODAY.COM MAY 2017
units-delivered) to measure the progress of
each contract and determine the amount of
It should be noted the new standard
states that common output methods generally do not capture progress on unfinished
units and as a result, may not represent the
most accurate method to measure progress.
In addition, revenue under the new standard focuses more on when a performance
obligation is satisfied, which occurs when
control of a good or service transfers to the
customer. Control can transfer either at a
point in time or over time. Many construction-type contracts will transfer control of
a good or service over time and therefore
might result in a similar pattern of revenue
recognition as today's guidance. This should
not, however, be assumed.
Another factor of consideration would
be the performance obligations in the contract, which are promises to deliver goods
or perform services. Contractors often
account for each contract at the individual
contract level today regardless whether
each contract may contain multiple promises for a variety of goods and services.
Current guidance permits this approach.
Determining when to separately account
for these performance obligations under
the new standard will require judgment.
It is possible to account for a contract at
the contract level under the new standard
when the criteria for combining a bundle