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CBIZ & MHM Executive Education Series™

Revenue Recognition Update for the Architecture, Engineering and Construction Industry John Armour and Tony Hakes July 23 & 29, 2015

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About Us

• Together, CBIZ & MHM are a Top Ten accounting provider • Offices in most major markets • Tax, audit and attest* and advisory services • Over 2,900 professionals nationwide

A member of Kreston International A global network of independent accounting firms

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Before We Get Started…

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CPE Credit

This webinar is eligible for CPE credit. To receive credit, you will need to answer periodic participation markers throughout the webinar. External participants will receive their CPE certificate via email immediately following the webinar.

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Disclaimer

The information in this Executive Education Series course is a brief summary and may not include all

the details relevant to your situation.

Please contact your service provider to further discuss the impact on your business.

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Presenters

John Armour, CPA, CGMA, CCIFP CBIZ MHM Managing Director

John has over 35 years of public accounting experience and has played a

key role in our Construction Industry Practice Group.

He is a member of the FASB/IASB Joint Transition Resource Group for

Revenue Recognition, plays leadership roles in professional

organizations dedicated to the construction industry, and is a regular

speaker and author on construction accounting topics.

John has extensive experience with commercial construction companies,

home builders, manufacturers, distributors and real estate companies.

720.200.7000 • jarmour@cbiz.com

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Presenters

Tony Hakes, CPA, CGMA, CCIFP MHM Shareholder

Based in our Phoenix office, Tony leads our National Construction

Industry Practice Group. He serves a variety of clients including general

contractors, heavy highway contractors, home builders and real estate

developers. He has provided consultation to clients on various

accounting and reporting issues including revenue recognition, joint

ventures, leases, variable interest entities and evaluation of change

orders and claims.

Tony is also a designated Certified Construction Industry Financial

Professional (CCIFP).

602.650.6225 • ahakes@cbiz.com

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Agenda

Basics of Revenue Recognition and Contracts

02

01

03

04

Example 1: FDP Contractors

Example 2: Freeway Rest Area Rehab Contractors

Example 3: Mega Construction Project Managers, Inc.

05 Variable Considerations

06 Questions

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BASICS OF REVENUE RECOGNITION AND CONTRACTS

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Unit of Measurement

• Primary • Contract • Combined contracts

• Modifications to the contract(s) • Only one under/over-billing per contract presented on

balance sheet • Secondary

• Performance obligation • Series of performance obligations

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Contract with Customer

• Definition of “Contract” • An agreement between two or more parties that

creates enforceable rights and obligations • May be implied or written • Includes subsequent modifications

Unless modification is determined to be a new contract

• Typical industry modifications Change orders (approved and unapproved), field directives,

liquidated damages, equitable adjustments, claims, follow-on contracts, etc.

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Combining Contracts

• Two or more contracts entered into at or near the same time with the same customer (or related parties) if one of the following conditions is met: • The contracts are negotiated as a package with a single

commercial objective • The amount of consideration to be paid in one contract

depends on the price or performance of the other contract • The goods or services promised are a single performance

obligation • ASU 2014-09 requires applicable contracts to be

combined. Current GAAP, combining of contracts is optional.

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Modification is Separate Contract

• An entity shall account for a contract modification as a separate contract if both of the following conditions are met: • The scope of the contract increases because the

modification results in the addition of promised goods or services that are DISTINCT, and

• The price of the contract increases by an amount of consideration that reflects the entity’s STANDALONE SELLING PRICES of the additional promised goods and services and any appropriate adjustment to the price to reflect the circumstances of the particular contract. • The construction industry lacks observable standalone pricing

data.

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Performance Obligation

• Definition of “Performance Obligation” • A PROMISE in a contract with a customer to transfer a

good or service to the customer • Typical construction contracts contain a number of

PROMISES – creates a possibility of multiple Performance Obligations

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Identifying Performance Obligations

• FASB Exposure Draft - Proposed Accounting Standard Update – Identifying Performance Obligations and Licensing • Issued May 12, 2015 • Comment period ended June 30, 2015

• This presentation includes elements of the proposed update – where relevant presented in blue print.

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When Do Performance Obligations Rise to a Unit of Measurement?

A promise or group of promises become a separate performance obligation – the unit of

measurement – when it is DISTINCT.

