CHICAGO (August 3, 2017) – A recent flash poll of construction companies on a webinar conducted by Baker Tilly Virchow Krause, LLP (Baker Tilly) found that 91 percent of respondents  felt “not at all” or only “somewhat prepared” to implement Accounting Standards Codification (ASC) 606 which provides guidance related to revenue from contracts with customers.

“The poll results show that 40 percent of construction companies plan to start implementing before the end of 2017. This is an encouraging number, but the data also indicates they have real concerns about their understanding of ASC 606,” Katherine Wiernicki, CPA, assurance leader of Baker Tilly’s real estate and construction practice, said. “The results show this critical lack of understanding of the new standard is the biggest challenge construction companies face in implementing.”

Construction companies must apply the new standard and document the decision making process, with significant financial statement disclosures required for those decisions. Even if there is no change in top line revenue, there may be a difference in the accounting process to reach that number. For many, there will be substantial changes to business systems, processes and internal controls over financial reporting. Baker Tilly has been working with its construction clients to successfully prepare for and implement the ASC 606 standard.

“Construction contracts by nature are long-term and often require changes in the specific terms once the project is underway. Recognizing revenue at different times can affect financial metrics and tax planning. Each revenue stream and contract or contract type must be assessed to understand how ASC 606 will impact it, and this assessment will be a complex process. Some companies may even want to change certain business practices or parts of their contracts to better align with the standard,” Wiernicki said.

The concerns expressed by respondents take on heightened relevance as important ASC 606 milestones near. 

“With the first key effective date quickly approaching, it should be a priority for contractors to understand the standard, assess its impact and determine a transition plan to implement the necessary system and process enhancements,” Wiernicki said.

For more information, visit Baker Tilly.