Retention: New Rules

It’s not new to 2025, but there are new rules for reporting retention on Financial statements. From the many CPA’s I’ve spoken with and the breakout sessions at the CFMA Annual conference, the CPA’s have been pushing back on this ruling, but with no success. Many of us are seeing the results as we receive our 2024 CPA-prepared Financial reports.

There are many nuances, but I think we can summarize what this change is supposed to accomplish, and in general, how it’s put together.

When you finalize your over/under billing, work in progress, some jobs are underbilled (an asset) and some are overbilled (a liability—you owe the work or a refund). It’s also possible that some of the underbilled work includes retention, but since you haven’t billed it yet, that’s a little misleading when reviewing bank covenants and bonding reports. So the goal is to look at the underbilled jobs and determine what portion of that number is actually retention. With that number in hand, the reported retention is lowered. This basically takes away the retention portion of the overbilling.

This changes the asset numbers and usually results in additional foot notes later in the financial statement. As Controllers and bookkeepers, be sure to request the CPA’s work papers so you have a record of how they arrived at these numbers.

Last thought: for the internal financials, we are not booking these adjustments. These are financial presentation only, just like breaking out the retention asset, and do not need to be entered as an adjusting entry. –CMW