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We Must Understand “DISTINCT”

• A promised good or service is considered DISTINCT if both of these conditions are met: • The customer can benefit from the good or service either on its

own or together with other resources that are readily available to the customer (that is the good or service is capable of being distinct) • This assessment requires judgement by the contractor and its

auditor to understand the customer’s business and capabilities A specialty contractor’s customer is usually a general contractor

• The entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (that is, the promise to transfer the good or service is distinct within the context of the contract) • Exposure Draft on Identifying Performance Obligations adds that a

promise is not considered distinct unless it is material in the context of the contract.

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We Must Understand “DISTINCT”

• The new standard concept of DISTINCT is similar to current standard concept of DELIVERABLES. • A contract that has multiple deliverables has an

increased likelihood of containing multiple separate performance obligations.

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We Must Understand “DISTINCT”

• Bundle of Good or Services • A good or service is not distinct in the context of the

contract if the entity provides a significant service of integrating the goods or services into the bundle of goods or services that the customer has contracted for (Combined Output). • The customer has contracted with a general contractor

for a building. All of the cost components must be integrated to produce the

building. Therefore, the combined output is a single performance

obligation.

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We Must Understand “DISTINCT”

• Significant Modifying or Customizing • A good or service is not distinct in the context of the

contract if it significantly modifies or customizes another good or service promised in the contract. • A specialty contractor has contracted with a general

contractor for the electrical service and wiring of a building. The electrical services significantly alter the nature of the

materials used to perform the promises in the subcontract. Therefore, electrical contractor has a single performance

obligation.

• This does not mean the GC has to treat the electrical subcontract as distinct in its contract with the customer.

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We Must Understand “DISTINCT”

• Highly Dependent or Interrelated • A good or service is not distinct in the context of the

contract if it is highly dependent on, or highly interrelated with, other goods or services promised in the contract. • A general contractor has contracted with a specialty

contractor for the electrical service and wiring of a building The electrical panel and switching is highly interrelated with the

electrical wiring. Therefore, there is a single performance obligation.

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We Must Understand “DISTINCT”

• Combining (Bundling) • If a good or service is not distinct, an entity shall

combine that good or service with other promised goods or services until it identifies a bundle of goods or services that is distinct. • In the majority of cases, typical construction contracts

will result in all of the promises being combined (or bundled) and the single performance obligation will result in revenue recognition at the contract level – consistent with current practice.

• However, each contract must be evaluated.

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Identifying Performance Obligations

• When: At contract inception • How: Assess promises in a contract and identify as a

performance obligation each promise to transfer to the customer that is either: • A good or service (or bundle) that is distinct • A SERIES of distinct goods or services that has the same

pattern of transfer to the customer

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Criteria for Series – Same Pattern of Transfer

• Each distinct good or service in the series that the entity promises to transfer to the customer would meet the criteria in paragraph 606-10-25-27 to be a performance obligation satisfied over time (as opposed to satisfied at a point in time), AND

• In accordance with paragraphs 606-10-25-31 through 32, the same method would be used to measure the entity’s progress toward complete satisfaction of the performance obligations to transfer each distinct good or service in the series to the customer. • Using cost-to-cost to measure progress on all performance

obligations would satisfy this requirement.

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Series of Performance Obligations

• Electrical contractor enters into a contract with a franchisee to retrofit multiple stores with a standard security system. • Each store system is capable of being distinct. • Stores are completed at different times and transfer of

control to the customer is done over time. • Each store has the same pattern of transfer to the

customer. • All stores can be combined under the “series” doctrine

and treated as a single performance obligation.

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Series of Performance Obligations

• Electrical contractor enters into a contract with a franchisee to retrofit each store with a standard security system. • Alternative fact pattern

• Contractor assists in the design of the system. • Contract requires performance and integration of various activities

by the Contractor such as scheduling, procurement of materials, deliveries, identifying and managing subcontractors, expediting equipment, supervision and performance of installation, testing, etc.

• Stores are completed at different times and transfer of control to the customer is done over time.

• Each store is capable of being distinct. Highly integrated nature of the entity’s performance of its activities means

that a change in one of the activities has a significant effect on other activities such that the stores are highly interrelated and highly interdependent. Therefore, the entity accounts for all goods and services in the

contract (all stores) as a single performance obligation (not a series).

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Series of Performance Obligations

• Series concept does not exist in current GAAP • Entities are required to follow the series concept

when it is applicable. • Consider the series concept when a contract has

multiple deliverables to potentially arrive at a single unit of measurement.

