...Revenue Recognition within the IASB and FASB Revenue Recognition within the IASB and FASB Revenue is a critical number to any user of financial statements in determining an organization’s financial position and performance. Although this is the case, there are many differences between revenue recognition for U.S. GAAP (Generally Accepted Accounting Standards under the FASB) and IFRS (International Financial Reporting Standards under IASB). Along with these differences comes need for improvement in both reporting methods. IFRS has fewer requirements for revenue recognition in comparison to U.S. GAAP, and is made up of two central revenue recognition standards: IAS 18 (revenue) and IAS 11 (construction contracts). These standards are said to be fairly difficult to apply and understand, and give little guidance on important topics for users. On the other hand, U.S. GAAP is made up of a very wide range of revenue recognition concepts and has countless requirements for specific transactions and specific industries. This makes is very difficult for users to apply these reporting standards and makes it even harder for users of these financial statements to determine the entity’s performance, as accounting for different transactions and industries can result in different numbers for economically similar situations. IFRS may not be perfect, but overall I believe it provides a simpler and more user-friendly set of accounting standards for revenue-recognition than U.S. GAAP. IASB’s...
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...1. Is Eye Vision’s arrangement with Holland Hospital within the scope of ASC 985-605, Software: Revenue Recognition? In this case, the main content of the Eye Vision’s arrangement with Holland Hospital include embedded software medical equipment and an initial option to purchase a two-year separately priced maintenance agreement. In this case, because “Eye Vision has never sold, nor does it offer to sell, the Clear View Laser without the embedded software because the software is necessary to perform the medical procedures for which the laser is intended”, and “Eye Vision has never sold, nor does it offer to sell, the Clear View Laser without the embedded software because the software is necessary to perform the medical procedures for which the laser is intended”. So the software components and non software components of tangible product could be consider function together to deliver the tangible product’s essential functionality, so according the FASB codification 985-605-15-4 and 985-605-15-4A, the equipment and the software are excluded from the Software: Revenue Recognition., Accordingly, the initial option to purchase a two-year separately priced maintenance agreement on the Clear View would be non-software deliverables excluded from the scope of Software: Revenue Recognition. References from FASB codification ASC 985-605-15-4 The guidance in this Subtopic does not apply to the following transactions and activities: e. Software components of tangible products...
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...theme Revenue Recognition R evenue is usually the largest single item in financial statements, and the issues involving revenue recognition are among the most important and difficult ones that standardsetters and accountants face. In recent years, concerns related to the recognition of revenue in accordance with Accounting Standards have heightened significantly. Quite often, companies end up tweaking the Revenue numbers, besides some other reasons. Recording revenue improperly is also a commonly used ‘earnings management technique’. The ever evolving business models and the growing online economy have only compounded the issue. Earnings Management/Issues with revenue recognition have been the subject of headlines in the United States and in the other parts of the world in the last few years. -Shrikant Sortur The author is a member of the Institute as well as AICPA, working with Lason Systems Inc, MI, USA. He can be reached at shrikant_ sortur@yahoo.com Revenue Recognition Under US GAAP It is estimated that Revenue Recognition related aspects appear in close to two hundred different pieces of accounting literature; of course these pieces of literature include many nuances, some of which are unique to particular transactions. Since no comprehensive standard on revenue recognition exists, there is a significant gap between the broad conceptual guidance in the Financial International Accounting Standards (IAS) are drafted on a ‘Principles-based’ approach....
