Variable Consideration and 5 Steps to Consider for Implementation

Variable consideration can change your transaction price in that the contract price is impacted by the amount of variable consideration. It may consist of a change order, an unapproved change order, a claim, bonus or incentive clauses, liquidating damages or penalty clauses, etc. (To learn more or to refresh your memory about variable considerations and the two methods on how to recognize it, click here.)

What steps do you need to take to implement this new standard?

  • Determine who within your organization is responsible to read the contracts and identify variable consideration (Maybe the project managers)
  • Educate individuals about variable consideration
    Determine who in your organization will calculate the amount of variable consideration to be recognized. This includes:

    • Considering all items of variable consideration and
    • Determining the amount to recognize using either:
      • The most likely amount method or
      • The expected value approach
  • Determine if there are changes that should be made in your software in order to assist in tracking variable consideration.
  • Determine if any changes need to be made in internal controls to properly track and account for variable consideration.

KatzAbosch has individuals experienced in contractor issues and trained in process improvement using lean six sigma principles that can help you through this transition. If you have any questions about this information please contact your KatzAbosch representative; or contact us by clicking here.

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