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Series of Performance Obligations

• ED has no expanded discussion of “series.” • However – Question 1: Paragraphs 606-10-25-14(b)

through 25-15 include guidance on accounting for a series of distinct goods or services as a single performance obligation. Should the Board change this requirement to an optional practical expedient? What would be the potential consequences of the series guidance being optional?

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Recap – How to Have a Single Performance Obligation

• Contract contains only one promise – RARE • If promises in the contract are not distinct – entity

must bundle promises into a single performance obligation (a contract can have more than one bundle)

• Promises are distinct – entity must assess if series concept applies and report accordingly

• Concurrently delivered distinct goods or services that have the same pattern of transfer if the outcome is the same as accounting for the goods and services as individual performance obligations

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Now it Gets Complicated

• Variable consideration • Allocated to a bundle of non-distinct promises • Allocated only to applicable units in a series of distinct

promises • Contract modifications

• Cumulative effect adjustment if a bundle of non-distinct promises

• Prospective to future units if a series of distinct promises • Changes in transaction price after a contract

modification • Cumulative effect adjustment if a bundle of non-distinct

promises • Prospective to future units if a series of distinct promises

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BC27 – Exposure Draft - Identifying Performance Obligations

The Board intends to convey that an entity should evaluate whether the contract is to deliver (a) multiple goods or services or (b) a combined item or items that is comprised of the individual goods or services promised in the contract. That is, the analysis should evaluate whether the multiple promised goods or services in the contract are outputs or, instead, are inputs to a combined item (or items).

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Not a Bundle – Not a Series

• Multiple Performance Obligation Potential in the Construction Industry • Contracts that provide both services and product

• Design/Build contracts • EPC contracts

• IDIQ contracts • Add-on/Follow-on contracts and modifications • Contracts with separate deliverables – particularly

different type of deliverables

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Uninstalled Materials – Zero Profit Carve Out

• The standard redefines the nature of uninstalled materials that an entity must take into consideration when measuring progress under the cost to cost method.

• It also revises the way revenue is measured throughout the term of the contract.

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Characteristics of Uninstalled Materials

• The good is not distinct. • The customer is expected to obtain control of the

good significantly before receiving services related to the good.

• The cost of the transferred good is significant relative to the total expected costs to completely satisfy the performance obligation.

• The entity procures the good from a third party and is not significantly involved in designing and manufacturing the good.

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Operation of Uninstalled Materials

• When – At inception, the entity expects all the conditions to be met • Measure of significant – relation of uninstalled materials to total estimated costs of

the performance obligation. • How to report –

• Allocate transaction price equal to cost of uninstalled materials • Recognize material costs as cost of performance as incurred and control is transferred to

the customer • Recognize revenue equal to material costs recognized (zero profit method)

• When services are rendered and materials are integrated into the performance obligation –

• No change in recognition or reporting • The materials never enter into the recognition of the cost to cost measure for the performance

obligation.

• The performance obligation transaction price (excluding the transaction price allocated to the uninstalled materials) is recognized throughout the performance based on cost to cost method using all other direct and indirect costs.

• Since no gross profit ever attaches to uninstalled materials, 100% of gross profit is recognized as the other costs related to the performance obligation are incurred and transferred to the customer.

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Potential Uninstalled Material Transactions

• Power contractor engaged to construct a $750 million co-generation facility procures $300 million turbines from GE and pays $150 million deposit • Note that under current GAAP, this cost would qualify

as a job cost under the cost-to-cost method. • The cost of uninstalled materials specifically produced,

fabricated, or constructed for a project should be included in the costs used to measure extent of progress.

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Potential Uninstalled Material Transactions

• Plumbing and piping contractor purchases $100,000 (100% of the materials) needed for a $250,000 contract and delivers goods to storage units at the job site. The contract provides that the contractor can bill for uninstalled materials. • In some jurisdictions, this material might qualify as

inventory that could be held on the books of the specialty contractor rather than a job cost. • Concept of control does not tie directly to either billing or

possession – could be a bill and hold agreement. Consider rights and obligations under law including lien rights

and termination rights.

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Potential Uninstalled Material Transactions

• Heavy contractor contract includes construction of large span bridge. Long-lead time for supply and fabrication of steel requires purchase long before the product is needed for installation at the job site. Company does not design and manufacture the steel.

• What if entity is structural steel entity? Under the contract, the entity is required to purchase steel, create shop drawings and modify design for any identified conflicts, fabricate steel, and deliver and install at the job site. • Since entity is involved in the design and manufacturing, the

uninstalled materials do not meet the conditions and the full costs would qualify to be used in the cost-to-cost measurement of the performance.

