The Financial Accounting Standards Board on Tuesday released a staff educational paper that answers questions pertaining to applying revenue recognition guidance about presentation and disclosures to construction contracts that contain retainage or retention provisions.
The FASB noted that companies in the construction industry often are subject to contracts that contain retainage provisions. Those provisions generally provide a form of security to the customer by allowing the customer to withhold a portion of the consideration billed by the company until certain project milestones are met or the project is completed.
The revenue recognition accounting standard, Topic 606, Revenue from Contracts with Customers, approved by the FASB nearly 10 years ago, establishes guidance on the presentation of a contract with a customer on the balance sheet as a contract asset or a contract liability and related disclosures, but Topic 606 doesn’t include specific guidance on retainage, the paper says.
FASB staff has received feedback from private company stakeholders in the construction industry that there are questions in practice about the proper application of Topic 606 guidance to retainage. In addition, the FASB said some users of private company financial statements, including sureties, provided feedback that information about retainage is important to their analysis.
According to the FASB, the educational paper:
- Explains the presentation and disclosure requirements in GAAP about retainage for construction contractors, and
- Provides example voluntary disclosures of retainage that would provide more detailed information about contract asset and contract liability balances.
The FASB noted that the paper doesn’t change or modify current GAAP and isn’t intended to be a comprehensive assessment of the accounting for retainage in accordance with Topic 606. In addition, the exhibits included in the paper are illustrative and don’t create additional requirements beyond those in current GAAP. The FASB said entities should refer to current GAAP and consider entity-specific facts and circumstances when preparing financial statements.
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