Revenue recognition changes: what's the effect on the engineering and construction industry?

Many companies in the engineering and construction industry recognize revenue using the percentage of completion method, which allows for revenue recognition throughout the life of a construction project as the related work is performed. For those who have historically applied the percentage of completion method to their contracts, the FASB’s recently released proposal to change revenue recognition accounting will have an effect on the timing of revenue recognition. In the proposal, revenue recognition would follow a performance obligation model, in which revenue is recognized when predefined performance obligations have been satisfied, generally when control over that performance obligation has transferred to the customer. In effect, companies may determine that for certain performance obligations revenue would not be recognized until completion and acceptance by owner. Given the multi-year timeline of most construction projects, this change will have significant implications for the construction industry.

During this webcast, Ernst & Young Assurance and construction professionals will review the proposed change and discuss its possible impact on the construction industry. The panel will discuss the questions and issues raised by the proposed change, including:

• What is a performance obligation?
• How many performance obligations can a contract have?
• When will control over a performance obligation be considered to have transferred to the owner in order to recognize revenue?
• How and when would claims and change orders related to construction and engineering projects be recognized as revenue?

Please join us for a discussion on the new exposure draft and its anticipated effects.