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Potential Uninstalled Material Transactions

Plumbing contractor assesses risk of copper price increases during the planned duration of a contract and decides to pre-order all of the copper products for the project. PO is issued to supplier identifying project and owner. Costs are charged to the project job costs.

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Uninstalled Material Good News & Questions

• Good news – since the determination of significant uninstalled materials is required at the beginning of the job, costs are job costs, and revenue is recognized equal to costs, there is no financial reporting or audit requirement for measuring the amount of uninstalled materials at each reporting period.

• Questions • What if there is an unexpected early shipment of materials

received by the contractor after the job starts? • Does this apply to a general contractor who agrees to pay the

structural contractor for its uninstalled materials ordered prior to commencement of construction? • Both the structural contractor and the GC account for the same

uninstalled materials? Note that the GC might argue that the structural uninstalled materials are

not significant to its total contract costs whereas they would be significant to the structural contractor.

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EXAMPLE 1: FDP CONTRACTORS

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Contract Details

• Scope of work • Framing, drywall and paint

• Construction of interior walls and finishes for a single structure

• Furnish all labor and furnish, supply and install all equipment, materials and supplies • 10” 12 ga framing • 3 3/8” 28 ga wall furring • Framed platform, steps and double layer of ½” plywood • Fire-treated plywood where called for • Paint, prime base and glossy finish paint

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Contract Details

Bid estimate:

10” 12 ga framing $755,000

3 3/8” 28 ga wall furring (drywall) $415,000

Framed platform, steps and double layer of ½” plywood Included

Fire treated plywood Included

Paint, prime base and glossy finish paint $250,000

Mobilization Included

Total contract: $1,420,000

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Do Separate Performance Obligations Exist?

What promises in the contract are distinct, if any?

• Distinct (both) • Utility

• Customer can benefit from the services?

• Separately Identifiable • No significant integration service provided? • The goods and services are not interdependent, or interrelated? • The goods and services are not significantly modified, or customized?

• Series (both) • Are the goods and services substantially the same? • Do the goods and services have the same pattern of

transfer?

Yes No

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Conclusion – Keys

• Single performance obligation • A significant integration service is provided.

• The finished product specified by the customer does not exist without all 3 components – framing, drywall and paint.

• The components are highly interrelated/interdependent. • Drywall cannot exist without the framing. • Painting and texturing cannot be complete without the

drywall and framing. • Framing design is modified based on drywall requirements

and drywall installation is modified based on painting requirements.

• The absence of any element results in an incomplete product.

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Conclusion – What if…

• …the contract called for construction of interior walls and finishes for 5 separate structures?

• …the contract called for construction of interior walls and finishes for 5 separate structures and… • …framing was separately contracted, and… • …drywall was separately contracted, and… • …painting and texturing was separately contracted?

How many performance obligations would you have?

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EXAMPLE 2: FREEWAY REST AREA REHAB CONTRACTORS

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Contract Details

• Rehab/refurbish rest areas on I-10 • Near Blythe and Quartzsite, Arizona • Eastbound and westbound services at each site • Structures, underground utilities, ramps/roads,

sidewalks, demo caretakers’ residences, landscaping, signage and traffic control

• Mobilization/demobilization of equipment • Blythe locations to be completed first followed by

Quartzsite • 220 day delivery timeline

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Contract Details

Summarized bid estimate by item:

Structures $950,000

Underground utilities $425,000

Ramps/roads $350,000

Sidewalks $40,000

Demo caretakers’ residences $65,000

Landscaping $45,000

Signage $20,000

Traffic control $25,000

Mobilization/demobilization: lump sum $250,000

Total contract: $2,170,000

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Do Separate Performance Obligations Exist?

• Distinct (both)

• Utility • Customer can benefit from the services?

• Separately Identifiable • No significant integration service provided? • The goods and services are not interdependent, or interrelated? • The goods and services are not significantly modified, or customized?

• Series (both)

• Are the goods and services substantially the same? • Do the goods and services have the same pattern of

transfer?

What promises in the contract are distinct, if any?

Yes No

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Conclusion – Keys

• Four performance obligations consisting of each location and each exit eastbound and westbound (4 sites)

• Each site is independent of the others. • Each site has utility on its own. • The absence of any specific location would not affect the

other locations in the contract. • Possible to combine the sites at each location since they

are transferred concurrently and the outcome is the same as accounting for them as individual performance obligations

• Mobilization would need to be allocated to each of the 4 performance obligations – allocation of the contract price is outside of the scope of this presentation (see Step #4).

