Please join Jennifer Schaus & Associates every Wednesday in 2019 for a complimentary Wednesday series. For full audio of this presentation please visit (https://youtu.be/I0DZOvL8Avc). For more information about our federal contracting services please visit http://www.Jenniferschaus.com or contact us at 202-365-0598. Win more federal government contracts!

1. FED GOV CON
Webinar Wednesdays
2019 Series
JSchaus & Assoc.
Washington DC
+ 1 – 2 0 2 – 3 6 5 – 0 5 9 8

2. About Our Webinars:
- Every Wednesday;
- Complimentary;
- Recorded;
- YouTube & our Website;
- No Questions

3. About Us:
Professional Services for
Federal Contractors
- GSA Sched;
- SBA 8(a);
- Proposal Writing;
- Pricing;
- Contract Administration;
- Business Development

4. Upcoming Events:
TUESDAY - Aug 6
IN-PERSON CLASS: Intro To
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6. About Our Speaker:
Don Keninitz, CPA, CGMA
Education:
B.S. Bus. Admin, George Mason
University
Company Name:
E. Ecohen & Co., CPAs
# of Years Federal Gov Con Experience:
40

7. Basics of New GovCon
Revenue Recognition

8. Major Changes are Coming!
The new revenue recognition standard is a game-changer that will have a
major effect on how many government contractors (GCs) report revenue.
2019 – Fed Gov Con Webinar Series - Washington DC
JSchaus & Associates

9. For GCs with fixed-price contracts, many have relied on the AICPA’s Statement
of Position (SOP) 81-1, “Accounting for Performance of Construction-Type and
Certain Production-Type Contracts”.
Notably, this SOP, originally issued in 1981, was modified many years ago to
specifically exclude service contracts, a fact many GCs are either unaware of or
simply chose to ignore.
Moreover, this SOP was superseded as authoritative GAAP in 2005 when the
Financial Accounting Standards Board (FASB) issued its Codification of GAAP
2019 – Fed Gov Con Webinar Series - Washington DC
JSchaus & Associates

10. The foregoing notwithstanding, many contractors have continued to use SOP
81-1 as a justification for applying the cost-to-cost percentage of completion
method to fixed-price government contracts.
The issuance of the new revenue recognition standard, formally known as
Accounting Standards Update 2014-09 (ASU 2014-09), will remove any
possibility of simply falling back on cost-to-cost percentage of completion for
fixed price contracts relying on SOP 81-1 or other prior guidance
2019 – Fed Gov Con Webinar Series - Washington DC
JSchaus & Associates

11. Another existing standard that was incorporated into the Codification was
Emerging Issues Task Force (EITF) issuance 00-21, issued in 2000 covering
“Multiple Element Arrangements”
EITF was extremely complicated and was modified several times. It required
companies to analyze all of their revenue-producing “arrangements” (typically
“contracts”) to determine if there were different accounting units that should
be accounted for separately, potentially under different revenue recognition
rules.
2019 – Fed Gov Con Webinar Series - Washington DC
JSchaus & Associates

12. The new standard, which is effective this year (2019) for private companies
radically changes the way of SOP 81-1 and EITF 00-21, as they were
incorporated into the Codification, operated, as well as other affecting
numerous other elements of the existing revenue recognition guidance
currently found in Accounting Standards Codification (ASC) Topic 605.
While some GCs will experience little change, others will find themselves
substantially impacted by the new standards in ASC Topic 606
2019 – Fed Gov Con Webinar Series - Washington DC
JSchaus & Associates

13. The new standard is incorporated into the FASB Codification as a new section, Topic
606, which is how I’ll refer to it hereafter. This Topic supersedes most of existing Topic
605 as well as most industry-specific guidance.
It specifically supersedes “some cost guidance included in Subtopic 605-35, Revenue
Recognition – Construction-Type and Production-Type Contracts” (which essentially
replicated much of SOP 81-1, which hasn’t applied to service contracts for years).
Let’s look at some of the ways Topic 606 will affect GCs
2019 – Fed Gov Con Webinar Series - Washington DC
JSchaus & Associates

14. As a refresher, the core of the new standard is based upon a 5-step approach to
evaluating contracts:
Step 1: Identify the contract(s) with customers
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations
Step 5: Recognize revenue when (or as) the entity satisfies a performance
obligation.
2019 – Fed Gov Con Webinar Series - Washington DC
JSchaus & Associates

15. Step 1: Identify the contract(s) with customers
The Topic identifies ”a contract as an agreement between two or more parties
that creates enforceable rights and obligations”
There are 5 basic criteria to be evaluated in determining whether something
constitutes a contract.
2019 – Fed Gov Con Webinar Series - Washington DC
JSchaus & Associates

16. Step 1: Identify the contract(s) with customers
The Topic states that a “master agreement” generally is not a contract within the scope
of Topic 606
That means blanket-purchase arrangements, IDIQ arrangements, etc. may not qualify as
contracts in themselves; instead, individual purchases, task orders, etc. will constitute
contracts, and will be the subject of applying the Topic 606 requirements.
Another question is whether unfunded option years will count as legally enforceable
agreements prior to exercise and funding.
2019 – Fed Gov Con Webinar Series - Washington DC
JSchaus & Associates

