...released the Exposure Draft: Revenue Recognition in Contracts with Customers which aims to replace the existing FRS 18 Revenue. The exposure draft aims to improve and streamline current revenue recognition methods and provide a more robust framework to do so. As a result, revenue recognition under the exposure draft is carried out differently in a number of ways. Maxis Berhad is an investment holding company which provides telecommunication, internet and corporate services. It engages in multiple activities and recognises revenue from these activities using the principles laid down in FRS 18. Revenue is recognised only when it can be measured reliably and the company is expected to receive economic benefits. The company also lays out particular conditions to apply revenue recognition to different activities. As a result, if the company is to implement the exposure draft it would have to face several changes in the way it recognises revenue. Specifically, activation fees for various subscription plans will have to be recognized as revenue over the expected contractual period of those plans, rather than allocated as part of the revenue for the included monthly service and handset. This would also require Maxis to determine an estimate for expected lifespan of customers’ contract, taking into account possible renewals. In addition, Maxis will also have to change the way it recognises revenue for its prepaid mobile starter packs. At present, revenue is recognised when the starter...
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...Proposed Revision for Revenue Recognition Xin Yan Introduction Since 2002, the International Accounting Standard Board (IASB or collectively the boards) and the Financial Accounting Standards Board of US (FASB or collectively the boards) have been working together on a project to revise and converge IFRS and US GAAP on revenue. Consequently, the Boards have jointly issued two exposure drafts outlining proposed changes. The latest one was published in November 2011 with public comments received in March 2012. If adopted, it will substitute all revenue standards prescribed by IFRS including IAS 11 Construction Contracts and IAS 18 Revenue and relevant interpretations and most of the revenue recognition requirements and related guidance in US GAAP. This paper, first of all, will provide a brief background of the joint project. Then it will highlight proposed changes and its implications in key areas. Finally, it will discuss effective date, early adoption and transition of the new standards and offer some alternative view. Background While the definition of revenue in IFRS seems clear, revenue requirements in IAS 11 and IAS 18 actually could be problematic to be applied to complicated transactions. Additionally, some application guidance on critical issues such as revenue for multiple element agreements is quite limited. Therefore a number of entities have established their IFRS accounting guidelines by resorting to parts of US GAAP. However, US GAAP consists...
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...GAAP and IFRS on Revenue Recognition The Difference between U.S. GAAP and IFRS on Revenue Recognition Trade activities among world economies and the expansion of corporate America overseas have created a need for better and uniform global accounting standards. Many countries conduct businesses globally, especially with the United States. The convergence from Generally Acceptable Accounting Principle (GAAP) to International Financial Reporting Standards (IFRS) can be related to the convergence of Europe, when both entities were in search of common ground to conduct business transactions. As a result of global accounting needs, in 2001 the International Accounting Standard Board (IASB) was given the go ahead by major constituents of the world’s capital markets to develop a single set of high quality accounting standards. This crisis gave birth to the Financial Accounting Standard Board - IASB convergence program (Bahusova, 2009). IASB, along with the FASB, had an open debate in December of 2008 on revenue recognition concerning the changes in customer contract and the obligation between them and the seller. The debate focused on uniform standards for both United States companies that use GAAP and other non- foreign companies using IFRS (Mintz, 2009). The two bodies wanted to achieve continuity on revenue recognition for similar contracts, regardless of the company’s origin. This advancement would increase the quality of revenue recognition, not only for...
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...be implemented based on revenue accumulation and profit margins. The simulation strategy will mainly concentrate on revenue recognition which refers to an accounting principle that involves cash basis accounting and accrual basis accounting. Cash basis involves recognizing revenues when cash is received while accrual basis accounting recording revenues when cash is realized or earned. Products X3 X4 X5 X6 X7 Current revenue 774,307,366 362,007,649 363,450,944 48,848,773 42,987,651 Annual revenue 470,680,709 234,009,768 203,291,529 33,379,412 31,652,476 Revenue recognition involves several criteria's, the most notable ones include: · Evidence on the existing arrangement · After delivery or rendering of services · If the selling price is fixed and can not be determined · A reasonably assured collect ability Different revenue recognition methods assist in the management in ensuring smooth earnings and besides increase in investors trust. The methods also assist implementation of the matching concept, this is where by revenues are compared with the expenses. In addition, the revenue recognition methods are essential in easier maintenance of the financial statements. A good example is the profit analysis of the five products. Profit analysis Importance of revenue recognation as a simulation method Therefore, use of different revenue recognition can easily be used indifferent kinds transactions. These include inventory recognition at the date of sale, service...