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...is responsible for informally presenting the solution to one case on that date. The case assigned to each group corresponds to your group number. Your presentation should take the form of “teaching” the rest of the class the material related to the case. Keep in mind that for exam purposes all groups are responsible for the content and solutions to all cases so your group’s effectiveness at teaching the material is invaluable to your classmates. How you can best accomplish your task is up to you but you should, at a minimum, include the following in your presentation: • An overall summary of the case facts; • An explanation of the key accounting issue(s); • An identification and discussion of the relevant sections of the FASB Accounting Standards Codification; • A demonstration as to how the relevant authoritative accounting literature was interpreted and used to address the facts in your case; • A discussion of the accounting conclusions reached; and • Any required journal entries In addition to the in-class informal presentations, your group is also responsible for preparing a memo which includes a summary of: • The case facts so that the reader knows the background and the substance of the accounting issues in your case; • The relevant and applicable authoritative accounting literature; • The conclusion(s) reached when applying that literature to the fact scenario in your case; • Any required journal entries This memo...
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...limited; however, members receive legal services at a 25% discount from the law firm’s usual hourly rates. Legal services for domestic cases, bankruptcy, and drug and alcohol related matters are limited under the memberships. 2. Legal Plan Services is mandated to follow statement No. 168, the FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles concepts. The statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The objective is to prepare all of their products following the same revenue and expense recognition rules (deferral of revenue and accrual recognition of expenses). An explanation of specific recognition rules follows. * ASC 605-10-05-1 “The Revenue Recognition Topic provides guidance for transaction-specific revenue recognition and certain matters related to revenue-generating activities that are not addressed specifically in other topics.” * ASC 605-28-25 “The Recognition Section provides guidance on the required criteria, timing, and location (within the financial statements) for recording a particular item in the financial statements. Disclosure is not recognition” 3. Legal Plan Services recognize various types of...
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...10.2308/iace-50029 A Series of Revenue Recognition Research Cases Using the Codification R. Mark Alford, Teresa M. DiMattia, Nancy T. Hill, and Kevin T. Stevens ABSTRACT: This series of four short cases is designed to help students develop the skills to research the Financial Accounting Standards Board’s (FASB) Accounting Standards Codification and other authoritative literature. It also is designed to help improve students’ ability to analyze and critique the complex issues that often surround the accounting for revenue recognition. The case scenarios describe transactions in which students must decide whether, when, and how much revenue to recognize. The issues analyzed involve bill-and-hold, multiple-element arrangements, gross versus net revenue reporting, and sales incentives. The cases are also designed to improve teamwork and communication skills. The sequence of cases is intended for use in an intermediate accounting class that covers revenue recognition, or in a capstone class that emphasizes critical thinking and research skills. Keywords: revenue; recognition; codification; research. INTRODUCTION evenue recognition is one of the top causes for financial statement restatements (Whitehouse 2010). In addition, revenue recognition is an area commonly questioned by the Securities and Exchange Commission (SEC) staff in their review of public filings and resultant comment letter process (Deloitte 2009). Furthermore, revenue recognition is often prey to financial fraud (PricewaterhouseCoopers...
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...1. Is Eye Vision’s arrangement with Holland Hospital within the scope of ASC 985-605, Software: Revenue Recognition? In this case, the main content of the Eye Vision’s arrangement with Holland Hospital include embedded software medical equipment and an initial option to purchase a two-year separately priced maintenance agreement. In this case, because “Eye Vision has never sold, nor does it offer to sell, the Clear View Laser without the embedded software because the software is necessary to perform the medical procedures for which the laser is intended”, and “Eye Vision has never sold, nor does it offer to sell, the Clear View Laser without the embedded software because the software is necessary to perform the medical procedures for which the laser is intended”. So the software components and non software components of tangible product could be consider function together to deliver the tangible product’s essential functionality, so according the FASB codification 985-605-15-4 and 985-605-15-4A, the equipment and the software are excluded from the Software: Revenue Recognition., Accordingly, the initial option to purchase a two-year separately priced maintenance agreement on the Clear View would be non-software deliverables excluded from the scope of Software: Revenue Recognition. References from FASB codification ASC 985-605-15-4 The guidance in this Subtopic does not apply to the following transactions and activities: e. Software components of tangible products...
