Surety Bond Quarterly - Fall 2014 - 33

Assumption
True/False
Percentage completion accounting
has been eliminated.
Revenue can be recognized on
uninstalled materials.
All contracts will have multiple
performance obligations.
Contractors will have to recalculate all
completed contracts under the new
standard when implemented.
Cost to cost (costs incurred) can still
be used to determine percentage
complete on contracts in progress.
Contractors will add significantly more
footnotes to the financial statements.
EFFECTIVE DATES
Many contractors enter into agreements
that can span multiple
years; therefore, it is important to
understand the effective dates in
the new standard. For public companies,
the standard will be effective
for annual reporting periods
beginning on or after December 15,
2016, including interim reporting
periods therein. Early application
is not permitted for public companies.
For nonpublic companies,
the standard will be effective for
annual reporting periods beginning
on or after December 15, 2017, and
interim and annual reporting periods
thereafter. Nonpublic companies
may elect early application, but no
earlier than the effective date for
public companies.
ASSESS ALL ARRANGEMENTS
The ASU applies to all contracts with
customers, other than those within
the scope of other standards, such as
leases, insurance, financing arrangements,
financial instruments, and
guarantees (other than product or
service warranties). The ASU does
not apply to other parties to a contract
who are not customers. Management
will need to review partnership
and collaborative arrangements to
False - While the thought process and terminology will be
different, revenue recognized under the new standard may be
similar to the percentage of completion method used today.
True - FASB included specific language whereby, in certain
circumstances, contractors may be allowed to recognize revenue
equal to the cost of the uninstalled materials if the customer
obtains control of the goods.
False - Many (not all) construction contracts may have one
performance obligation. Contractors will still need to evaluate
each contract for separate performance obligations and document
their conclusions.
False - During the transition period, FASB has allowed for two
options: restate prior periods presented, or account for contracts in
progress and all new contracts going forward.
True - The new standard allows for the use of input or output
methods to determine percentage complete.
Depends - New disclosures will be required, with some relief for
nonpublic entities.
assess if such arrangements will be
subject to the ASU.
THE NEW REVENUE
RECOGNITION MODEL
The core principle of the new model
is that an entity would recognize revenue
as it transfers goods or services to
customers in an amount reflecting the
consideration it expects to receive. To
achieve that core principle, an entity
would apply a five-step model.
Collectability will be an explicit
threshold that must be assessed
before applying the revenue recognition
model to a contract. An entity
must evaluate customer credit risk
and conclude it is "probable" it will
collect the amount of consideration
due in exchange for the goods or services.
The assessment is based on
the customer's ability and intent to
pay as amounts become due. This is
a significant shift from the previous
exposure drafts.
STEP 1: IDENTIFy THE CoNTrACT
WITH A CUSToMEr
The first step in applying the model
is to identify the contract with a customer.
A contract is defined as "an
agreement between two or more parties
that creates enforceable rights
and obligations." The ASU includes
criteria for combining contracts into
a single contract for accounting purposes.
Accounting for a contract
modification will depend on the type
of modification and would be treated
as either a separate contract or as an
adjustment to the original contract,
depending on circumstances.
STEP 2: IDENTIFy THE
PErForMANCE oBlIGATIoNS IN
THE CoNTrACT
once an entity has identified a contract,
it would identify performance
obligations within that contract that
require separate accounting. A performance
obligation is defined as "a
promise in a contract with a customer
to transfer a good or service to a customer."
Management will need to use
significant judgment to distinguish
each performance obligation within
a contract; identifying performance
obligations and how they are satisfied
will directly affect when revenue
is recognized.
STEP 3: DETErMINE THE
TrANSACTIoN PrICE
The transaction price is the amount
of consideration to which an entity
expects to be entitled in exchange
for transferring goods or services. To
determine the transaction price, an
entity would consider the terms of
continued on page 37
NatioNal assoCiatioN of surety BoNd ProduCers | WWW.NASBP.orG 33
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Surety Bond Quarterly - Fall 2014

