AGC Continues Efforts to Guide Development of Accounting Standards

Throughout 2010, AGC’s Tax and Fiscal Affairs Committee diligently monitored four major proposed accounting standards updates put forth by the Financial Accounting Standards Board (FASB) that would have a significant impact on the construction industry: loss contingency, revenue recognition, multiemployer pension disclosure, and leases.  Members of the committee formed task forces and volunteered their time and expertise to prepare detailed comment letters to the FASB on each project, participate in FASB-sponsored workshops and meetings, and conduct webinar programs to educate AGC members on the specifics of the proposals.  While the FASB has not issued their final pronouncements, AGC and the committee continue to discuss and work with the FASB to understand the impacts of the proposals on the contractors and towards workable solutions for the industry and the users of its financial statements.  Most recently, the committee discussed the status of these projects with FASB Board Member Larry Smith. Read on for details on each project. Loss Contingency On July 20, 2010, FASB proposed new standards for companies to provide enhanced disclosures in financial statements about the contingencies they have made for losses, including potential multiemployer withdrawal liability.  AGC submitted a comment letter to the FASB on September 20 in response to the Exposure Draft.  AGC also joined a group letter that comments on the proposal.  On November 10, in response to the number of negative comments received, the Board announced that a final standard would not be effective for the 2010 calendar year-end reporting period.  The Board will consider the many comment letters received and continue to discuss the issue with stakeholders before redeliberating and issuing a new Exposure Draft.  The Board is not expected to issue a new draft through the first quarter of 2012. Revenue Recognition On June 24, 2011, the FASB and the International Accounting Standards Board (IASB) issued a joint Exposure Draft to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS).  AGC conducted a webinar for members on July 24 and formed a task force that prepared and submitted a comment letter to the FASB on October 22.  In addition, members of the AGC Tax and Fiscal Affairs Committee have worked closely with FASB staff members leading up to the issuance of the Exposure Draft and into the present. On December 20, the FASB issued a staff paper detailing highlights of a proposed final standard, including matters that require further deliberations.  The paper is reflective of the substantial input provided by the public and, in particular, the construction industry that objected to the new model for revenue recognition.  Specifically, the paper recommends to the Boards that the model between goods and services be split.  Under that model, most construction contracts would be considered a service rather than a good and would not have to be broken up into more than one performance obligation, as proposed by the Exposure Draft.  While the staff paper appears to be headed in a direction that may be workable for the construction industry, the Boards have yet to adopt the recommendations, and there are still other important items open for consideration.  As a result, AGC is closely monitoring the deliberations as they occur and informing the debate when possible.  At this time, the Boards plan on issuing a final standard in the second quarter of 2011. Multiemployer Disclosure On September 1, 2010, the FASB issued an Exposure Draft to enhance the disclosure requirements about an employer’s participation in a multiemployer plan, including withdrawal liability.  On October 6, AGC offered a webinar to discuss the important changes proposed by the FASB.  On November 1, AGC submitted a comment letter to the FASB, as well as joined a group letter.  Earlier in June, the AGC Tax and Fiscal Affairs Committee met with the FASB staff member for the project to discuss specific construction industry issues and concerns.  AGC is particularly concerned about the economic impacts of disclosure of potential withdrawal liability on construction companies. The FASB plans on issuing another Exposure Draft in the second quarter of 2011.  In the meantime, the FASB is considering the large number of comments it received on the Exposure Draft and meeting with stakeholders.  The FASB remains committed to enhancing disclosure of employer’s participation and obligations in multiemployer pension plans to respond to user demands for such information.  At the same time, however, the FASB indicated willingness to compromise with stakeholders on the level of detail of those disclosures, including whether or how to require disclosure of withdrawal liability.  AGC stands ready to advise the FASB on the underlying economic, legal, accounting, and auditing issues that the FASB should consider as it develops a new Exposure Draft and will work to meet with the FASB in the upcoming weeks.  AGC remains cautious that the FASB will issue a new Exposure Draft that does not negatively impact the construction industry. Leases On August 17, 2010, the FASB and IASB issued a joint Exposure Draft to develop a new approach to lease accounting to recognize assets and liabilities arising under leases in financial statements.  On December 15, AGC submitted its comment letter to the FASB, one of over 750 comment letters sent worldwide.  The construction industry raised many concerns with the Exposure Draft, primarily regarding the possible expansion of the “lease” definition to include contracts historically excluded as “subcontracts,” “purchase orders,” or “temporary rentals.”  Further construction companies performing work for governments are concerned they could find part of their rental costs treated as “interest expense” and non-remimburseable under the Federal Acquisition Regulations.  The Boards plan on issuing a final standard in the second quarter of 2011.  The AGC Tax and Fiscal Affairs Committee has appointed a liaison for the FASB to contact as the finals standard develops. For more information, contact Karen Lapsevic at (202) 547-4733 or lapsevick@agc.org.