The FASAB recently released a staff educational paper addressing questions related to applying revenue recognition guidance on presentation and disclosures to construction contracts that contain retainage or retention provisions.
The board noted that companies in the construction industry are often subject to contracts that contain retainage provisions. Those provisions generally provide a form of security to the customer by allowing the customer to withhold a portion of the consideration billed by the company until certain project milestones are met or the project is completed.
The revenue recognition accounting standard, Topic 606, Revenue from Contracts with Customers, approved by the FASB nearly 10 years ago, establishes guidance on the presentation of a contract with a customer on the balance sheet as a contract asset or a contract liability and related disclosures, but Topic 606 doesn’t include specific guidance on retainage, the paper says.
The paper outlines GAAP presentation and disclosure requirements for retainage, addressing feedback from stakeholders in the construction industry who emphasized the importance of this information for financial analysis. While the paper provides examples of voluntary disclosures, it does not alter existing GAAP or create new requirements. Learn more.