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...Careway to pay SolvGen for each proprietary instrument system when it is purchased by Careway. A deliverable must have objective value on a stand-alone basis. The five-year research and development agreement doesn't have a deliverable because it's integrated with the five-year license and distribution agreement and doesn't have a stand-alone value. According to FASB ASC 605-25, it's not a deliverable. 2. According to FASB Statement of Financial Accounting Concepts(CON) 5,Recognition and Meaurement in Financial Statements of Business Enterprises, revenue is considered “earned” if an entity has substantially accomplished what it must do to be entitled to the contractual benefits. Revenue is “realizable” when related assets received are readily convertible to cash or claims to cash. In this case, SolvGen should recognize the nonrefundable milestone payments as revenue when Careway launches the proprietary instrument systems, because the launch date of the systems is the time that Careway begins to benefit from the systems. Before that date, the nonrefundable milestone payments should be recognized as unearned revenue. The advance payments such as Exclusive negotiation payment(1 million) and contract signing payment(2 millions) should be...
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...facing accountants concerns the recognition of revenue by a business organization. Although general rules and guidelines exist, the significant variety of marketing methods for products and services make it difficult to apply the rules consistently in all situations. Chapter 7 is devoted to a discussion and illustration of revenue transactions that result from the sale of products and the rendering of services. Throughout the discussion, attention is focused on the theory behind the accounting methods used to recognize revenue. Revenue transactions that result from leasing and the sale of assets other than inventory are discussed in other sections of the text. *Note: All asterisked (*) items relate to material contained in the Appendix to the chapter. Revenue Recognition 2. (L.O. 1) The revenue recognition principle provides that revenue is recognized when (1) it is realized or realizable, and (2) it is earned. Revenues are realized when goods and services are exchanged for cash or claims to cash (receivables). Revenues are realizable when assets received in exchange are readily convertible to known amounts of cash or claims to cash. Revenues are earned when the entity has substantially accomplished what it must do to be entitled to the benefits represented by the revenues, that is, when the earnings process is complete or virtually complete. 3. The conceptual nature of revenue as well as the basis of accounting for revenue transactions are described in the...
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...as well, as they illustrate a different perspective. The non-GAAP is intended for investors as well, providing a different image of the company, or it may be used internally to enhance operations within the company. Non-GAAP financial measures are used as a strategic asset to communicate clearly and effectively the financial performance of a company from the screening of management. They do not include operating or other statistics that are not financial in nature or based on GAAP requirements. Apple, in this case, uses non-GAAP measures because they believe that these measures, when taken together with the consolidated GAAP measures, provide incremental comprehension into the core factors affecting the company’s performance and future revenue potential. They believe this method increases the transparency of the current results, thus reflecting a better economic reality, and allowing investors to fully understand the trends in its current and future performance. While subscription accounting is required by GAAP, Apple recognizes...
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...CHAPTER 18 REVENUE RECOGNITION MULTIPLE CHOICE—Conceptual AnswerNo.Description c1.Revenue recognition principle. b2.Definition of "realized." a3.Definition of "earned." d4.Recognizing revenue at point of sale. d5.Recording sales when right of return exists. c6.Revenue recognition when right of return exists. d7.Revenue recognition when right of return exists. b8.Appropriate accounting method for long-term contracts. c9.Percentage-of-completion method. b10.Percentage-of-completion method. c11.Classification of progress billings and construction in process. b12.Calculation of gross profit using percentage-of-completion. a13.Disclosure of earned but unbilled revenues. c14.Revenue, cost, and gross profit under completed contract. b15.Disadvantage of using percentage-of-completion. a16.Loss recognition on a long-term contract. c17.Accounting for long-term contract losses. d18.Criteria for revenue recognition of completion of production. a19.Completion-of-production basis. c20.Presentation of deferred gross profit. c21.Appropriate use of the installment-sales method. b22.Valuing repossessed assets. b23.Gross profit deferred under the installment-sales method. b24.Income recognition under the cost-recovery method. b25.Income recognition under the cost-recovery method. d26.Cost recovery basis of revenue recognition. d*27.Allocation of initial franchise fee. a*28Recognition...
