Update for Contractors on the Presentation and Disclosure of Retainage

On April 1, 2025, the Financial Accounting Standards Board (FASB) released a staff educational paper to address questions surrounding how to apply revenue recognition guidance related to the presentation and disclosure of retainage (or retention) on construction contracts in financial statements prepared under U.S. generally accepted accounting principles (GAAP). The educational paper, which does not change or modify current GAAP, was prompted by input from private company stakeholders, including the Private Company Council (PCC).

FASB previously proposed an accounting standards update (ASU) allowing a private company accounting alternative to present gross retainage and contract liabilities on a company’s balance sheet. However, in its March 6, 2025, meeting, the PCC elected to remove the proposed ASU from its agenda and issue the aforementioned staff educational paper. The educational paper explains the presentation and disclosure requirements under GAAP about contract assets, including retainage, and contract liabilities for construction contractors and clarifies and provides examples of acceptable presentation and disclosure of retainage within a company’s financial statements.

The most important clarification made within this publication is that contract assets and liabilities should be presented on a net basis for each contract. Therefore, for contracts in an overbilled position with outstanding retainage, the overbilling must be presented net of the outstanding retainage within a contractor’s balance sheet. This will have no effect on working capital, owner’s equity or profit and loss.

Click here to access the FASB Staff Education Paper.

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