The construction industry has seen significant changes in the past couple years. Whether you are in public accounting, performing assurance services, or operate in the industry, this guide has the information you need to perform at your best. Considered the construction industry standard resource, this 2019 edition features new accounting information and new auditing considerations, particularly with regards to considerations for FASB ASC 606. This guide is an indispensable reference document packed with information on new requirements and relevant changes to the FASB Accounting Standards Codification.
From simple accounting to joint venture creation, this edition takes a deep dive into industry specific auditing procedures. Topics include:
- Practical tips and industry specific guidance;
- A detailed look at FASB ASU Nos. 2014-09, Revenue from Contracts with Customers, including new auditing considerations;
- An up-to-date look at the details of FASB ASU No. 2016-02, Leases
Table of Contents
1 Industry Background .01-.52
Nature and Significance of the Industry .02-.05
Features of the Business Environment .06-.37
Characteristics Common to Contractors .07-.08
Types of Contracts .09-.10
Contract Modifications and Changes .11-.12
Bonding and the Surety Underwriting Process .13-.19
Project Ownership and Rights of Lien .20-.21
Financing Considerations .22-.30
Joint Ventures .31-.34
Reporting for Financial and Income Tax Purposes .35-.37
Typical Industry Operations .38-.50
Preparing Cost Estimates and Bids .39-.45
Entering Into the Contract .46
Planning and Initiating the Project .47-.50
Variations in Size and Methods of Operation .51
Project Management .52
2 Accounting for Revenue From Contracts With Customers .01-.148
Application of the Five-Step Model of FASB ASC 606 .03-.87
Step 1: Identify the Contract With a Customer .03-.11
Step 2: Identify the Performance Obligations in the Contract .12-.28
Step 3: Determine the Transaction Price .29-.49
Step 5: Recognize Revenue When (or as) the Entity Satisfies a Performance Obligation .50-.87
Other Related Topics .88-.148
Disclosures and Presentation .88-.123
Contract Costs .124-.148
3 Accounting for and Reporting Investments in Construction Joint Ventures .01-.44
Joint Venture Accounting .03-.39
Accounting Methods .03-.07
Capital Contributions to Joint Ventures and Initial Measurement of Investments in Joint Ventures .08-.15
Sales to a Venture .16-.19
Subsequent Measurement and Presentation of Investments in Joint Ventures .20-.39
Determining Venturers’ Percentage Ownership .40
Conforming the Accounting Principles of the Venture .41
Losses in Excess of a Venturer’s Investment, Loans, and Advances .42
Disclosures in a Venturer’s Financial Statements .43-.44
4 Financial Reporting by Affiliated Entities .01-.11
Combined Financial Statements .04-.06
Presentation of Separate Financial Statements of Members of an Affiliated Group .07-.10
Presentation of Separate Financial Statements of Members of an Affiliated Group That Constitute an Economic Unit .11
5 Other Accounting Considerations .01-.141
Definition of a Public Business Entity .01
Fair Value Measurements .02-.50
Definition of Fair Value .05-.12
Valuation Techniques .13-.15
Present Value Techniques .16-.18
The Fair Value Hierarchy .19-.22
Application of Fair Value Measurements .23-.31
Additional Guidance for Fair Value Measurement in Special Circumstances .32-.36
Disclosures .37-.46
Fair Value Option .47-.50
Accounting for Certain Receive-Variable, Pay-Fixed Interest Rate Swaps .51-.55
Disclosure .55
Service Concession Arrangements .56-.61
Discontinued Operations .62-.70
Disposal Group Classified as Held for Sale .66-.68
Disclosure .69-.70
Impairment of Long-Lived Assets .71-.104
Property, Plant, and Equipment .71-.76
Intangibles - Goodwill .77-.86
Accounting Alternative .87-.101
Intangibles - Other .102-.104
Accounting for Identifiable Intangible Assets in a Business Combination .105-.109
Accounting Alternative .105-.109
Business Combinations - Pushdown Accounting .110-.115
Asset Retirement Obligations .116-.122
Mandatorily Redeemable Stock .123-.124
Presentation of an Unrecognized Tax Benefit When a Tax Carryforward Exists .125-.126
Differences Between Financial Accounting and Income Tax Accounting .127-.137
Cash Method .135-.136
Accrual Method .137
Provisions for Anticipated Losses on Contracts .138
Costs of Equipment and Small Tools .139-.141
6 Financial Statement Presentation .01-.48
Balance Sheet Classification .01-.02
Guidelines for Classified Balance Sheets .03-.15
General Guidance .04-.08
Retentions Receivable and Payable .09-.11
Investments in Construction Joint Ventures .12
Equipment .13
Liabilities .14
Deferred Income Taxes .15
Fixed-Price Contract Terminations .16
Disclosures in Financial Statements .17-.34
Significant Accounting Policies .18
Revised Estimates .19
