In May 2014, the Financial Accounting Standards Board introduced ASC Topic 606, Revenue from Contracts with Customers. This new standard is effective for reporting periods beginning after December 15, 2018, or for the 2019 calendar year reporting. Opinions are widely varied on how adoption of this new standard will impact contractors, but the one thing that is for certain is the new standard introduces a significant amount of judgement into the revenue recognition process. If actions are not taken soon to properly plan for the implementation of Topic 606, it will certainly result in additional time spent on year end reporting and will give rise to the potential for unanticipated adjustments affecting your company’s bottom line. In order to prevent these situations, we recommend companies take the following steps:
1) Become familiar with the standard – There is no shortage of articles, whitepapers and podcasts on Topic 606 that will allow you to grasp the big-picture items that are relevant to your company.
2) Form a team – Implementation should not fall only on the shoulders of the company’s controller, Topic 606 will cross several departments in your company. In addition to other accounting personnel, we recommend involvement from management, IT and operations.
3) Roll up your sleeves – Your team should examine the different types of contracts your company engages in and begin identifying features in these contracts that have significance under the new standard (for example, variable consideration features).
4) See the big picture – Avoid getting lost in the weeds. After your team has been through enough contracts, they should be able to identify the significant areas of impact on your company from Topic 606.
5) It’s all about the Process – Next your team will want to consider adjustments to internal controls and processes to better capture the data they will need to comply with the new standard.
6) Enlist the help of your CPA – Consult with your CPA throughout the process. Chances are, he or she will have already been through this process with other clients and can offer invaluable insight. Make sure your CPA is knowledgeable in construction accounting, as the impacts of Topic 606 are very unique to this industry.