Accounting Standards |
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| Accounting Standards | Accounting Standards Recently Adopted Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), which added a new ASC Topic 606 (“ASC 606”). ASC 606 revises and consolidates prior guidance, eliminates industry-specific revenue recognition guidance and establishes a comprehensive principle-based approach for determining revenue recognition. The core principle of the guidance is that an entity must recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for providing those goods or services. ASC 606 sets forth a five-step revenue recognition model to be applied consistently to all contracts with customers, except those that
are within the scope of other topics in the ASC: (i) identify the contract with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The update also provides guidance regarding the recognition of costs related to obtaining and fulfilling customer contracts. This update also requires quantitative and qualitative disclosures sufficient to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including disclosures on significant judgments made when applying the guidance. The FASB subsequently amended ASC 606 on multiple occasions to, among other things, delay its effective date and clarify certain implementation guidance.
Management adopted this update for the Company’s fiscal year beginning October 1, 2018, using a modified retrospective approach. Under this approach, the Company’s financial statements are prepared under the revised guidance for the year of adoption, but not for prior years, and the Company recognizes a cumulative adjustment to the opening balance of retained earnings for contracts that still require performance by the Company at the date of adoption. The adoption of ASC 606 on October 1, 2018 did not result in a material impact that required recognition of a cumulative adjustment of the opening retained earnings balance for contracts that still required performance at September 30, 2018. Application of ASC 606 for the fiscal year ended September 30, 2019 had the following impact on the Company’s Consolidated Balance Sheet at September 30, 2019 and Consolidated Statement of Income for the fiscal year ended September 30, 2019 (in thousands):
The Company has refined its accounting policies and related internal controls affected by ASC 606. Management’s assessment of the Company’s construction contracts under the new standard supports the recognition of revenue over time using the cost-to-cost input method (formerly known as the percentage-of-completion method of accounting), measured by the relationship of total cost incurred to total estimated contract costs, which is consistent with the Company’s historical revenue recognition practices. As such, the Company’s construction contracts continue to be recognized over time considering the continuous transfer of control to its customers during the performance of construction projects. The Company also enhanced its disclosures regarding judgments and estimates used by management in the application of ASC 606 in Note 2 - Significant Accounting Policies.
In January 2017, the FASB issued Accounting Standards Update (“ASU”) No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASC 805”). The amendments of this update refine the definition of a business. Prior to this update, guidance in ASC 805 defined a business as having an integrated set of assets along with three elements or activities: inputs, processes, and outputs (collectively referred to as a “set”). ASC 805 provides a framework to assist in the evaluation of whether a set is a business. If substantially all of the fair value of gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. If that threshold is not met, the Company must perform further analysis to determine whether the set is a business. At a minimum, the set must include an input and a substantive process that together significantly contribute to the ability to create outputs. The Company adopted this update for the Company’s fiscal year beginning October 1, 2018 and applied the guidance to acquisitions during the fiscal year ended September 30, 2019 as described in Note 4 - Business Acquisitions and Note 8 - Property, Plant and Equipment.
Recently Issued Accounting Pronouncements Not Yet Adopted
The FASB has issued certain ASUs that are applicable to the Company and will be adopted in future periods. The consolidated financial statements and related disclosures for the fiscal years ended September 30, 2019 and 2018 do not reflect the requirements of this guidance. The following is a brief description of the recently issued ASUs and management’s current assessment regarding the methods, timing and impact of adoption of such ASUs by the Company in the future.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) and subsequently issued related ASUs that require lessees to present right-of-use assets and lease liabilities on the balance sheet for most leases. The ASU will be effective commencing with the Company’s fiscal quarter ending December 31, 2019. The Company will adopt the new guidance using a modified retrospective approach, recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company anticipates applying the optional package of practical expedients upon adoption. Based on a preliminary assessment, management expects the adoption of this ASU to result in the recognition of $9.0 million to $10.0 million of right-of-use assets and lease liabilities on the Company’s Consolidated Balance Sheet, with an immaterial impact to the opening balance of retained earnings.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which provides guidance on eight cash flow classification issues: debt prepayment and debt extinguishment costs, settlement of certain debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the predominance principle. The amendments of this update are effective for fiscal years beginning after December 15, 2018 and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments must be reflected as of the beginning of the fiscal year that includes that interim period. The Company expects to adopt this guidance as required and does not expect a material impact to the Company’s consolidated financial statements.
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