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...Final Exam Review- Hitzig parts 1-3 1. Revenue Recognition: General: 25-1 The recognition of revenue and gains of an entity during a period involves consideration of the following two factors, with sometimes one and sometimes the other being the more important consideration: ← a. Being realized or realizable. Revenue and gains generally are not recognized until realized or realizable. Paragraph 83(a) of FASB Concepts Statement No. 5, Recognition and Measurement in Financial Statements of Business Enterprises , states that revenue and gains are realized when products (goods or services), merchandise, or other assets are exchanged for cash or claims to cash. That paragraph states that revenue and gains are realizable when related assets received or held are readily convertible 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...
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...605-10-25-1: Revenue and Gains 25-1 The recognition of revenue and gains of an entity during a period involves consideration of the following two factors, with sometimes one and sometimes the other being the more important consideration: • a. Being realized or realizable. Revenue and gains generally are not recognized until realized or realizable. Paragraph 83(a) of FASB Concepts Statement No. 5, Recognition and Measurement in Financial Statements of Business Enterprises, states that revenue and gains are realized when products (goods or services), merchandise, or other assets are exchanged for cash or claims to cash. That paragraph states that revenue and gains are realizable when related assets received or held are readily convertible 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...
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...© 2000 American Accounting Association Accounting Horizons Vol. 14 No. 2 June 2000 pp. 235-250 Earnings Management: Reconciling the Views of Accounting Academics, Practitioners, and Regulators Patricia M. Dechow and Douglas J. Skinner Patricia M. Dechow is an Associate Professor and Douglas J. Skinner is a Professor, both at the University of Michigan. SYNOPSIS: We address the fact that accounting academics often have very different perceptions of earnings management than do practitioners and reguiators. Practitioners and reguiators often see earnings management as pervasive and probiematic—and in need of immediate remediai action. Academics are more sanguine, unwiiiing to beiieve that earnings management is activeiy practiced by most firms or that the earnings management that does exist should necessarily concern investors. We explore the reasons for these different perceptions, and argue that each of these groups may benefit from some rethinking of their views about earnings management. INTRODUCTION Despite significant attention on earnings management from regulators' and the financial press,^ academic research has shown limited evidence of earnings management. While practitioners and regulators seem to believe that earnings management is For example, SEC Chairman Levitt delivered a major speech on earnings management in the fall of 1998 in which he advocated a niunber of initiatives to improve the quahty of financial reporting (Levitt 1998). As part...
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...INTRODUCTION Revenue recognition is one of the top causes for financial statement restatements. In addition, revenue recognition is an area commonly questioned by the Securities and Exchange Commission (SEC) staff in their review of public filings and resultant comment letter process. Furthermore, revenue recognition is often prey to financial fraud. Coverage of revenue recognition in intermediate accounting courses is typically limited to learning and applying the criteria for revenue recognition outlined in the Financial Accounting Standards Board’s (FASB) Statement of Financial Accounting Concepts No. 5, Recognition and Measurement in Financial Statements of Business Enterprises, to routine transactions and topics, such as long-term construction contracts and installment sales (FASB 1984). While these topics are important, there are literally hundreds of revenue-generating transactions that are not covered in the traditional financial accounting sequence. These are their stories (for any Law and Order fans): Case One: Facts Consumer Cleaning Products Corporation (CCPC) is a public company with a calendar yearend. CCPC manufactures detergent that is ultimately purchased (and used) by consumers. The supply chain consists of the following: * CCPC sells its detergent to a wholesaler; * The wholesaler sells the detergent to a retailer; and * The retailer sells the detergent to a consumer. CCPC launches a new detergent, Fresh & Bright, on September...
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