RubinBrown’s Construction Services Group recently attended the National Associated General Contractors’ (AGC) Financial Issues Committee meeting in Colorado Springs, Colorado.
An economic update provided by Ken Simonson, the AGC’s chief economist noted that jobs continue to be added in every segment of both residential and nonresidential construction with growing demand for both public and private sector services.
The unemployment rate continues to decrease and is the lowest it has been since 2006, according to analysis done by AGC. According to Ken, the headcount expansion is related to growth in many parts of the country. In a recent AGC press release, Ken noted “Right now, the two most likely obstacles to the industry’s continued expansion are growing labor shortages and political gridlock that could curtail public sector investment in infrastructure and construction.” Construction officials have urged Congress to act quickly to fund and pass surface transportation legislation to invest in the nation’s aging roads, bridges and transit systems. Additionally, association officials have called on leaders to act on certain measures outlined in Workforce Development Plans designed to expand career and technical education opportunities for young people in the industry.
In addition to the economic forecast, various accounting and tax issues were also discussed:
- A member of the Financial Accounting Standards Board (FASB) joined the committee to discuss an overview of current financial reporting issues, rules being considered and the Private Company Council (PCC).
- Revenue recognition continues to be the primary topic of interest. The exposure period for deferral of the related standard has been completed. Many comment letters were received, mostly supporting the one-year delay that was proposed. Some letters suggested a two year delay and most letters seemed to support an early adoption option as well. The committee spent a fair amount of time continuing to discuss the impact of the new standard on various elements of companies’ accounting and financial reporting processes.
- With respect to the PCC, the committee discussed updates on standards, potential new rules that might be considered in the future and the evolution of the PCC. The PCC is now in its third year. When the Financial Accounting Foundation (FAF) created the PCC, it was understood that there would be a formal review after 3 years, the review is ongoing. According to the FASB member, it appears the PCC is here to stay. Most of the comment letters received are generally supportive of the PCC and believe that the PCC has accomplished quite a bit in three years. Some of the current topics being explored by the PCC include considerations for accounting and reporting related to share-based compensation, timing of adopting PCC issued rules and the balance sheet classification of debt, among other items. The PCC meets again late in July of 2015.
- The lease standard is expected to be finally issued in the 4th quarter of 2015. A transition resource group (TRG) similar to revenue recognition is not likely. The continued discussion about the topic relates to the definition of a lease and consideration of whether the lease is an operating or finance lease. According to the FASB member, there will be specific implementation guidance that carries forward certain bright line principles from today that will help address these issues and hopefully not create significant confusion between preparers and auditors.
- Other topics currently out or being considered in the future were mentioned including some financial reporting classification considerations, government grants accounting, disclosure framework projects, changes in debt issuance cost accounting and other topics.
- The committee also discussed certain ongoing tax issues:
- The Internal Revenue Service (IRS) is asking the industry for specific information to further understand the potential impact of the changing revenue recognition rules for financial reporting. If the tax law remains the same and accounting for book purposes changes, this may lead to more book/tax difference and add to the complexity related to income tax accounting for contractors.
- Per diem rules were discussed and the tax impacts around different ways contractors’ apply disallowances for M&E. Additionally, the committee discussed risk around recent class action lawsuits sought by attorneys related to the treatment of significant per diems and their treatment.
- The committee discussed and recapped the impact of tangible property regulations on companies during the last tax season. Companies adopted these rules last year; however, the IRS’ delayed modifications to the rules appeared to have frustrated companies and CPA’s across the country.
- The committee also discussed risks associated with personal identity theft and fraud being perpetrated through the IRS on individuals, specifically high wealth individuals. There is a process to recoup costs related to these frauds, but the process takes time and tax payers end up without their refunds for quite some time.
- The topic of basis schedules was discussed and the fact that the IRS is occasionally challenging basis schedules, as specific as requesting copies of underlying support for basis schedules (cancelled checks, etc). Requests for support have sometimes gone back beyond typical statute of limitations periods for normal maintenance of tax records.
- The Director of Tax and Fiscal Affairs for the AGC provided an update on Capitol Hill. He discussed ongoing considerations of tax policies and possible reform and impacts on the construction industry. Although, the industry has rebounded recently, the general tone continues to be the fact that the inconsistent tax policy creates a challenging environment for the industry to plan ahead and make solid decisions to promote consistent growth.
RubinBrown will keep up to date on activities from the AGC Financial Issues Committee and other accounting and tax topics and will inform you about changes that will impact you and your business. Please contact your RubinBrown advisor with any questions.
Any federal tax advice contained in this communication (including any attachments): (i) is intended for your use only; (ii) is based on the accuracy and completeness of the facts you have provided us; and (iii) may not be relied upon to avoid penalties.
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