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EXAMPLE 3: MEGA CONSTRUCTION PROJECT MANAGERS, INC.

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Contract Details

• Construction manager at risk • Campus expansion project • University of Arizona School of Planning, Design &

Construction • Design and subcontractor procurement for

construction: • Building D • Building E • Parking ramp • Site work

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Contract Details

• Buildings D & E • Construction of two identical four-level office/classroom

structures • Mega to self-perform concrete work • While each building would meet the definition of distinct

they can be combined. • Under the series of distinct performance obligations standard

• Parking Ramp • Construction of a five-level concrete parking structure • Mega to self-perform concrete work

• Site work • Grading, drainage, utilities, permits, general site prep

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Contract Details

• Single contract between Mega and U of A under GMP • Contract procurement matrix includes provisional

cost estimates by Mega – by trade and scope of work • Contractor and design contingencies provided • Contract cost savings accrue to U of A • Contract cost overages absorbed by Mega to the

extent an approved CO cannot be obtained

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Contract Details

Cost estimates by scope/package:

Building D $43,560,000

Building E $39,770,000

Parking ramp $18,170,000

Site work $8,350,000

Contingencies and fee:

Design contingency $2,000,000

Contractors contingency $2,490,000

Contractors fee $8,050,000

Total contract: $122,390,000

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Potential Performance Obligations

• Building D • Building E • Parking ramp • Site work • Buildings D & E • Buildings D & E & parking ramp • Buildings D & E & parking ramp & site work

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Potential Performance Obligations

• Site Work • Initial activity required prior to structure layout • Significant coordination of site work with schedule and activities for structures • Ongoing activity throughout the whole project – such as back fill • Final grade cannot be completed until structures in place

• Site work is dependent upon the structures but is it highly dependent? - YES • Site work does not significantly modify or customize the structures nor do the structures

significantly modify or customize the site work • Building D

• Construction coordinated with Building E • U of A can benefit from Building D on its own with other resources available to it and it meets

the standard of separately identifiable • Building E

• Construction coordinated with Building D • U of A can benefit from Building E on its own with other resources available to it and it meets

the standard of separately identifiable • Parking Ramp

• Construction scheduled after substantial completion of Buildings D and E. • U of A can benefit from the Parking Ramp on its own with other resources available to it and it

meets the standard of separately identifiable

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Potential Performance Obligations

• Buildings D & E • Mega will construct buildings D & E concurrently using the same crews

and subcontractors. • Since each building is to be identical, likely CO’s on one will be

duplicated on the other. • Buildings can be combined into a single performance obligation because

they are delivered to U of A concurrently and the outcome is the same as accounting for them as individual performance obligations.

• Buildings D & E & Parking Ramp • Does not qualify for series because units are not the same • Does not qualify for combining because buildings and parking ramp are

not transferred concurrently to U of A • Buildings D & E & Parking Ramp & Site Work

• Could be allowed under the concept that the entire scope is a single performance obligation because in the context of the contract the customer has been promised a bundle of all of the deliverables (the combined output).

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Do Separate Performance Obligations Exist?

• Distinct (both)

• Utility • Customer can benefit from the services?

• Separately Identifiable • No significant integration service provided? • The goods and services are not interdependent, or interrelated? • The goods and services are not significantly modified, or customized?

• Series (both)

• Are the goods and services substantially the same? • Do the goods and services have the same pattern of

transfer?

What promises in the contract are distinct, if any?

Yes No

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Conclusion – Keys

• Contingencies would need to be excluded from the contract price

• Contractors fee would need to be allocated to each structure

• Could argue that site work is not a deliverable and should allocate to each structure

• Allocation of the contract price is outside of the scope of this presentation (see Step #4).

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Impact from Pending Exposure Draft

• 606-10-25-21 • The objective when assessing whether an entity’s

promise to transfer goods or services to the customer are separately identifiable in accordance with paragraph 606-10-25-19(b) is to determine whether the nature of the entity’s overall promise in the contract is to transfer each of those goods or services or whether the promise is to transfer a combined item or items to which the promised goods are inputs. Factors that indicate that two or more promises to transfer goods or services to a customer are not separately identifiable include, but are not limited to the following:

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Impact from Pending Exposure Draft

• 606-10-25-21 (a) • The entity provides a significant service of integrating the

goods or services with other goods or services promised in the contract into a bundle of goods or services that represent the combined output or outputs for which the customer has contracted. In other words, the entity is using the goods or services as inputs to produce or deliver the combined output or outputs specified by the customer. A combined output or outputs might include more than one phase, element, or unit

This language, if adopted, could lead more construction

contracts to be accounted for as single performance obligations.