Table of Contents for the Digital Edition of Surety Bond Quarterly - Fall 2014

2014-2015 NASBP Executive Committee
NASBP Upcoming Meetings and Workshops
From the CEO: Successful construction relationships require the right relationship
Practical Insights: What you need to know - bond and lien notice pitfalls
SuretyLearn.org: An invaluable resource
Advocacy update
Nov. 12-3 Conference addresses the twists and turns of best value selection - and other timely topics
Surety Bond Guarantee Program changes for the better
Front Line Underwriting: Choosing a quality construction CPA
Getting in the weeds: Requirements of marijuana surety bonds
Encrypting email
It’s Finally Here: The new revenue recognition standard
CPAs standing in the GAAP
Resource Directory
Index to Advertisers
Surety Bond Quarterly - Fall 2014 - cover1
Surety Bond Quarterly - Fall 2014 - cover2
Surety Bond Quarterly - Fall 2014 - 3
Surety Bond Quarterly - Fall 2014 - 4
Surety Bond Quarterly - Fall 2014 - 5
Surety Bond Quarterly - Fall 2014 - 6
Surety Bond Quarterly - Fall 2014 - NASBP Upcoming Meetings and Workshops
Surety Bond Quarterly - Fall 2014 - From the CEO: Successful construction relationships require the right relationship
Surety Bond Quarterly - Fall 2014 - 9
Surety Bond Quarterly - Fall 2014 - Practical Insights: What you need to know - bond and lien notice pitfalls
Surety Bond Quarterly - Fall 2014 - 11
Surety Bond Quarterly - Fall 2014 - SuretyLearn.org: An invaluable resource
Surety Bond Quarterly - Fall 2014 - 13
Surety Bond Quarterly - Fall 2014 - Advocacy update
Surety Bond Quarterly - Fall 2014 - 15
Surety Bond Quarterly - Fall 2014 - Nov. 12-3 Conference addresses the twists and turns of best value selection - and other timely topics
Surety Bond Quarterly - Fall 2014 - 17
Surety Bond Quarterly - Fall 2014 - Surety Bond Guarantee Program changes for the better
Surety Bond Quarterly - Fall 2014 - 19
Surety Bond Quarterly - Fall 2014 - 20
Surety Bond Quarterly - Fall 2014 - 21
Surety Bond Quarterly - Fall 2014 - Front Line Underwriting: Choosing a quality construction CPA
Surety Bond Quarterly - Fall 2014 - 23
Surety Bond Quarterly - Fall 2014 - 24
Surety Bond Quarterly - Fall 2014 - 25
Surety Bond Quarterly - Fall 2014 - Getting in the weeds: Requirements of marijuana surety bonds
Surety Bond Quarterly - Fall 2014 - 27
Surety Bond Quarterly - Fall 2014 - Encrypting email
Surety Bond Quarterly - Fall 2014 - 29
Surety Bond Quarterly - Fall 2014 - 30
Surety Bond Quarterly - Fall 2014 - 31
Surety Bond Quarterly - Fall 2014 - It’s Finally Here: The new revenue recognition standard
Surety Bond Quarterly - Fall 2014 - 33
Surety Bond Quarterly - Fall 2014 - CPAs standing in the GAAP
Surety Bond Quarterly - Fall 2014 - 35
Surety Bond Quarterly - Fall 2014 - 36
Surety Bond Quarterly - Fall 2014 - 37
Surety Bond Quarterly - Fall 2014 - 38
Surety Bond Quarterly - Fall 2014 - Resource Directory
Surety Bond Quarterly - Fall 2014 - 40
Surety Bond Quarterly - Fall 2014 - 41
Surety Bond Quarterly - Fall 2014 - 42
Surety Bond Quarterly - Fall 2014 - 43
Surety Bond Quarterly - Fall 2014 - 44
Surety Bond Quarterly - Fall 2014 - 45
Surety Bond Quarterly - Fall 2014 - 46
Surety Bond Quarterly - Fall 2014 - 47
Surety Bond Quarterly - Fall 2014 - 48
Surety Bond Quarterly - Fall 2014 - 49
Surety Bond Quarterly - Fall 2014 - 50
Surety Bond Quarterly - Fall 2014 - 51
Surety Bond Quarterly - Fall 2014 - 52
Surety Bond Quarterly - Fall 2014 - 53
Surety Bond Quarterly - Fall 2014 - 54
Surety Bond Quarterly - Fall 2014 - 55
Surety Bond Quarterly - Fall 2014 - 56
Surety Bond Quarterly - Fall 2014 - 57
Surety Bond Quarterly - Fall 2014 - Index to Advertisers
Surety Bond Quarterly - Fall 2014 - cover3
Surety Bond Quarterly - Fall 2014 - cover4
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https://www.nxtbook.com/naylor/SBPQ/SBPQ0417
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https://www.nxtbook.com/naylor/SBPQ/SBPQ0415
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