APPENDIX D
(FASB ASC TOPIC 606)
When the Auditors Hit the Field
Be prepared to provide documentation to your external auditors to support that you are applying the new principles-based approach
of ASC 606 to account for each of your construction contracts. The following addresses possible situations you may encounter and
the related important considerations to apply and document.
>> STEP 1
Has the change order, including price, been
approved by all parties? Yes: Stop here.
>> STEP 2
Have parties agreed to the change order, but not
yet finalized the price? Yes: Stop here. Item should be accounted for as variable
consideration.
No: Stop here. No changes to the existing contract should
be made until step 1 or step 2 can be answered Yes.
>> STEP 3
Does the change order add goods or services
that are distinct from those provided before the
modification?
>> STEP 1
Does the contract include consideration that varies
based on the occurrence (or nonoccurrence) of a
future event?
No: Go to Step 3.
Yes: Separate (prospective) accounting is appropriate.
No: Cumulative catch-up adjustment is appropriate.
Alternative: Possible combination of both above
depending on nature of change.
Yes: Proceed.
No: Stop here.
>> STEP 2
Is any of the variable consideration non-cash? Yes: Determine value of non-cash consideration and go
to step 4.
>> STEP 3
Does the variable consideration result in only two
possible outcomes (such as, all or none) or could
there be a range of outcomes? All or None: Estimate the variable consideration using
the most likely amount method.
>> STEP 4
Is it probable that a significant portion of the
variable consideration will be reversed once the
uncertainty is resolved?
Range: Estimate the variable consideration using the
expected value method, go to step 4.
Yes: Limit the amount estimated in step 3.
No: Include the estimate in step 3 in transaction price.
CONTRACTOR’S REMINDER CHECKLIST | 6