Pat McKenna October 30, 2017 2 min read

ASC 606 and Qualified Opinion Letters

Beware of the qualified opinion letter!  With accounting revenue recognition standards changing for work under contract, consider your credit relationships when you decide whether or not to change your accounting method to Generally Accepted Accounting Principles (GAAP).

In May of 2014, the Federal Accounting Standards Board (FASB) issued Accounting Standards Codification ASC 606.  This standard will replace most of the existing revenue recognition standards, including industry specific, with one universally accepted standard for revenue recognition for any entity that receives revenue under contracts with customers.  ASC 606 will become effective December 15, 2017 for public business entities and December 15, 2018 for most privately held businesses.

As this becomes the new GAAP revenue recognition basis for financial reporting, any departure from this may result in a qualified opinion letter with your CPA prepared financial statement.  Many creditors do not look favorably upon a qualified opinion letter.  Some covenants require a clean opinion letter.  It is important to know what impact this will have with all of your credit relationships, such as your bank, equipment financier, and bond company.

While December of 2018 seems far away, understanding and planning for ASC 606 should begin today, especially for those companies that receive two year comparative financial statements. 

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Pat McKenna

Pat has been with Hausmann-Johnson Insurance since 2007, and oversees the Surety Department and the Construction Industry Group. He has been in the surety industry for over 27 years, including 13 years with a top 3 national surety underwriting company. He leads with a focus on client relationships. By breaking down risk factors and demonstrating how they will be handled, he is able to help surety clients maximize individual job size. Pat also uses his expertise to help clients maintain a strong bond relationship during times of transition. Pat has a BA in Business Administration from Marquette University, and an MBA from the University of Wisconsin-Whitewater. He is his children’s biggest fan and supports them as they compete athletically in high school and college. He enjoys his own athletic pursuits as well, as he is frequently out running or biking on the local trails. Pat also is a ticket holder for the Green Bay Packers and Marquette University basketball and loves spending the day watching games with family and friends.

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