...Recognizing Contract Risk and Opportunities LAW/531 Introduction Contracts are a binding, critical part of any business deal between two or more parties. Because of the binding promise between these parties it is important that the contract is clearly worded, negotiated if-need-be, and reviewed before they are signed by all applicable parties. Cheeseman (2010) stated “A contract is a promise or a set of promises for the breach of which the law gives a remedy or the performance of which the law in some way recognizes a duty” (Chpt 9, Para 2). The following Memo will identify the legal issues presented in the Contract Creation and Management Simulation as well as identify what a manager may do to avoid theses risks and minimize liabilities. Business Memo -- Confidential TO: Project Leadership Team Span Systems – Kevin Grant, Harold Smith FROM: Mike Myers, Project Manager Span Systems DATE: 03/20/2011 SUBJECT: Contract Risk and Opportunities between Span Systems and Citizen-Schwarz AG CC: Board directors The one-year contract written between Span Systems (Span) and Citizen-Schwarz AG (C-S) to develop banking software has recently met with some serious concern regarding if it can remain intact as it currently stands. Recently Leon Ther: the IT outsourcing director of C-S sent a letter stating that “C-S cannot afford scheduled slips because of its deadlines for the release of transaction software in...
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...LAW/531 Recognizing Contract Risk and Opportunities A contract has been written, negotiated, and agreed upon by Spam Systems and Citizen Schwarz AG for the delivery and implementation of a banking software program. Span Systems (SS) is a highly reputable software company and Citizen Schwarz AG (C-S) is a large German bank. Harold Anteau is the project manager for Span Systems. He is backed by the Director Kevin Grant, and the company attorney Harold Smith. Leon Ther is the chief negotiator for C-S, and he is assigned to oversee the project for C-S. Eight months into the contract problems arise between the two companies pertaining to the terms of the contract. Leon Ther threatens to rescind the contract because of poor quality and not meeting agreed upon timelines. Harold Anteau and Harold Smith review the contract to determine SS’s standing. Three legal issues arise under the contract clause of breach of contract. They are substantial performance of contract, requirements change, and communications and reporting. Breach of contract is a common defense raised to elicit negotiations (Cheeseman, 2010). It is only effective against an ordinary holder of the contract (Cheeseman, 2010). Under the Uniform Commercial Code (UCC) [UCC 2-301], tender of delivery is the most basic obligation. It requires the seller to transfer or deliver goods to the buyer in accordance to the terms of the contract (Cheeseman, 2010). Leon Ther is right when he states the product...
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...Recognizing Contract Risks and Opportunities Jennifer Breeden Law/531 Business Law March 6, 2011 Monica Cosentino-Benedict Recognizing Contract Risks and Opportunities MEMO To: Span Systems Management From: Jennifer Breeden Date: March 6, 2011 ------------------------------------------------- Subject: Recognizing Contract Risks and Opportunities The purpose of this memo will be to analyze the recent contract between Span Systems (Span) and Citizen – Schwarz AG Bank (C-S). This contract’s purpose was to have Span build a transaction processing-based software system for C-S and in return C-S would pay $6 million dollars (University of Phoenix, 2002). These two companies come up against many disagreements about the language and meanings of the contract. In the end, Span worked very hard to renegotiate the clauses of the contract to continue a positive working relationship with C-S. This memo reviews the legal risks, liabilities, and opportunities that occurred during this process to make future business with C-S and other companies to come more enjoyable for both sides. Risks and Liabilities A breach of contract is the first accusation C-S made of Span, which starts the list of risks and liabilities. C-S said that the deliverables were below the standards agreed upon and were not delivered on time. C-S claimed that Span was producing deliverables of substantial performance, meaning that they were below standards set up in the contract. Span could have...