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...Introduction Revenue is defined in IFRS as “the gross inflow of economic benefits during the period arising in the course of the ordinary activities of an entity when those inflows result in increases in equity, other than increases relating to contributions from equity participants”. The principles for recognising revenue are clarified by the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) when both of the boards have affiliated. The boards are forming a new model to improve financial reporting by providing clearer guidance on when an entity should recognise revenue, and by reducing the number of standards to which entities have to refer. History of Australia’s policy before the adoption of IFRS In July 2004, the AASB 118 was issued. AASB 118 Revenue is equivalent to IAS 18 of the same name as issued by the International Accounting Standards Board. AASB 118 has a specific purpose which was to recommend the accounting treatment of revenue from certain types of transactions. Entities are allowed to practice the standard for yearly reporting periods which begins on or after 1 January 2005. Paragraphs 9 and 30 were amended by AASB 2007-2 and was applicable to annual reporting periods on or after 28 February 2007, whereas AASB 2007-4 amended paragraph 21 and was applicable from 1 July 2007; both of which considers early adoption from 1 January 2005. Amendments regarding the disclosure of information about segment assets in AASB...
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...Software Revenue Recognition A Roadmap to Applying ASC 985-605 Third Edition December 2011 Subtopic 985-605, Software—Revenue Recognition, from the FASB Accounting Standards Codification®, is copyrighted by the Financial Accounting Foundation, 401 Merritt 7, PO Box 5116, Norwalk, CT 06856-5116, and is reproduced with permission. SOP 97-2: Copyright 1997–2009 by American Institute of Certified Public Accountants, Inc. Used with permission. This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this publication. As used in this document, “Deloitte” means Deloitte & Touche LLP, Deloitte Consulting LLP, Deloitte Tax LLP, and Deloitte Financial Advisory Services LLP, which are subsidiaries of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting...
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...Relationship between the IASB and the FASB ACC 541 Relationship between the IASB and the FASB The United States plays an enormous influence on the accounting standards set forth throughout the world in the global economy. The United States follows the Financial Accounting Standards Board (FASB) which has created a large number of accounting standards that are interpreted and accepted by international companies and by the International Accounting Board (IASB). The IASB plays a similar role like the FASB for the rest of the global economy. The IASB is located in London, England and is an independent, privately funded accounting standard-setter. The IASB board consists of members from nine different countries with the IASB’s sole purpose to ‘achieve convergence in accounting standards throughout the world’ (Cellucci, 2011). The IASB and FASB have been collaborating since 2002. This collaboration was derived to create a convergence of the United States Generally Accepted Accounting Principles (GAAP). The convergence project started when the two organizations met during a joint meeting in Norwalk, Connecticut on September 18, 2002. The two board’s goal for the convergence project was for developing a high-quality compatible accounting standards that can be used for both domestic and cross-border financial reporting. They also promised to use their best efforts to make their existing financial reporting standards compatible as soon as practicable and to coordinate their...
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...Welcome to WritePoint, the automated review system that recognizes errors most commonly made by university students in academic essays. The system embeds comments into your paper and suggests possible changes in grammar and style. Please evaluate each comment carefully to ensure that the suggested change is appropriate for your paper, but remember that your instructor's preferences for style and format prevail. You will also need to review your own citations and references since WritePoint capability in this area is limited. NOTE: WritePoint comments are computer-generated writing and grammar suggestions inviting the consideration and analysis of the writer; they are not infallible statements of right/wrong, and they should not be used as grading elements. Also, at present, WritePoint cannot detect quotations or block-quotes, so comments in those areas should be ignored. Please see the other helpful writing resources in the Tutorials and Guides section of the Center for Writing Excellence. Thank you for using WritePoint. The IASB and FASB have collaborated for the past 10 years. This collaboration was a goal toward convergence of U.S. generally accepted accounting principles (GAAP). The convergence project began with the two organizations conducting a joint meeting in Norwalk, Connecticut, on September 18, 2002. The goal for creating the convergence project was for the “development of high-quality compatible accounting...