Backlog - Remaining Performance Obligations .20
Receivables .21
Receivables - Related Parties .22-.23
Going Concern .24-.34
Disclosures of Certain Significant Risks and Uncertainties .35-.36
Accounting for Weather Derivatives .37
Disclosures of Multiemployer Pension Plans .38-.48
Multiemployer Plans That Provide Pension Benefits .39-.46
Multiemployer Plans That Provide Postretirement Benefits Other Than Pensions .47
Sample Disclosure for Plans That Provide Pension Benefits .48
7 Auditing Within the Construction Industry .01-.08
Audit Focus .02-.07
Scope of Auditing Guidance Included in This Guide .08
8 Controls in the Construction Industry .01-.28
Estimating and Bidding .04-.07
Project Administration and Contract Evaluation .08-.10
Job Site Accounting and Controls .11-.14
Billing Procedures .15-.18
Contract Costs .19-.21
Contract Revenues .22-.23
Construction Equipment .24-.25
Joint Ventures .26
Internal Audit Function .27-.28
9 Planning the Audit, Assessing and Responding to Audit Risk, and Additional Auditing Considerations .01-.103
Scope of This Chapter .01-.02
Planning and Other Auditing Considerations .03-.34
Planning the Audit .04-.06
Auditor’s Communication With Those Charged With Governance .07-.21
Audit Risk .22-.26
Materiality .27-.34
Use of Assertions in Obtaining Audit Evidence .35-.36
Understanding the Entity, Its Environment, and Its Internal Control .37-.62
Risk Assessment Procedures .40-.41
Discussion Among the Audit Team .42
Understanding the Entity and Its Environment .43-.45
Understanding of Internal Control .46-.62
Assessment of Risks of Material Misstatement and the Design of Further Audit Procedures .63-.85
Assessing the Risks of Material Misstatement .64-.69
Designing and Performing Further Audit Procedures .70-.85
Evaluating Misstatements .86-.88
Audit Documentation .89-.98
Identifying and Evaluating Control Deficiencies .99-.103
10 Major Auditing Procedures for Contractors .01-.50
Job Site Visits and Interim Audit Procedures .02-.07
Accounts Receivable .08-.26
Contract Assets .12
Retentions .13-.14
Unapproved Change Orders, Extras, Claims, and Back Charges .15-.18
Contract Scope Changes .19
Contract Guarantees and Cancellation or Postponement Provisions .20-.24
Collectibility .25-.26
Liabilities Related to Contracts .27-.31
Contract Costs .32-.38
Costs Incurred to Date .35
Estimated Cost to Complete .36-.38
Income Recognition .39-.43
Evaluating the Acceptability of Income Recognition Methods .41
Combining Contracts .42
Review of Earned Revenue .43
Analysis of Gross Profit Margins .44-.45
Review of Remaining Performance Obligations .46-.49
Management Representations .50
11 Other Audit Considerations .01-.50
Affiliated Entities .02-.11
Participation in Joint Ventures .03-.09
Auditing Affiliated Entities and Related Party Transactions .10-.11
Participation in a Group Audit .12-.14
Capitalization and Cash Flow .15-.17
Types of Auditor’s Reports on Financial Statements .18
Going Concern Considerations .19-.27
Supplementary Information in Relation to the Financial Statements as a Whole .28-.38
Additional Considerations .37-.38
Auditor’s Communications Related to Internal Control Matters .39
Legal and Regulatory Considerations .40-.50
State Statutes Affecting Construction Contractors .40
The Auditor’s Consideration of Compliance With Laws and Regulations .41-.43
Reporting of Identified or Suspected Noncompliance .44-.47
Governmental Prequalification Reporting .48-.50
12 Consideration of Fraud in a Financial Statement .01-.36
The Importance of Exercising Professional Skepticism .03
Discussion Among Engagement Personnel Regarding the Risks of Material Misstatement Due to Fraud .04-.09
Obtaining the Information Needed to Identify the Risks of Material Misstatement Due to Fraud .10-.13
Considering Fraud Risk Factors .12-.13
Identifying Risks That May Result in a Material Misstatement Due to Fraud .14-.21
A Presumption That Improper Revenue Recognition is a Fraud Risk .16-.20
Key Estimates .21
Assessing the Identified Risks After Taking Into Account an Evaluation of the Entity’s Programs and Controls That Address the Risks .22
Responding to the Results of the Assessment .23-.26
Evaluating Audit Evidence .27-.28
Responding to Misstatements That May Be the Result of Fraud .29-.32
Communicating About Possible Fraud to Management, Those Charged With Governance, and Others .33
Documenting the Auditor’s Consideration of Fraud .34-.36
Appendix
A The New Leases Standard: FASB ASC 842
B New Auditing Standards to Change the Auditor’s Report
C Overview of Statements on Quality Control Standards
D The Auditor’s Report
E Reporting on Supplementary Information in Relation to the Financial Statements as a Whole
F Information Sources
G Schedule of Changes Made to the Text From the Previous Edition
Glossary
Index of Pronouncements and Other Technical Guidance
Subject Index
