Construction Contractors — Checklist Supplement and Illustrative Financial Statements

This financial accounting and reporting practice aid is invaluable to anyone who prepares financial statements and reports for construction contractors. The checklists have been updated to reflect AICPA and FASB pronouncements and interpretations issued as of October 31, 2007. These checklists can be used by preparers of construction contractor financial statements prepared in conformity with generally accepted accounting principles and by practitioners who audit, review, or compile those financial statements as they evaluate the adequacy of disclosures made in the basic financial statements, notes to the financial statements, and required supplementary information. Illustrative financial statements and auditor’s reports are included in this practice aid.

This checklist supplement and illustrative financial statements should be used in conjunction with the Checklists and Illustrative Financial Statements for Corporations (008938).

This nonauthoritative practice aid has been prepared by the AICPA staff and has not been reviewed, approved, disapproved, or otherwise acted on by any senior technical committee of the AICPA and do not represent official positions or pronouncements of the AICPA.

Description

.01 The range of size and sophistication of companies in the construction industry has produced a variety of construction-type contracts and types of business enterprises that use them.

.02 The organizational structure, resources, and capabilities of contractors tend to vary with the type of construction activity.

.03 Common accounting and reporting practices by contractors include:

• The predominant practice is to present balance sheets with assets and liabilities classified as current and noncurrent on the basis of one year or the operating cycle. An unclassified balance sheet is also acceptable.
• Costs and estimated earnings in excess of billings are classified as current assets, and billings in excess of costs and estimated earnings are classified as current liabilities.
• Net debit balances for certain contracts should not be offset against net credit balances of other unrelated contracts.
• Contractors frequently participate in joint ventures, corporations, and general or limited partnerships. These may be reported as investments or combined or consolidated in the financial statements.
• The percentage-of-completion method of contract accounting is preferable, but the completedcontract method is also acceptable in certain circumstances.
• The method of revenue recognition should be disclosed.
• A provision for losses on a contract should be made as soon as the losses become evident, regardless of the method of accounting for the contract, and reported as a liability or deducted from any related accumulated costs.
• Contractors are encouraged to present backlog information.

Note: This publication was extracted from sections 5000 through 5300 of the AICPA Financial Statement Preparation Manual (FSP).

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