Definition
Backlog is the dollar value of signed work that remains to be performed, usually contract price less revenue recognized to date. It is not a defined GAAP term. ASC 606-10-50-13 separately requires disclosure of remaining performance obligations: the aggregate transaction price allocated to obligations that are unsatisfied or partially unsatisfied at the reporting date, and when the entity expects to recognize it. Optional exemptions in ASC 606-10-50-14 and 50-14A let entities omit the disclosure for certain contracts, such as those with an original expected duration of one year or less.
Why it matters in an audit or review
Lenders, sureties, and owners read backlog as a forecast of revenue. Auditors compare reported backlog with the WIP schedule and signed contracts, and look for awards that are not yet enforceable or contracts that can be cancelled without penalty. Inflated backlog can support a going concern or bonding story that the contracts do not support.
Example
Illustrative: contracts total $12,000,000 and $7,500,000 of revenue has been recognized, leaving $4,500,000. If $1,000,000 of that is under a letter of intent with no enforceable rights, the remaining performance obligation is $3,500,000 even though management quotes $4,500,000 as backlog.
Sources
- FASB ASC 606-10-50-13 through 50-15, remaining performance obligation disclosures
- AICPA Audit and Accounting Guide, Construction Contractors (paid publication)
Definitions paraphrase AICPA and FASB guidance; read the standard itself before relying on a requirement. Example figures are illustrative. This page is guidance, not professional advice. Report an error