Construction contracts often contain retainage provisions that allow a customer to withhold a portion of invoice billings until certain project milestones are met or the project is completed.
Before the adoption of Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers, industry practice was to present conditional retainage separately from billings in excess of costs (deferred revenue). Under ASC 606, retainage may be classified as a contract asset or as a receivable, depending on whether the payment is conditioned on the entity’s future performance. If the retainage is determined to be a contract asset, it must be netted with contract liabilities within the same contract for financial statement presentation. Some companies are voluntarily disclosing gross amounts in financial statement notes for surety companies, but under ASC 606, they are precluded from breaking out the amounts on the face of the financials.
In October 2024, FASB approved drafting an exposure draft that would have created an accounting alternative for private construction contractors covered by ASC 910-10, Contractors-Construction. Feedback during the external review process and subsequent outreach before the exposure draft was issued highlighted concerns. At the March Private Company Council meeting, members concluded that since retainage disclosures are not prohibited under ASC 606, an educational paper, rather than standard setting, would be sufficient to address the issue. The paper will:
- Clarify the presentation and disclosure requirements in current GAAP about retainage for construction contractors.
- Provide example voluntary disclosures of retainage that would currently be permissible under GAAP and provide users with more detailed information about contract asset and contract liability balances.
How Forvis Mazars Can Help
Our construction team at Forvis Mazars combines solid accounting and financial performance with long-range vision to help contractors reach their goals. Our team of forward-thinking professionals works hard to help contractors improve their bottom line, increase cash flow, and maintain regulatory compliance. Numerous construction companies have trusted us to address various accounting needs and provide services that help take their organization to the next level.
If you have questions or need assistance, please reach out to a professional at Forvis Mazars.