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The Government Contracting and Construction Industries and Revenue Recognition

Written by Warren Averett on July 26, 2018

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Below are a few points concerning potential impacts of the new revenue recognition standard (ASC 606) on the government contracting and construction industries. The information presented here does not represent a comprehensive assessment of the outcome of applying the new standard, but these points may help when considering how ASC 606 could impact you.

To access this information as a downloadable chart, click here.


Issue: Determining the unit of account

Step(s) within the Five-Step Model: 1, 2, 4

Description and Examples: Many government and construction contracts require careful analysis to identify the contract with the customer and the number and nature of performance obligations. Entities must also consider the guidance on contract modifications and combining contracts.

Issue: Penalties, awards and contingent pricing (variable consideration)

Step(s) within the Five-Step Model: 3

Description and Examples: Variable consideration from the customer requires substantial judgment and experience. An entity should consider all the information (historical, current and forecast) reasonably available, apply the constraint on variable consideration and update such estimates each reporting period. Examples include incentives, award fees, milestones, economic price adjustments, etc.

Issue: Significant financing components

Step(s) within the Five-Step Model: 3

Description and Examples: Revenue may need to be adjusted for time value of money if the timing of payments provides the customer or the entity with a significant benefit of financing the transfer of goods or services. This may be a change in practice for many entities.

Issue: Determining transfer of control (i.e., over time or in time)

Step(s) within the Five-Step Model: 5

Description and Examples: Entities need to evaluate at contract inception whether a performance obligation is satisfied over time or at a point in time. If a performance obligation does not satisfy one of the three criteria to be recognized over time, it must be recognized at a point in time. Revenue recognition under prior GAAP using the percentage-of-completion, completed contract or zero margin method is not necessarily indicative of which pattern (over time or point-in-time) will be required under the new standard.

Issue: Measuring transfer of control

Step(s) within the Five-Step Model: 5

Description and Examples: When a performance obligation is recognized over time, an entity must select an appropriate measure of progress. When identifying an appropriate measure of performance in transferring control of goods or services, entities need to consider factors such: nature of the good or service; ability to track and measure certain inputs and outputs; status of work-in-process; wasted or uninstalled materials; and changes in estimate.

Issue: Contract costs

Step(s) within the Five-Step Model: Other

Description and Examples: Contract costs (incremental costs of obtaining a contract and fulfillment costs) must be evaluated under the new guidance in Subtopic 340-40. In certain instances, capitalization and subsequent amortization may be a complex and judgmental determination.

Links to Relevant AICPA Task Force resources:

Aerospace and Defense

Construction Contractors

Government contracting and construction revenue recognition and the implications of the new standard can be complicated to navigate. Please consult your Warren Averett advisor for more information specific to your business and government contracting and construction revenue recognition.


[1] These industries have been combined due to the similarity of issues.


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