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...“Discuss and explore issues surrounding the recognition of elements in financial statements” Contents Title: 3 Introduction & Objectives 3 Definitions 5 Recognition 5 Measurement 6 Discussion 6 Revenue Recognition (IAS 18) 6 Property, Plant and Equipment (IAS 16) 8 Xerox Revenue Recognition Scandal 9 Recognition in the Annual Statements 10 Conclusion 13 Bibliography 14 Appendices 17 Appendix 1 – Standards from IASB 17 Appendix 2 – Proposed plan for FASB and IASB 18 Appendix 3 – TUI Travel Plc Annual Statement 21 Appendix 4 – Thomas Cook Annual Statement 27 Appendix 5 – PSA Peugeot Citroen Annual Statement 31 Appendix 6 – Daimler AG Annual Statement 37 Appendix 7 – Xerox Annual Statement 42 Title: Discuss and explore issues surrounding the recognition of elements in financial statements Introduction & Objectives Accounting has many elements to producing an annual statement each fiscal year; these different elements have regulations in which organisations have to abide by. Regulations have three categories; legislation, accounting standards and stock exchange regulations (Melville, 2008). Legislation can differ from country to country, which is the same for accounting standard board as each country has individually developed their own standards (Accounting Standards Board for the UK, also, International Accounting Standards Board that is trying to consolidate standards, which can be accepted globally). Attempts by...
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...concepts included; the differences between accrual basis and cash basis accounting, adjusting entries, and the adjusted trial balance. Accrual Accounting In accrual accounting, companies post income when it is earned and expenses are posted when they occur. Accrual accounting is based on the revenue recognition principle and the expense recognition principle. The revenue recognition principle means that revenue is claimed when the service is completed, even if the customer has not paid yet. "Let the expenses follow the revenue" (Kimmel, Weygandt, & Kieso, 2010, p. 163). Expenses necessary to earn revenue must be posted in the same accounting period when the revenue is posted; this is expense recognition. Cash Basis Accounting In cash basis accounting, revenue and expenses are claimed when the company receives cash. This particular basis of accounting can be inconsistent and when it comes to formal entity financial reporting. Cash basis accounting violates the generally accepted accounting principles (GAAP) because it does not meet the revenue recognition and expense recognition principles. Adjusting Entries Adjusting entries are important because they follow the revenue recognition principle as well as the matching principle required by GAAP. Adjusting entries are created and entered into a company’s journal and the general ledger. Inputting these entries increases the accuracy of a company’s true financial standing at the end of a reporting period (Kimmel, Weygandt,...
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...Explaining Basic Accounting Concepts and Business Structures Matthew Philip Moshi ACC/537 September 17, 2012 Joseph P McDonald Basic Accounting Concepts and Business Structures The catastrophic collapse of the stock market in 1929, subsequently resulting in the great depression will forever coincide with the private sector’s formulation and subsequent issue of formal accounting standards (Keiso, Warfield, & Weygandt, p. 6, 2007). Appeals for heightened governmental regulation over financial institutions as well as the stock market, culminated in the formation of the Securities and Exchanges Commission (SEC). With its primary objective to standardize formally the presentation and preparation of accounting information in financial statements to meet the needs of stockholders, the SEC sought the establishment of an official private sector body to set as well as issue accounting standards (Keiso, Warfield, & Weygandt, p. 6, 2007). The ensuing creation and issue of private sector accounting standards corresponds with the establishment of two major accountancy bodies. The first body relates to Financial Accounting Standards Board (FASB). The second body relates to the American Institute of Certified Public Accountants (AICPA). In this respect, the SEC plays an oversight role pertaining to the development and improvement of accounting standards in the private sector. The following statement demonstrates this point: “……………..“it continues to believe that the initiative...
