The Financial Accounting Standards Board released a
The paper pointed out that construction businesses are often subject to contracts that contain retainage (or retention) provisions.
Companies that operate in the construction industry are frequently subject to contracts that include retainage provisions. Those provisions generally offer a kind of security to the customer by permitting the customer to withhold a portion of the consideration billed by the company until certain project milestones are met or the project is finished.
The revenue recognition standard, also known as Topic 606 or ASC 606 in FASB’s Accounting Standards Codification, offers 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 lacks specific guidance on retainage.
The educational paper explains the presentation and disclosure requirements in GAAP about retainage for construction contractors and provides some examples of voluntary disclosures of retainage that would provide more detailed information about contract asset and contract liability balances.
The FASB staff received feedback from private company stakeholders in the construction industry, as well as the FASB-affiliated Private Company Council, questioning the proper application of Topic 606 guidance to retainage. Some users of private company financial statements, including sureties, provided feedback that information about retainage is important to their analysis.
The educational paper aims to clarify the presentation and disclosure requirements in GAAP about retainage for construction contractors and provide example voluntary disclosures of retainage that would currently be permissible under GAAP and would provide users with more detailed information about contract asset and contract liability balances.
The educational paper doesn’t change or modify current GAAP and isn’t intended to be a comprehensive assessment of the accounting for retainage in accordance with Topic 606. The exhibits included in the paper are for illustrative purposes and don’t create additional requirements beyond those in current GAAP. Entities should refer to current GAAP and consider entity-specific facts and circumstances when preparing financial statements.
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