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 cost needs to be accounted for separately. It would be considered a period cost and would impact the bottom line in the year the waste and inefficiencies occurred. Things to consider when a cost incurred does not contribute in satisfying the performance obligation: Costs incurred related to rework or wasted materials would be excluded from input measurement, as these costs do not represent the transfer of goods or services to the customer. Significant inefficiencies in the contractor’s performance that were not reflected in the contract price. Obviously, materiality and practicality come into play when applying this part of the new standard. You must encounter significant redo work. For instance, you install all of the wrong fixtures in a building and have to remove them and reinstall the correct ones, that rework may be considered significant waste and inefficiency. Please note that normal inefficiencies that occur are not included as a part of this guidance. If you budgeted 1000 hours and are encountering 1500 hours due to poor project management or other inefficiencies, the additional hours are not considered in this guidance. Below is an illustration of how waste and inefficiencies should be handled on the job cost schedules for jobs in process: 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 this in your organization? Click here, to read about what processes to consider to confirm if you are prepared. Article by: Claudia R. Wolter, CPA, CCIFP, CCA 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 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. About KatzAbosch: Founded in 1969, KatzAbosch is one of the largest CPA and business consulting services in the Mid-Atlantic region. As an accounting firm, our mission is to provide the highest quality accounting, tax, financial and management consulting services to our regional clients. We understand the needs and challenges of our clients and we have made it our obligation to create, grow and protect asset value. KatzAbosch is consistently named a Best Accounting Firm to Work For in Accounting Today and has been named a Top 200 Accounting Firms in the Nation by Inside Public Accounting. Our firm is also ranked among the Top 15 Largest Accounting Firms in the Baltimore Area by the Baltimore Business Journal and a Top Workplace four times by The Baltimore Sun.