Under construction: Current financial reporting issues impacting the Engineering & Construction industry

July 2011
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Under construction: Current financial reporting issues impacting the Engineering & Construction industry

At a glance

An exposure draft released by the FASB and IASB proposes a revenue recognition model that will impact engineering & construction company reporting procedures, especially in transfer of control, identification of performance obligations, determining the transaction price, accounting for warranties, and transition, among others.

In June 2010 the FASB and IASB released an exposure draft, Revenue From Contracts with Customers, proposing a model that will have a significant impact on current revenue recognition under both US GAAP and IFRS. Tentative decisions made during redeliberations address several areas key to the E&C industry, including transfer of control, identification of performance obligations, determining the transaction price, accounting for warranties, and transition, among others. A final standard is now expected in 2012, with an effective date likely no earlier than 2015 or 2016.

Once the new revenue recognition standard becomes effective, SOP 81-1, IAS 11, and all existing revenue recognition guidance under US GAAP and IFRS will be replaced. This commentary addresses some proposed standards and contrast them against current US GAAP and IFRS. It further discusses the implications for the E&C industry.