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...Recognizing Contract Risk and Opportunities Memo Cliff Brown Business Law 531 April 6, 2011, 2011 Chris Phan Memo To: Span Systems Management From: Manager Date: April 06, 2010 Subject: Recognizing Contract Risk and Opportunities Management Team: There is grave concern with respect to the contract between Span Systems and Citizen-Schwarz and its ability to remain unharmed. The organization has made the decision to guarantee that this project gets done promptly and with first-rate quality of the outcome to enable Span’s opportunity of getting C-S’s e-CRM order. The accomplishment of acquiring the next contract with C-S is relies heavily on the current project’s status. The company is committed to getting this project finished affably between each party. The performance within the contract is one of the issues within the project. C-S’s position is we are late on schedule and our product deliverable is not the best of in quality as forecasted by C-S. The language of the contract maintains that C-S may not repeal the contract if greater than 50% of the project schedule has passed; however, C-S is demonstrating that the performance within this period has indicated the quality of product deliverables is inadequate and consequently it is within their rights to assert that we have not significantly executed. The project management team at Span will argue against this claim due to the amplified change of end user obligations. To rectify this, we have...
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...Recognizing Contract Risk and Opportunities Memo Law 531 Charles Cook January 31, 2011 Recognizing Contract Risk and Opportunities Memo DATE: January 31, 2011 TO: Kevin Grant Harold Smith Leon Ther FROM: Michelle Boldt RE: Banking Software Contract Issues Due to recent negotiations with the binding contract between Span Systems and Citizen-Schwarz AG (C-S), necessary changes have come to light. After thorough discussions between myself , Span Systems legal team, and CS's negotiator, Leon Ther, three major amendments within the contract have been agreed upon. Contract clause breaches Performance While performance has been under par in relationship to C-S's requirements, debate over the additional changes within the product specifications have clouded efforts. Communications and Reporting The change in project management disrupted the flow of work in respect to communication and project expectations. While it was a deficiency on Span's ability to work continuously through the changes, with the weakness identified and addressed, this issue can be corrected and avoided in the future. Requirements Changes In the recent past, C-S presented numerous changes in specifications, time requirements placed additional hardships on the production and design team. Thus, disrupting the agreed upon time frame. Legal principles The majority of clause issues within the contract revolve around a lack of communication. While Span addresses...
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... LAW-531-Week-2-Assignment-Business-Regulation-Simulation-VERSION-2 LAW-531-Week-2-Assignment-Recognizing-and-Minimizing-Tort-and-Regulatory-Risk LAW-531-Week-2-DQs LAW-531-Week-3-Assignment-Recognizing-Contract-Risk-and-Opportunities LAW-531-Week-3-DQs LAW-531-Week-4-Assignment-Legal-Risk-and-Opportunity-in-Employment LAW-531-Week-4-DQs LAW-531-Week-5-DQs LAW-531-Week-5-Risk-Arising-in-Tangible-Property-and-Intellectual-Property LAW-531-Week-6-Assignment-Corporate-Compliance-Plan LAW-531-Week-6-DQs Activity mode aims to provide quality study notes and tutorials to the students of LAW 531 ENTIRE COURSE in order to ace their studies. LAW 531 ENTIRE COURSE To purchase this visit here: http://www.activitymode.com/product/law-531-entire-course/ Contact us at: SUPPORT@ACTIVITYMODE.COM LAW 531 ENTIRE COURSE LAW-531 Final Exam Three Sets LAW-531-Week-1-Assignment-ADR-Clause-for-Learning-Team-Charter LAW-531-Week-1-DQs LAW-531-Week-2-Assignment-Business-Regulation-Simulation-VERSION-1 LAW-531-Week-2-Assignment-Business-Regulation-Simulation-VERSION-2 LAW-531-Week-2-Assignment-Recognizing-and-Minimizing-Tort-and-Regulatory-Risk LAW-531-Week-2-DQs LAW-531-Week-3-Assignment-Recognizing-Contract-Risk-and-Opportunities LAW-531-Week-3-DQs LAW-531-Week-4-Assignment-Legal-Risk-and-Opportunity-in-Employment LAW-531-Week-4-DQs LAW-531-Week-5-DQs LAW-531-Week-5-Risk-Arising-in-Tangible-Property-and-Intellectual-Property LAW-531-Week-6-Assignment-Corporate-Compliance-Plan ...
