Determining Performance Obligations Under the New Revenue Standard May 22, 2019 By: Claudia R. Wolter One of the most challenging parts of the new standards may be determining how many performance obligations you have. Where you previously had more than one “contract” on your job cost schedule, you may now have one. Conversely, you may have previously reported one contract, but under the new standard, it needs to be split into more than one “performance obligation”. The new guidance requires two or more contracts to be combined if the contracts are entered into at or near the same time with the same customer and one or more of the following conditions are met: The contracts are negotiated with a single commercial objective. The amount of consideration in one contract depends on the other contract. The goods or service are a single performance obligation. Conversely, a single contract may have more than one performance obligation if the customer is receiving a stand-alone benefit which is distinct in the context of the contract. If the customer can benefit from the good or service on its own or together with other resources readily available to the customer or the customer can use good or service with other readily available resources, there would be separate performance obligations. Most of the examples that exist for Design Build contracts show a DB contract as one performance obligation. The two services are typically considered integrated enough to be one obligation. However, you will typically have multiple performance obligations in Design Build Operate Maintain contracts. The “operate” and “maintain” portions are usually distinct enough, that they need to be separated into separate performance obligations. KatzAbosch has individuals experienced in contractor issues and trained in process improvement using lean six sigma principles that can help you through this transition. Ready to implement your new performance obligations? Click here to review six questions to ask yourself to help illustrate your company’s implementation preparedness in this area. Article by: Claudia R. Wolter Claudia Wolter, a Shareholder with KatzAbosch, joined the firm in 1988. She has played a major role in leading the firm into the 21st century with cutting edge initiatives, including the transition to and managing of a paperless environment. She serves as Co-Chair of the firm’s Accounting and Auditing Services Group, assists in the quality control management and oversight of the firm and is a member of the Construction and Real Estate Services Group. Most recently, Claudia served as a contributing author of “Construction Accounting,” an in-depth guide to construction financial and accounting issues for attorneys distributed by the American Bar Association. A dedicated professional, Claudia holds the prestigious distinction of Certified Construction Industry Financial Professional (CCIFP), a certification held by less than 50 professionals in Maryland and less than 1000 professionals in the United States, the designation of Certified Construction Auditor (CCA) from the National Association of Construction Auditors (NACA) and a Lean Six Sigma CPA Green Belt certification from Ohio State University ATI and Boomer Consulting, Inc.
Addressing Warranties When Implementing The New Revenue Recognition Standards August 15, 2019 By: Claudia R. Wolter A warranty is a separate performance obligation if the warranty can be purchased separately. What … Read More
Understanding Waste and Inefficiencies Under the New Revenue Standard July 22, 2019 By: Claudia R. Wolter When a cost incurred does not contribute to progress in satisfying the performance obligation, the … Read More
