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Sharpe CPA  /  Footnotes  /  Contractors

Note 1 for a construction contractor.

Revenue over time, the estimates behind it, contract assets and liabilities, retainage — and the major contract information: the significant jobs in progress, the backlog, and the customers the business depends on. Enter the contracts and the note, and the percent-complete arithmetic, follow. Free, and it runs in your browser.

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The entity

Finish the sentence “The Company …”.
The date subsequent events were evaluated through.

The contracts

Contract types

Major customers

Any customer at 10% or more of revenue. Leave blank if none.

Customer% of revenue% of contract receivables

Contractor policies

The policies

Tick the ones that apply. Each carries the choices the note has to state.

Highlighted text is still to be filled in or checked. The wording is a starting point: the policies have to describe what this entity actually does, and the CPA who signs the report owns every word.

The standard

What a contractor’s Note 1 has to carry.

For a contractor, the policies are mostly about estimates: revenue depends on the estimated cost to finish every job in progress. The major contracts, the backlog and the customers the business depends on belong in the notes too.

Revenue over time

  • Construction revenue is recognized over time when the customer controls the asset as it is built (ASC 606-10-25-27).
  • Progress is usually measured with the cost-to-cost input method (ASC 606-10-55-16 to 55-21).
  • Change orders are contract modifications; unapproved change orders and claims are variable consideration, subject to the constraint.
  • An expected loss on a contract is provided for in full as soon as it is evident (ASC 605-35).

Major contract information

  • Remaining performance obligations — backlog — and when they will be recognized (ASC 606-10-50-13). A private company may elect not to give it, but sureties and lenders read it.
  • Significant contracts in progress: price, percent complete, revenue earned and what remains.
  • Customers the business depends on: ASC 275-10-50-18 concentrations in the volume of business with a customer.

Contract assets and liabilities

  • Costs and estimated earnings in excess of billings (contract assets) and billings in excess (contract liabilities), presented net contract by contract (ASC 606-10-45).
  • Retainage conditional on completion is a contract asset until it is billable.
  • Industry practice classifies contract-related balances as current on the operating cycle.

Other contractor matters

  • Construction joint ventures may be proportionately consolidated (ASC 810-10-45-14).
  • Multiemployer pension plans for union labor carry their own disclosures (ASC 715-80).
  • Performance and payment bonds, warranties, and equipment charged to jobs at internal rates.

References are to the FASB Accounting Standards Codification. Check them against the current text before relying on them; the CPA who signs the report owns every word.