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...customers for the amount the company expects to be entitled to receive in exchange for those goods or services. 1. Key concept: the seller has one or more performance obligations. a. Performance obligations are promises to transfer goods or services to the customer. b. Revenue recognition is tied to satisfaction of performance obligations. C. Five steps are used to apply the principle: 1. Identify the contract with a customer. 2. Identify the performance obligation(s) in the contract. 3. Determine the transaction price. 4. Allocate the transaction price to each performance obligation. 5. Recognize revenue when (or as) each performance obligation is satisfied. D. Key considerations for each of the five steps that we will learn about: 1. A contract establishes the legal rights and obligations of the seller and the customer. 2. Contracts can indicate that the seller has one or more performance obligations. 3. The transaction price is the amount the seller is entitled to receive from the customer. 4. If there are multiple performance obligations, the contract price must be allocated among them. 5. Recognize...
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...to known amounts of cash or claims to cash. ← b. Being earned. Paragraph 83(b) of FASB Concepts Statement No. 5, Recognition and Measurement in Financial Statements of Business Enterprises , states that revenue is not recognized until earned. That paragraph states that an entity's revenue-earning activities involve delivering or producing goods, rendering services, or other activities that constitute its ongoing major or central operations, and revenues are considered to have been earned when the entity has substantially accomplished what it must do to be entitled to the benefits represented by the revenues. That paragraph states that gains commonly result from transactions and other events that involve no earning process, and for recognizing gains, being earned is generally less significant than being realized or realizable. *The staff believes that revenue generally is realized or realizable and earned when all of the following criteria are met: • Persuasive evidence of an arrangement exists • Delivery has occurred or services have been rendered • The seller's...
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...it comes to assessing the financial performance of an organization, it was vital for the boards to collaborate on creating a universal standard for recognizing revenue making comparability between companies that much easier. On May 28, 2014, a final version of these new standards were officially issued as a joint standard, for both FASB and IASB, on the recognition of revenue from contracts with customers, which is referred to as “ASC 2014-09” (Bramwell, 2014). Before ASC 2014-09, revenue recognition requirements for U.S. generally accepted accounting principles (GAAP) differed from the conditions set in the International Financial Reporting Standards (IFRS) in many ways. GAAP consisted of revenue recognition concepts that were too broad and rules that were sometimes industry-specific, which often resulted in organizations using different methods of accounting for transactions that were economically similar. While the requirements of GAAP were perceived as inconsistent, IFRS revenue recognition standards, more specifically IAS 18, Revenue, and IAS 11, Construction Contracts, lacked the appropriate and necessary detail (Bramwell, 2014). This imperfection made it nearly impossible to apply IFRS revenue recognition standards to complex matters. FASB and IASB began collaborating in an effort to make the principles of recognizing revenue more concise and to develop a common revenue...
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...services are transferred to customers for the amount the company expects to be entitled to receive in exchange for those goods or services. (T5-2) 1. Key concept: the seller has one or more performance obligations. a. Performance obligations are promises to transfer goods or services to the customer. b. Revenue recognition is tied to satisfaction of performance obligations. C. Five steps are used to apply the principle: (T5-2) 1. Identify the contract with a customer. 2. Identify the performance obligation(s) in the contract. 3. Determine the transaction price. 4. Allocate the transaction price to each performance obligation. 5. Recognize revenue when (or as) each performance obligation is satisfied. D. Key considerations for each of the five steps that we will learn about: (T5-3) 1. A contract establishes the legal rights and obligations of the seller and the customer. 2. Contracts can indicate that the seller has one or more performance obligations. 3. The transaction price is the amount the seller is entitled...
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...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. In some cases, they fall into the performance obligation satisfied at a point in time rather than over time. Customers could recognize an asset in various bases, so it may or may not reflect a ...