17. Step 2: Identify the performance obligations in the contract
For many GCs, this will be one of the biggest challenges. For example, many contracts
have multiple elements, such as option years, tasks, CLINs, etc. Each of these is
potentially a separate performance obligation.
Topic 606 states holds if more than one good or service is promised, it is a performance
obligation only if it is: 1) distinct, or 2) a series of distinct goods are services that are
substantially the same or have the same pattern of transfer.
2019 – Fed Gov Con Webinar Series - Washington DC
JSchaus & Associates

18. Step 2: Identify the performance obligations in the contract
There are two specified criteria for “distinct”:
1) Capable of being distinct – the customer can benefit from the good or service on its
own
2) Distinct within the context of the contract – the promise to transfer the good or
service is separately identifiable from other promises
2019 – Fed Gov Con Webinar Series - Washington DC
JSchaus & Associates

19. Step 3: Determine the transaction price
The transaction price may hinge in part on things like whether option years are
considered part of one contract, or separate contracts. Incentive and award
fees may also complicate the determination of the contract price.
2019 – Fed Gov Con Webinar Series - Washington DC
JSchaus & Associates

20. Step 3: Determine the transaction price
Elements in determining total consideration include a variety of issues, but the one
most likely to affect GCs is “variable consideration”, which would include award fees,
incentive provisions and the like. The question of how to view option years will also
impact the determination of total consideration, and hence the transaction price.
2019 – Fed Gov Con Webinar Series - Washington DC
JSchaus & Associates

21. Step 4: Allocate the transaction price to the performance obligations
This may represent a challenge, because under the standard it doesn’t necessary follow
that a separately-priced element of a contract will represent the appropriate allocation
of a portion of the transaction price for that element.
The basic requirement is that for a contract that has more than one performance
obligation, an entity should allocate the transaction price to each performance
obligation in an amount that depicts the amount of consideration to which the entity
expects to be entitled in exchange for satisfying each performance obligation
2019 – Fed Gov Con Webinar Series - Washington DC
JSchaus & Associates

22. Step 4: Allocate the transaction price to the performance obligations
The foregoing is often easier said than done, because of things like – for example –
milestone billings that may be based on the lapse of time (paid at contract intervals)
rather than satisfaction of a particular performance obligation.
It also requires the GC to determine the standalone selling price of each performance
obligation at contract inception.
This area is going to be very complicated for some GCs.
2019 – Fed Gov Con Webinar Series - Washington DC
JSchaus & Associates

23. Step 5: Recognize revenue when (or as) the entity satisfies a performance
obligation.
The basic requirement is that a performance obligation is satisfied when the
entity transfers a promised good or service to a customer. A good or service is
transferred when (or as) the customer obtains control of that good or service.
2019 – Fed Gov Con Webinar Series - Washington DC
JSchaus & Associates

24. Step 5: Recognize revenue when (or as) the entity satisfies a performance
obligation.
May occur over time, i.e., if one of the following criteria is met:
- Customer simultaneously receives and consumes the benefits provide by the entities
performance
- Performance creates or enhances an asset that the customer controls as the asset is
created or enhanced
- Performance does not create an asset with an alternative use to the entity (provider),
and the entity has an enforceable right to payment for performance completed to date
2019 – Fed Gov Con Webinar Series - Washington DC
JSchaus & Associates

25. Step 5: Recognize revenue when (or as) the entity satisfies a performance
obligation.
May occur at a point in time if:
Indicated by factors such as: entity (provider) has a present right to payment;
customer has legal title to the asset; entity has transferred physical
possession; customer has obtained significant risks and rewards of ownership;
customer has accepted the asset
2019 – Fed Gov Con Webinar Series - Washington DC
JSchaus & Associates

26. Step 5: Recognize revenue when (or as) the entity satisfies a performance
obligation.
Suffice to say that the satisfaction of a performance obligation may occur at a single
point, or my occur over time. This is the step that will likely have the biggest impact on
accounting for fixed-price contracts, where performance takes place over time, but the
performance obligation may not actually occur until task or contract completion. It’s
likely that some contracts that have been traditionally accounted for using percentage-
of-completion will shift to what’s traditionally been known as the completed-contract
method.
2019 – Fed Gov Con Webinar Series - Washington DC
JSchaus & Associates

27. Applying the new Topic requires an in-depth of its requirements. The Topic is
lengthy and complex, and many companies will find themselves in need of
professional assistance. Keep in mind that independent CPA firm auditors will
be walking a fine line in providing such assistance, as the CPA firm cannot
remain independent if it participates in making accounting or management
decisions, and the new Topic is going to require a lot of both.
2019 – Fed Gov Con Webinar Series - Washington DC
JSchaus & Associates

28. THANK YOU!
JSchaus & Assoc.
Washington DC
hello@JenniferSchaus.com
www.JenniferSchaus.com
+ 1 – 2 0 2 – 3 6 5 – 0 5 9 8
Speaker: Don Keninitz
Email: dkeninitz@ecohencpas.com