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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