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...Nick Wright Business Law 1 Professor Hunt August 31st 2015 I.R.A.C. of Aon Risk Services Inc v. Meadors Summary: Meadors sued Aon Risk Services Inc. for breach of a unilateral contract. Aon Risk Services (ARS Arkansas) and Combined Insurance Companies are subsidiaries of Aon Risk Services. A parent company issued a memo (Interdependency Memo) which encouraged ARS brokerage offices to put insurance companies with Aon-affiliated companies. It also gave bonuses for revenue generated under this new plan. Meadors put Dillard’s Department store in touch with Combined Insurance Company and in March of 2000 they came to an agreement where Dillard’s employees could purchase life insurance, disability and other insurances through their employer. Through the memo Meador was entitled to a bonus when this transaction came to an agreement and he did not receive it. Meadors sued and Aon Risk Services defence was that the memo was not sufficiently definite to constitute an offer. Issue: Was the memo enough to constitute an offer and if so was the offer excepted, and was it completed. Rule of Law: Recognizing that a unilateral contract is composed of an offer that invites acceptance in the form of actual performance. When the performance has occurred then the offer has been accepted, and thats when the contract has been formed. Arkansas recognizes Unilateral contracts Analysis: The memo gave specific mathematical equations to figure out the bonus pool, so the court gave the...
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...warranty and extended services WHY NOW: Proposed FASB rule change DETAILS: The Financial Accounting Standards Board (FASB) is proposing that Circuit City use the Deferral of Revenue method of accounting for their extended warranty contracts. Circuit City argues that this would result in a mismatch in Revenue. This issue is important to Circuit City Stores because the accounting practices that they employ to recognize revenue will significantly alter their reported income. The contracts have much greater relative profit margins in comparison to the actual retail items. If you compare Circuit City’s Net Sales and Operating Revenues in 1990 - 2,096,588 – and Net Earnings – 78,100 – which includes Warranty Sales, Circuit City would have to report a Net Loss if they couldn’t count the revenue made from Warranty Sales - 112,933,000. Recognizing the $100 profit on the sale of the stereo would increase their income statement, rather than deferring and recognizing it as revenue over the two-year contract period. This will have an overall negative impact on shareholder’s equity. DISCUSSION: Approach 1 – Full revenue recognition PRO | CON | * High revenue | * Least conservative * Highest risks * Doesn’t reflect the matching principle * Overstates the revenue | Approach 2 – Deferral of revenue PRO | CON | * Consistency | * | Approach 3 – Partial revenue recognition * Circuit City is currently using this...
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...What two approaches have accoutnatns devised for recongizing revenue? * Critical approach – one critical event that is fair is when revenue is recognized * Gradual approach – for long term contracts, recognizes revenue gradually over time What are the five criteria for recognizing revenue under the IFRS? 1) Significant risk and rewards of ownership have been transferred from the seller to the buyer a. Performance criteria b. Seller has done what it has to do to be entitled to payment 2) Seller has no involvement or control over the goods sold c. Same as above 3) Collection of payment is assured d. Collectability – seller must have reasonable expectation of being paid e. If no reasonable expectation – can not recognize revenue f. Uncollectable amount has to be able to be estimated 4) Amount of revenue can be reasonable measurable 5) Costs of earning revenue can be reasonably measured g. Measurability criteria h. Must be able to measure how much was earned and the costs to earn it i. If seller isn’t able to estimate costs that occur even after the critical event ex warrenty, cnat recognize it What is the sixth criterion for revenue recognition and why is it so important? Sixth criterion: * The critical event selected should provide a reasonable and fair representation of the entities activities, given the needs of the stake holders * Manger should assess...
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...Revenue Recognition Revenue from contract with customer EXECUTIVE SUMMARY Revenue Recognition is regarded as one of the most important topic in accounting. However, it is most difficult issues that standard setters and accountants must deal with regularly because the accounting standards and rules are changing all the time for improving the quality of accounting, which also explains why there are so many changes over these two decades on Australian Accounting policy. This report will focus on some accounting policies regarding to recognition of revenue from the contracts with customers, its history before the adoption of international financial reporting standards (IFRS). Also, current standards and the convergence between IFRS and US GAAP in future will be discussed. There are some drawbacks and ambiguity on the earlier accounting standard to recognize revenue, therefore it is understood that the international accounting standard board (IASB) and Financial Accounting Standard Board (FASB) are currently working on the policy relating to the recognizing revenue from the contracts with customers. They have decided that the ultimate goal of the convergence is a single set of high-quality, international accounting standards that both domestic and international companies can use. Once the convergence is bringing U.S. GAAP and IFRS closer together in a few years, Australian entities may be influenced by the new proposals. It would be a challenging task for companies because...
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