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VARIABLE CONSIDERATION

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Variable Consideration

• Often, part of the contractual consideration related to a good or service is variable in nature or contingent on future events. (not an all-inclusive list):

• Unapproved change orders • Unpriced change orders • Performance bonuses — signing bonus, early completion, savings sharing, etc. • Project performance terms • Unit pricing • Economic price adjustments • Latent defects • Claims • Discounts • Refunds/Rebates • Royalties

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Variable Consideration

• An entity shall estimate an amount of variable consideration by using either of the following methods, depending on which method the entity expects to better predict the amount of consideration to which it will be entitled: • Expected value – The expected value is the sum of

probability weighted amounts in a range of possible consideration amounts. An expected value may be an appropriate estimate of the amount of variable consideration if an entity has a large number of contracts with similar characteristics. [JUDGEMENT]

• Most likely amount – The most likely amount is the single most likely amount in a range of possible consideration amounts (that is, the single most likely outcome of the contract). The most likely amount may be an appropriate estimate of an amount of variable consideration if the contract has only two possible outcomes. [JUDGEMENT]

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Constraint on Transaction Price

[JUDGEMENT]

An entity shall include in the transaction price some or all of an amount of variable consideration only to the extent that it is

probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is

subsequently resolved.

The transaction price including variable consideration and the constraint shall be updated at the end of each reporting period.

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Constraint on Transaction Price

• Factors that could increase the likelihood or the magnitude of a revenue reversal include, but are not limited to, any of the following:

• The amount of consideration is highly susceptible to factors outside the entity’s influence.

• The uncertainty about the amount of consideration is not expected to be resolved for a long period of time.

• The entity’s experience (or other evidence) with similar types of contracts is limited, or that experience (or other evidence) has limited predictive value.

• The entity has a practice of either offering a broad range of price concessions or changing payment terms and conditions of similar contracts in similar circumstances.

• The contract has a large number and broad range of possible consideration amounts.

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Constraint on Transaction Price

• Past guidance from SOP 81-1 no longer a part of GAAP • Accounting for Unpriced Change Orders

• Three alternatives to reporting exists under current GAAP

• Contract Options and Additions • Guidance on when to treat as a separate contract

• Claims • Four conditions precedent for recognizing claim revenue prior to resolution

• Can an entity remain “conservative” in the recognition of contingent compensation? • Answer is a resounding YES • ASU 2014-09 constraint is to minimize reversals of revenue. It does not state that

the transaction price should be constrained so that there is no subsequent adjustment of any kind.

• This guidance resulted from input to FASB/IASB from sureties and bankers that they did not like subsequent negative adjustments to revenue (and profits) but were not as concerned about positive adjustments.

• It will continue to be acceptable under the new revenue recognition standard to defer the recognition of claim or unapproved claim revenue until it is resolved because there is no new guidance on positive adjustments.

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Implementation Thoughts

• Internal controls will be critical – the proper information needs to be gathered.

• Operations personnel will need to be involved – project managers, project engineers, estimating.

• Educate operations – distinct, separable, utility. • Consider developing a checklist for the project file. • Accounting at the G/L and job cost level

• This appears to be generally in place. • Some systems do not support phase or element job costing. • Systems generally do not provide for allocation of activities to two

or more phases (performance obligations). • Systems do not have processes to measure the under/over-billing

at the performance level and then combine it at the contract level before adjusting the balance sheet.

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Thank You, John Armour!

Strive to be the best at whatever you do.

Teach others what you know.

SIGNING OFF

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? QUESTIONS

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If You Enjoyed This Webinar…

Upcoming courses: • 7/30, 8/4 & 8/5: Eye on Washington – Quarterly Business Tax Update

• 8/19 & 9/17: Creative Ways to Structure Bonus Plans and Ensure Current Tax Deduction

• 8/20 & 9/1: How to Make the Most Out of Derivatives and Hedging

• 8/27 & 9/11: PPA Plan Restatement - Emerging Opportunities for Pre-Approved Plans

• 9/8 & 11/11: Revenue Recognition Updates for Manufacturers

Related thought leadership: • MHM’s Revenue Recognition Resources Page

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