It’s time to get ready for the five-step revenue recognition standard.
Since the beginning of time, or at least that’s the way it feels, construction contractors have recognized revenue from long-term contracts using the cost-to-cost percentage-of-completion method. Under this method, judgment and subjectivity were pretty much nonexistent. There were rules, and we followed them.
Gone are the days of relative simplicity. Industry-specific revenue recognition methods and guidance are a thing of the past with the introduction and impending implementation of Financial Accounting Standards Board (FASB) ASC 606, which introduces a five-step model. The purpose of ASC 606 and the five-step model is to provide financial statement users with the ability to compare revenue across industries. Most contractors, as private companies, will be required to implement the new standard effective for their reporting periods beginning after Dec. 15, 2018 (calendar year 2019).