The ASC 606 transition for construction contractors: Disclosures

After navigating the five elements of the revenue recognition process, ASC 606 requires robust disclosures for the users of the financial statements. The new accounting standard requires a contractor to disclose sufficient information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows. Contractors will need to provide qualitative and quantitative information regarding its contracts with customers, the estimates and judgments the contractor used to measure its revenue, and the nature of any assets recognized related to the costs of obtaining the contracts.

The extent of the disclosures required will vary depending on whether the contractor is a public or private company. Private companies may elect to exclude quantitative information from the required disclosures. These disclosures are required to be presented for each reporting period and include information related to contracts with customers such as the disaggregation of revenue, contract balances, performance obligations, transaction price and significant judgments used in applying the new standard.

Disaggregation of revenue

Disclosures of revenue should be disaggregated according to the nature, amount, timing and uncertainty of revenue and cash flows. Public companies are required to provide qualitative and quantitative disclosures, whereas nonpublic companies are only required to disclose qualitative information about how economic factors affect the nature, timing and uncertainty of revenues and cash flows. ASC 606 provides the following examples of potential categories:

• Type of good or service (e.g., general contractor, design services, maintenance services)
• Geographical region (e.g., country or region)
• Market or type of customer (e.g., government, institutional, industrial, infrastructure, commercial, residential, multifamily)
• Type of contract (e.g., fixed-price, guaranteed maximum price, time and materials)
• Contract duration (e.g., short-term and long-term contracts)
• Timing of transfer of goods or services (e.g., at a point in time or over time)

Contract balances

The majority of disclosures related to contract balances are quantitative and as a result a nonpublic company may elect not to disclose this information; however, qualitative information related to contract balances would be required. A construction contractor shall disclose the following information related to its contract balances: