This article was adapted from the November/December 2019 issue of CFMA Building Profits with permission.

December 31, 2019, is fast approaching. For those who have been working through the various issues related to the application and adoption of ASU 2014-09, Revenue from Contracts with Customers, congratulations on your efforts. If you do not feel as far along in the process as you would like to be with year-end quickly approaching, read on for an overview of best practices for implementation.

Preliminary Work

First, it’s important to read the standard and educate yourself on all of its complexities. CFMA, the AICPA, and many CPA firms have published a significant amount of content related to the new standard, and there are many construction-specific publications freely available.

Public companies were required to adopt the new standard in 2019, so they have already been through this process. Download some public construction company form 10-K filings and review their adoption methods and disclosures. Please note: Public companies are required to include additional disclosures that may not be required for private companies.

Next, if you have not already done so, meet with your CPA firm to answer some key questions. How are they going to approach the implementation of the new standard? Do they have any feedback or concerns based on your company’s historical revenue recognition policies? Have they developed any tools to assist with this process?

The application and evaluation of this new standard can feel daunting. Start small by breaking out your various revenue streams or contract types to understand where to focus your efforts. For example, evaluate how much of your annual revenues fall in the various buckets such as service, time and materials, lump-sum, unit price, cost plus, and others. These types of contracts along with the various terms within each contract will have varying degrees of impact on implementation of ASU 2014-09.

With your revenue streams and contract types identified, evaluate different contracts within the various revenue buckets under your current methods and consider any differences or changes necessary for the adoption of the new standard.

As you work through this process, consider your existing internal controls to evaluate if new or modified controls are necessary to ensure appropriate application of the new five-step model.

Working Through the Five-Step Model

When the preliminary legwork is complete, begin working through the five-step model and develop memos that document how each of the steps are evaluated and how the conclusions are reached. Using real-life examples are very helpful in this analysis.