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...Case 1: Conservative Recognition or Cookie Jar Reserves SUMMARY OF THE FACTS Parties Involved: Aunt Amelia – Founder of O’Brian Software, Nick’s aunt and inexperienced in accounting. Nick O’Brian – Junior Internal Auditor, recently college graduate, nephew of the Lee Marchetti – Chief Financial Officer of O’Brian Software. After recently graduating college two months prior, Nick O’Brian is hired as a Junior Internal Auditor for his Aunt Amelia’s company, O’Brian Software. O’Brian Software has been in operations for five years and is a multi-million dollar publicly traded company that provides both software and consulting services to its clients. Although this is Nick’s first position at the company, he’s been involved since the very beginning of this family venture, since family members owned the majority of the stock. Realizing “her specialty is software, not accounting “, Aunt Amelia hires Lee Machete to be Chief Financial Officer (CFO) of O’Brian Software after the firm’s initial public offering (IPO) three years ago. Nick notices a significant amount of unearned revenue the balance sheet and wonders if O’Brian Software is being overly conservative in estimating the amount of deferred income. After having a difficult understanding the firm’s methodology for revenue recognition, Nick decides to talk to Marchetti. In the meeting with Marchetti, Nick states what worries him. “Overly conservative reporting could leave the impression we’re trying to create...
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...paragraph 35 and 36. However, some requirements are ambiguous and further clarifications are required. When reviewing the exposure draft, we have several major concerns with satisfaction of performance obligations. There should be persuasive evidence to show the existence of an agreement. Delivery of goods should have been occurred and services should have been rendered for revenue recognition. Sufficient evidence should support for the proposal to result in revenue being recognized over time. Also, there is chance that revenue could be recognized without the entity being reasonably assured to have a right to consideration. As is explained below, we have some disagreements. For 35(a), customer controls asset as it is created or enhanced. We partially agree with the concept of recognizing revenue over time when the entity creates or enhances an assets that the customer controls is consistent with the principle of recognizing revenue with transfer of goods and services. It follows the core principle in paragraph 31. However, this assumption may be problematic, controls may not be transferred over time but at a point in time. Hence, the proposal could hardly be applied to the situation where a customer has obtained control of goods in advance of the entity satisfying the performance obligation...
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...Cooking the Books ACC 201 Abstract The key to the article “Cooking the Books” is to cover the business ethics of an accounting manager ordering one of his accountants to falsifying a company’s accounting ledger. The Generally Accepted Accounting Principle of expense recognition was not followed. The accounting manager was attempting to commit fraud for personal gain, he does this by manipulating the books to show higher revenue in order to meet the volume for management bonus. The accounting manager also created a hostile working environment by threating his accountant’s job security if he didn’t comply with his orders. The Sarbanes-Oxley Act will also be explored to see if there was a violation due to the unethical behavior of the company’s management and the inaccuracy of the company’s financial information. Keywords: Integrity, Ethics, Sarbanes-Oxley, Fraud Cooking the Books The problem is that the accounting manager has ordered his employee to falsify the books so that the company can show higher revenue in their current year in order to meet volume for a management bonus. These actions are unethical, fraudulent and may violate the Sarbanes-Oxley Act. Basis of violation Business ethics comes in to play for the mere reason that as soon as the company starts to manipulate the books in order to get a bonus, the company’s trust is lost. If they will do this then what else will they do in order to make themselves look better? The accounting manager openly admitted that...
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...of New Revenue Recognition Standard CFO, According to the new standard the agreement on March 1, 2014 should be combined with the original agreement. The services and training in the March agreement are of similar nature and there is a common objective between the two agreements. The addition of these obligations isn’t going to change the main objective of the original contract. The second agreement between Coconut and Buffet created the new obligation to provide training as well as additional PCS after the initial contract runs out. Though it created a new performance obligation it didn’t change the scope of the agreement. Therefore we can treat the new agreement as a modification. Since we are considering it one contract we will have to go back and account for the consideration received for the new obligations. If the agreement on March 1, 2014 would have changed the scope of the contract because of other distinct services Coconut could have considered it two contracts. The transaction amount must also reflect those services standalone price. If the new agreement was for another software product you could account for it as a separate contract because it changes the scope of the original agreement. Since we are accounting for these agreements as one contract we will have to combine both the consideration from the original and the additional $4500 from the modification. We know the standalone prices for all the obligations so we can allocate revenue based on...
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